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The Ultimate "All-In" Trade
We have spent a great amount of time recently discussing both the re-hypothecation debacle and the 'odd' moves in CDS - most specifically basis (the difference between CDS and bonds) shifts and the local-sovereign-referencing protection writing. Peter Tchir, of TF Market Advisors, provides further color on the latter (as the 'Ultimate' trade) and in an unsurprising twist, how the former was much more critical during the Lehman 'moment' and will once again rear its ugly head. Exposing the underbelly of these two dark sides of the market must surely raise concerns at the fragility of the entire system - as we remarked earlier - but the lessons unlearned, on which Peter expounds, from the Lehman period are reflective of regulators so far behind the curve that it is no wonder the market's edge-of-a-cliff-like feeling persists.
What exactly is this -> BNP Paribas Sold $2 Billion Swaps on France, EBA Says
Either: Basis Unwinds or the BSC trade?
[A Basis trade - as we have discussed here - is an arbitrage strategy that looks to profit/earn carry from the difference between CDS and Bond market pricing of credit risk. Typically it is created by buying bonds and simultaneously buying CDS protection (a hedge) to lock in a perceived valuation difference]
Is this the basis unwind we predicted after the October 27th summit where banks were going to be forced to restructure debt without triggering CDS? (it has happened yet, but that's another story). So if banks were selling bonds and selling hedges, then it would show up as reduced bond exposure but increased CDS exposure (they sell bonds, and sell CDS).
Or...
That is one possibility, the other is that they are running the "all-in" strategy at the expense of the taxpayers. During the final days of BSC (before they were bought for $2 on a Sunday night and had their swap lines guaranteed) two distinct markets for CDS had developed, especially on indices and financials. There was a price where BSC would sell CDS and the price where a counterparty that was likely to be around next week would sell protection. On IG8 (I think that was the on the run index at the time), BSC was often offering it 3 to 4 bps tighter than anyone else. You could buy IG at 176 from them, or 180 from a bank. It made the market more confusing than ever. Who would buy protection from them?
Well, if you had sold protection to them, then maybe you buy it from them to cover. It was simpler to have offsetting trades, plus you could book that 4 bps. If you had already bought from them, you were between a rock and a hard place. Their "bid" for protection was low. Selling to them meant a mark to market loss. So you could either buy more index protection from somewhere else or you could buy protection on bear. Many were comfortable doing that as they were in such trouble. It was a real issue, anyone who had sold them protection was happy to cover, especially at below market prices. Those who weren't long credit via them had a problem.
The same happened with clients, but they had an extra tool. They could buy protection from them and try and "assign" another dealer. That dealer didn't want to face bear, but some clients had a lot of influence, some salespeople had a lot of influence, some firms weren't well run, and there seemed to be pressure from the regulators to pretend it was business as usual. So a firm that had managed their exposure well, had a potential problem because a big client came in, demanding that the protection they had purchased from bear, be "assigned" to you. Legally you could say no, but there is always relationship pressure at times like that.
But why would BSC be so willing to sell protection? Well, the markets were very wide because of the fear that they would default. You sell as much protection as possible. If you default what do you possibly care? Your stock is wiped out, your job is gone, and your strategy is totallly explainable to future employees. If you don't default all this massive amounts of protection screams tighter and you have your best year ever. No brainer for the firm, an issue for the market.
So, why are French banks selling protection on France like it is going out of style? Why are Italian banks doubling down on Italy? Because if the bailouts work, it is free money. Huge tightening on top of the spread income until the bailout finally wins. If the sovereign defaults, is the bank really going to be around anyways?
It is the ultimate trade.
If you make money, you get paid. If you lose money you were screwed anyways.
Who would buy from them? Banks with silly risk management departments, or those who had sold to them when they were in hedging mode, and now are unwinding. That would create the bid for bank CDS that we see (as people need to hedge purchases of CDS). Some of these banks may qualify for no collateral from banks they trade with. Then they don't even need to come up with cash even if the market moves against them. Not posting collateral would be a huge deal, and I'm not sure how true it is, but I would bet someone like BNP has very big lines with most other banks, before the mark to market loss gets bad enough that they have to post.
This may be the ultimate moral hazard trade. Heads I win, tails, I don't care because I'm dead. This couldn't happen if CDS was exchange traded (they could sell, but they would take mark to market margin call risk), but our regulators, have decided that putting CDS onto an exchange can wait.
On a slightly separate, yet related note, the "re-hypothecation" story done by Thomson-Reuters has been attracting some attention. Maybe now is a good time to remind people about Lehman. For all of the talk about Lehman and CDS, that actually settled pretty smoothly. There were far more problems with simple repo agreements. No one wanted to pay attention at the time. Whenever I mention it, people look at me as though I have lost it, how could super complex CDS have had less problems than repo trades in a Lehman bankruptcy? Well, it did, and MF Global and this article show why. Yet another example of regulators dropping the ball. Many of these problems occurred with Lehman, but the Fed has been so busy QE'ing and talking about the "Lehman" moment, no one addressed the repo market, and cross border collateral, and custodial responsibilities, that were laid bare with Lehman.
It is far more fun to talk about the daisy chain risk of CDS, yet it was the problems in basic things like repo and custodial accounts and segregation, and adequate capital by entity, that froze liquidity in 2008. If you can't find a copy of the article, zerohedge has it posted. At the very least it is worth checking out as it could be another round forced deleveraging. I have also heard that it is re-hypothecation that has slowed the transition of derivatives to exchanges as some people estimate banks would need to raise a trillion of money to make collateral calls that they either don't have right now (because of one-way collateral agreements) or because they meet them by re-hypothecating client collateral.
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My all in trade is and has been long physical gold, short gld.
All I have to do is stay alive.
For any protection the French & Italian banks are selling there have to be counterparties (methinks). Who are the counterparties and wont they lose big if the bailout happens ? which the banks will make sure it happens anyways ?
Banks with silly risk management departments, or those who had sold to them when they were in hedging mode, and now are unwinding. That would create the bid for bank CDS that we see (as people need to hedge purchases of CDS).
The entire hierarchy is pretend jobs.
This is the consequence of pretend money.
pretend and bend to the trend of false wealth creation, all the while true social dystopian destruction occurs before our very eyes. When a huge global runaway fiat pump becomes the symbol of civilization and cavitation is so general as physical phenomenun, that net positive suction head is in reality unarguably negative, then in desperation dividing by zero to pretend its infinite becomes the new norm. That's what the financial ponzi now proposes as the "NEW ALL IN TRADE". CDS hedge+Rehypothecation the name of runaway pump cavitation. Divide away by zero sleight of hand bankers and cover your eyes slimy politicians; one day the pump will just explode. Cavitation in hydraulics is a dirty word , signal of imminent breakdown.
take delivery of gold futures.
Be nice to 'lease' my house 10 times over to 10 different parties for 10 fat fees
..and when i'm insolvent offer to flog 'insurance' on all my neighbours houses in the street backed by empty pockets should judgement day arrive
...and offer my neighbours to 'safekeep' and segregate their money then gamble it down a Las Vegas casino, lose it all and claim to the Police "I never intended to break any rules.. besides I never knew what was going on!"
New York banking will top the League Table of greatest criminal scum in human history ...nice job being a thieving gangster gambling junky (while it lasts)
Bring plenty of rope to the Western Bwankers Closing Party
"there have to be counterparties" Yes, mainly in the City and of course in Wall Street.
The best rumors I heard in the last days were on the template of "X, Y and Z have exposed themselves so much that now this has to happen", "this" including EURUSD at 1.3 in December and of course the famous bet: "will the EZ break down?".
Liquidity makes capital chase the margin, more liquidity makes capital chase even more the margin, the future and, of course, the pure "bet", often masked as hedge.
We live in times of Super-Hyper-Never-Experienced-Before-Liquidity, even Taxi Drivers speculate on the EUR going so-and-so...
...hedge accordingly, bitchez?
The counterparties are themselves. They are just selling utter crap to themselves in the form of CDS's and rate and currency swaps in the unregulated 707 trillion dollar derivatives market (up 100 trillion in just the last two years when our world is in global recession). But take just a 2% commission on 700 trillion and you have 14 trillion right there. They have no interest in doing anything except playing both sides against the middle and keeping this charade going, and skimming, skimming, skimming. Worse than criminal, sadistic suicidalism.
what they're selling is worthless ...like bwankers and banking
this national-global garbage, from stock markets to large banks to Big Govt, is a pile of toxic human crap.. let this worthless criminal politico-banker shitshow go to hell
stay out of the way, get real and keep your assets close and in your local commnity... have nothing to do with it and do not fuel it (pay no more national taxes)
Ay Say Bay, mon frere.
eat shit, fucks.
http://www.tmz.com/2011/12/10/lindsay-lohan-playboy-photo/#.TuOWUXobRfw
why?
Man but that poor thing has some ugly knees. Busy girl.
Ultimate trade, I can understand but who would be so stupid as to buy insurance from a suicide banker? No way you are gonna get paid.
"My all in trade is and has been long physical gold, short gld.
All I have to do is stay alive."
On a long enough time frame that is a losing bet. Time frame is essential and I know my crystal ball sucks big time when it comes to time frame. I have the sense that the break down will be really fast if and when it happens. The 'if' part I have more confidence in, the 'when' is a huge question mark. Next week? Next month? Next year? Next decade? Anyboby who wants to post their ideas on the timing I'll be entertained to read them. Of course the trigger may be something no one can guess like Iran loading their new stealth drone with TNT and plutonium then dirty bombing Tel Aviv.
Short GLD ouch.
ECB continue kicking the can down the road. With lower interest they can repay their debt until it reach ZIRP. But how long this game could be played ?
Answer to your clearly rhetorical question is in your name, Lionhead!
They can keep doing this till infinity or till it all falls to zero.
Which looks like the oroborus when you really think about it. So the question really is:
How do we get OUT of this system itself?
ORI
/the-plan/
Very simple to get 'out' of this criminal ponzi system... stop funding it
Yep, just Stop Paying Your Taxes
Govt and all its monopolist dependents require that fragile income stream of Tax fro citizens to fuel their ponzi, their game, their careers
Zero Tax = Zero Govt
couldn't be simpler, got it?
Yes. The more laws a government has, the more corrupt. Taken as fact from any 18th century economist. Every financial crises in history continued to get worse until enough people stood up and said "No more!". The 100 yr war peaked 666 yrs ago, just a few years after King Edward decided not to pay any more of the debt to Florence(Venice). The bankers of the time owned the treasuries of England & France, all kings outside of the Mongol's had to pay and or surrender tribute to Florence and or Venice. It is interesting, scholars say that the accounting records of Venice who held the physical assets where overextended and should have been bankrupt (which I am sure was a reallocation of assets). Florence had the "Bill of Exchange" contracts for currencies and commodities.
When it was decided not to pay the Italian racket. Italian racket controlled gold and silver and used its power to manipulate market prices. Catastrophes hit European agriculture and a credit squeeze on trade. Impoverishment and starvation was assured in the next century 50% of Europe died many of famine and plague, as well as 25% of the world population.
We must be able to self govern and self sustain in a non centralized form so that people can create, live and care about their community, neighbors included. The more centralized the government, the more soulless are it's leaders and the establishment that protects them.
the problem is that they are playing with other people's money. No one has gone to jail from the last crisis. They can bet all in, and walk away free, and possibly rich, if a black swan emerges.
banks get all the upside. taxpayers are left with all the downside. Central banks are perpetuating this skewed risk incentive.
If sovereigns fail, there are private islands those rich enough can escape to, as the rest of us choose between a bullet, and cannibalism.
maybe it's too late with 700T in derivatives out there (built on a synthetic pyramid of re-hypothecation). I don't now what the net position is, but it's still frightening.
This will come to be known as the Golden Age of Moral Hazard.
Honey Badger don't care. Honey Badger doesn't give a shit. It just takes what it wants.
TN Jed is right. Think about it. I maintain, that as long as we have enough cheap labor; we can grow ourselves out of this current downturn. I for one, see no shortage of chink, Irish, or nigger labor. Think of what we have done! The magnificant continent of America has been united! One can now travel from sea to shining sea by the comfort of mighty steam! Cheer up lads, capitalism and the business cycle will beat the beast, yet?
The US congress passed regulations that don't allow TV commercials to be at a higher volume than the show - because you know, it's a minor annoyance. The 700 Trillion CDS market that almost ended life as we know it in 2008? Well, that remains a largely unregulated free for all.
CDS is insurance. how its not regulated as such is beyond belief. i can't just go out and start selling flood insurance to my neighbors without the requisite amount of reserves. but yet its perfectly legal for me to sell CDS on a certain neighbor getting flooded without having any reserves (unless of course the counterparties required it).
and far, far worse is the fact that were i to sell flood insurance i'm limited to selling that coverage to the owner of the house (hence selling coverage of a given event only once). but with CDS i'm allowed to sell coverage on that one event to an infinite number of counterparties. freaking mind-boggling.
Well, since the SCOTUS has decided that corporations are "people", maybe CDS should be treated as real insurance: you know, regulated by the state insurance commissioners, actual "reserves", the whole deal. Nobody has ever lost a dime on real life insurance I hear. Hmmmmm?
And when a select few of the attempt to stem the fraud...a Tea Party Darling steps in and says 'No."
Fuck these people.
Why Is Eric Cantor Blocking the Congressional Insider Trading Act? http://finance.yahoo.com/news/why-eric-cantor-blocking-congressional-184...Because he's a congressional inside trader?
im long pentagon welfare program recipients:
http://www.reuters.com/article/2011/12/10/us-lockheed-fighter-usa-idUSTRE7B829G20111210
pentagon plans to buy over 2,400 of these overrated overpriced flying metal heaps from lockheed, who conveniently ran into huge cost overruns. 2,400 of these!!!! hey but thats ok, pentagon has the money. HOLY SHIT, AND PEOPLE BITCH ABOUT GM and SOLYNDRA!!!! GET FUCKING REAL!!! tyler, why arent you calling out the govt on the pentagons pet garbage projects?????
First of all, we need those F-35s because the terrorists have taken a new form called the OWS that must be crushed before the unthinkable happens - they get affordable education and health care. Second those cost overruns were simply unavoidable - these planes need larger starbucks cup holders and an updated ipod dock. Too fat to fight is also to bored to fly.
Maybe the pentagon found their "missing" 2.3 trillion that was announced on Monday, September 10, 2001 to pay for that?
I raise.
Tyler, dude, you're awesome. Great write up and thanks for sharing it with us.
zerohedge was selected to be one of 150 sites to be featured for google collects; googles new flipboard competitor
http://www.google.com/producer/editions
http://www.google.com/producer/editions/CAowxIEB/zero_hedge
it's leveled up to big swinging dick status.
nice find!
I'm seriously shocked. The google product puts ZH on the front page? I'm perplexed by that not because I question the attractivness and value of what the Tyler's produce, but because I've previously considered google to be pro regime. Something odd about this.
It makes them advertising revenue. 2 million hits a month is fairly good.
Google is light years ahead when it comes to the popular imagination of control methods, so isn't bothered by ZH; additionally, they're focused on information ~ the more the merrier to model the world.
Try this
(hint: the important part is using Google Earth as the engine to pin the tail on the donkey)
I know this is off topic but I found it hilarious. The wheels of Ford cars manufactured in Mexico - may just fall off. Ah, the miracle of outsourcing.
What does that mean for the street? Ford dividend raise.
http://www.cnbc.com/id/45618936
I love that one!!
I love that one!!
Brilliant! Except for the part about neither of them having anywhere to go.
OK...so...
They're betting the counter party they won't die to generate some cash flow. And the suckers who placed bets earlier under the assumption the sellers would NOT die, now have to insure against them going tits up so buy insurance from the soon to be dead that if they die...something....I think underwear is in there some where.
So far so stupid.
Now, for the really big question. Who stands to ACTUALLY gain from the sellers taking a dirt nap? And how many guns do they have aimed at them? And when does the guy in charge yell "FIRE!"?
Yes. But, a simple theoretical diagram would be nice. Seriously.
Try explaining this to somebody who had heard that there might be some problems in Europe...with what is it?...sovereign debt?...and defualt?...
Even if people are trying to understand and interested enough to ask a few basic questions, there's almost no way to explain this without having their heads explode.
We need pictures.
Only fools go "All-In". But.............the night is young.........and........I'm feeling quite foolish......
...edit...and she was so purdy........and so kind..........
Not to worry...Tyler, sleeps with one eye open and an ear to the wind...
If these CRIMINALS, think they can get anything past MY MAIN MAN, well...
FAT CHANCE!!
See? Posts like this are what keeps me coming back to ZH year after year. it's analytical GOLD.
The ultimate moral hazard trade - heads I win, tails I don't give a fuck because the firm is d-dot.
That so nails the 'all in' trade - it's the sort of insight that CNBC viewers THINK they get from David Faberbergstein and jim Cramersteinberg.
And yes, I exited my $1702 gold longs at $1725 and $1750 (after feeling a certain amount of haemorrhage around the sphincter as the stops were run underneath $1700 - as I said they would be).
Next week should cause some carnage in Gold - sorry lads, but that's the way the shit rolls.
Carnage = buying opportunity. don't be sorry.
The movie, Margin Call, got nothing compare to this!!
The funny thing is they are probably buying Sovereign bonds with the CDS premiums right when default seems imminent. They would know when that is because demand for CDS contracts would spike.
Just keep churning that mofo whilst scraping off your commision!!!
sounds like a no-brainer for any bank.
They are running the all instrategy because they are long the "Inbedded" BEN BERNANKE put. But like with the GSE's and the EURO, eventually this put will need to become "explicit" :)
sounds like a no-brainer for any bank."
Or any clever species of ape..
a Peter Tchir mention equals a shot and a bong hit
how long will you last after reading zero hedge?
Do I have to stop hitting the bong when he's not mentioned?
Bullish for moral hazard.
Somebody explain to me why any sane human would buy default swaps that wouldn't pay out in a nuclear holcaust?
Because you can tell your boss you're hedged.
And the regulators
Another connection that no one has mentioned is that article from earlier in the year discussing old Federal Reserve minutes, where members talk about selling put options on treasury bonds to drive down yields (excuse me, "set interest rate expectations").
The Fed will never have to pay out on put options they sell because they control the market, with the flip side being the Fed can never allow rates to rise without triggering a self-reenforcing tsunami of bonds being put onto their balance sheet by exercise of the options. Keep in mind that when the Fed buys something it creates $, and there you have your hyperinflation trigger.
Of course the Fed can always keep doubling down and sell more and more put options to drive down the rates ad infinitum, which will work until it doesn't. The nice thing about put options vs. CDS is that the options don't have the daily settlement problem.
Bottom line: a company that sells insurance on itself or on an event that would destroy the company is fraud.
For big bucks I'm going to start selling insurance against US treasury defaults, asteroid strikes and global thermonuclear war. Free money.
http://money.msn.com/shopping-deals/article.aspx?post=56c49c8f-8509-40ba...
Services offer post-Rapture care for pets left behind Christians' pets will be without owners if the Rapture comes, so nonbelievers are willing to rescue them -- for a fee. By Karen Datko on Tue, May 10, 2011 4:22 PMBecome a catholic, free insurance??
http://www.ourrisingsound.com/2008/08/19/presbyterian-vs-catholic-church-sign-debate/
Looks like PSLV needs a bail out.
So it seems like there really is no choice for the ECB. They have to bail this madness out. And I'm not saying that because I think they should. But the ECB out of its own survival needs to. They brought that worm Geithner over to make sense of the problem for them. Basically it's what that little piece of shit said in 2008: the fed should buy all debt. They should monetize it all. And it works in the sense that you delay the collapse or push it to currency crisis.
What I find interesting here is that the ECB can't do this alone. And I know the swap lines announced the other day were significant. But say you're a Japanese banker or an American banker trading Europeans bonds. You're betting both that the ECB buys the bonds AND your central bank bails out the ECB with swap lines to prevent the euro from depreciating into irrelevance. Here's the rub... You're only getting paid like 5% on a European bond right now. You're betting your job to make 5%. And yeah, someone's willing to sell you this CDS protection, but that's just eating into your 5% even more. Why don't you just liquidate all your holdings and wait for them to announce the monetization of debt? The risk-reward seems out of whack.
I think the Bloomberg FOIA documents conclusively show that the ECB has been on life support from the very beginning and that the Fed and the ECB are acting in concert to kick the can and buy up as much gold for themselves and their trading partners as possible. Oh yeah, I have no doubt that the plot to move to a new gold referrenced standard started with just these two banks and their members, the plot later being expanded to periphery central banks that are buying like mad right now like S. Korea. So a lot of that gold central banks are buying now was taken out of the market years ago by the Fed and the ECB and the IMF, and central banks are selling it to each other rather than taking it out of the market and driving the price up on themselves. It's sort of like platoon members passing magazines around before the big charge up the hill.
So this relates to your comment in that the ECB not only doesn't have to do this alone, they don't even have to do this, because fixing the system has been off the table since the git go. All they have to do is stall. They will print as much as they have to print to stall. The more they print, the harder their job will be when everyone has enough ammo (gold reserves) to set up trade under a new monetary system. That's why we are living on the edge of disaster and they won't print unless they have to, they have no intention of fixing the system. It's unfixable.
i dont buy it,.
if all the central banks (ECB and Fed leading the charge) are buying gold, and hedge funds buying gold, and ZH readers buying gold, who is selling?
You can sell as much gold as you want as long as the buyer doesn't take delivery.
Swap lines only go so far.... they help with liquidity crisis, but can't fix an insolvency crisis. It is telling that these swap line programs, when they expired, have been forced to be brought back online almost straight away and expanded.
I thought that the decision not to trigger the CDS on Greek debt despite a 50% haircut would cause people to stop buying insurance and start liquidating the bonds (since it was plain that the CDS was not actually insurance, and just a fraud that no one had any intention of actually paying out). The revelation that the CDS is actually being written by banks that could not possibly survive a default on the underlying bond should cause widespread panic, but what do I know.
Allowing banks to write naked CDS on sovereign debt is a backdoor bailout, if it has been determined that no sovereign will be allowed to default.
The "long timeline" seems to be getting much shorter for many of these banks.
Dai Mario, imprima per favore :)))!
Tyler sometimes you do blow it on the analysis part. this statement
" but the lessons unlearned," is just wrong. These people know exactly h9ow to fix the problem, and they know the lessons. they have taken their own self serving answer (which is wrong, and are selling it to us sheep), that these banks must never be allowed to fail. You have an entire cabal here that are all about making as much money as they can, and sinsce they suffer no loss when things go bad, there is no reason to change.
You need to work yourself much harder to put yourself into themind of a sociopath. You think these lords of finance don't know the huge dangers associated with this stuff. but the chance of a blow up on their w2atch is low, and htye don't go to jail or get their money taken away or loose their positions of authority/ influence.
for example alwrence summers write for the financial times under the heading of their A-list group. This man has done so much harm, and been so wrong about so much. Yet there he is.
these people aren't stupid, they have managed to get the world to adopt self serving economic models that are known to be wrong. Anyone who doesn't go along with their program is on the outs.
They really are pure evil
i totally disagree. they are guilty of self-deception - I have met with some of the people like Summers - greedy, arrogant, yes, but evil no. They were trained in economic theory during a time when correlation sure looked like causation - and aren't going to give up status/respect by admitting they were wrong. No respect for these guys, but they didnt plan this all along and truly do believe they are right.
Is a person capable of determining who is evil by meeting someone they admire? Is your conclusion that you accept shoddy accounting tricks known to be false and even criminal change them somehow? Please study sociopathy and psychopathy. They are some of the most straightforward diagnoses in medicine. There are even tests that can show results by the answers given.
You gave it away by the worshipping tone. Self deception is a hallmark of the condition.
They are self-deceiving sociopaths. I don't get the opposition. They not only have morally criminal disregard, they need to see themselves as heroes on top of it. Thank you baby boomer banker psychos born of an age of both unwarranted entitlement and need to be adored. Bad brew.
Very true and relevant article. A colleague of mine used to work at the LEH office during its collapse. He illustrated how things were hectic enough just from internal (forget the market itself) events: MDs and higher running around the floor giving traders hell for their trades, yelling "I JUST BOUGHT A MILLION SHARES OF LEH FOR MY OWN ACCOUNT - TAKE AN EXAMPLE". Some traders were foolish enough to follow in (with less capital arguably), others started maxing out their position limits on everything they could.
They knew the weekend coming up was the make it or break it weekend, exactly as mentioned up above. If they surive, rally on, and basically everything with a ticker would rally - cross asset class. If they dont, who cares, its the counterparties that are selling them stuff that have to worry and dispute shit in court.
He went all in on that friday afternoon maxing out his day limit for something like short $300mm on SovX (sovereign CDS exposure to western Eu). Didnt work out in the end, but oh well.. zero accountability for him.
Great color
This is simply the continued expression of Moral Hazard as incented by the institutionalized Greenspan/Bernanke et al put option. The question is how big can this get before the whole system fails because of the no-brainer, brain-dead bets? Is this what GS is betting on with its new Dow indexed CD's? [ps oops I guess I should read the conclusion before jumping to conclusions since the author summarized this - must be a symptom of my 144 characters or less attention span]
Actually the regulators know what they are doing, at least at the highest levels.
Guarantee no defaults on sovereign debt ( with the exception of a few residual shareholders in greece who refused the haircut, and those defaults will be spread out over several years)
If no other sovereign debt is allowed to fail then banks writing CDS are just getting a backdoor subsidy, since more obvious bailouts are not goung to happen.
ECB IMF ESM and EFSF are the backstops.
F-ing unbelievable. But also so predictable. We have a finance system that rewards you the crazier and more destructive you make your plays. Is anyone going to be surprised when that blows up? Maybe joe and jane public because they still want to believe their governments are sane and that bankers are not suicidal.