The $400 billion trigger?
I don't particularly buy into the talk gurgling across the Internets that the whole worldwide banking system is going to freeze up this month, rendering your ATM card inoperable. But if it were to go down, tomorrow's as good a day as any.
Tomorrow is the settlement auction for $400 billion of credit default swaps connected to bonds issued by Lehman Bros.
Actually, this whole month is a minefield of settlement days for toxic derivatives — Fannie and Freddie last Monday, Lehman tomorrow, Washington Mutual two weeks from today.
The Fannie and Freddie auction passed without incident, perhaps because the Treasury explicitly stands behind Fannie and Freddie's debt. Too, the Fannie and Freddie default claims totaled "only" about $50 billion. But $400 billion of Lehman paper with no government guarantee?
There's no telling what will happen, considering what the Financial Times reported last week in a story previewing these auctions:
Because of the opacity of this market, it is still not clear how many contracts have to be settled and whether payouts on the defaulted contracts, which could reach billions of dollars, are concentrated with any particular institutions.
According to dealers, insurance companies and investors such as sovereign wealth funds, which are widely believed to have written large amounts of credit protection through credit default swaps on financial institutions, could have to pay out huge amounts.
But the Lehman cards will be laid on the table tomorrow. At least one reporter suspects the primary reason the credit markets have come to a near-standstill is that institutions are cashing up for tomorrow. (Taken to its logical conclusion, you could even say it's the reason gold is down today.) If that's the case, and the various and sundry counterparies have adequately cashed up, we'll come out unscathed.
At least until the Washington Mutual auction in two weeks. Whatever the outcome, it might be time to consider a "paddle strategy."
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The TED spread is at a 15-year high today.
What’s that mean? To put it simply and paraphrase our own Mogambo Guru, “WE’RE SO SCREWED!!!!! BWAHAHAHAHA!!!!”
Better grab a paddle.
Comment on October 9, 2008 @ 12:12 pm
I think the Mogambo would really say ” We are freaking doomed!!!!” I am listening to Bloomberg right now and they say “1000 point pop to the upside is on the way!!” Well maybe as a bounce to the 2570 point downward drop we have had over the past 10 days…that would be a 38% retracement! Woo hoo we only lost 1570 points!!
Comment on October 9, 2008 @ 3:47 pm
It’s like what Bonner has beeh saying - it’s a war between inflation and deflation. For a while it looked like inflation was winning everhwhere especially with Helicopter Ben TS Paulson pumping in hundreds of billions Now it seems as though deflation is winning. trillions lost in housing prices just in the US there will be trillions in Europe Trillions lost in the markets all over the world. This is not to mention all the other ways money is being deleveraged or the companies that will bo bankrupt or how the speed of money is slowing down ot…So it does seem at the bottom as though it will be a few???? trillion pumped in and 10s of triilions gone to money heaven which will cause even more. How does gold work for a deflationary scenario?
Comment on October 9, 2008 @ 10:34 pm
You gotta love the stock market ! I try to take imaginary numbers from you. You try to take imaginary numbers from Bob. Bob tries to take imaginary number from me. We all try to take imaginary numbers from each other so we can stockpile them into greater piles so we can use them to try to get more imaginary numbers. We imagine that chicks will dig us more because we have accumulated the most imaginary numbers, and some of them will. Whomever dies with the biggest pile of imaginary numbers wins! Meanwhile, the sunrises over the ocean, and the beauty of the autumn forests, and the bright circling stars above go unnoticed. Boy are we freaking stupid or what !!!
Comment on October 10, 2008 @ 12:01 am
Sometimes we all need to reflect on where we’re going and these times it seems that reason has taken a hold. Money is a vehicle for exchange and this correction is proof that responsibility for your actions has trumped the strange and foolish trend to mortgage the future. The future will play out the way life always does and avarice will not prevail. Let’s all of us get back to making things and growing things and living our lives responsibly. money is only a tool, it does’t grow on trees.
Comment on October 10, 2008 @ 5:47 am
By the way if you have a ton of money, buy as much as you can of all these great companies cause the future is bright. and prices may not be as good the day or the week after tomorrow.
America is still solid even though reaganomics
wasn’t.
Comment on October 10, 2008 @ 5:56 am
GE, GM, FORD, AT&T and the Apple also Google and a host of other entities that really sell a tangible product.
Comment on October 10, 2008 @ 6:01 am
HaHAHAHAha
Now we don’t even have to pretend. Instead of the financial elite ruling the world it will be Obama and the rest of us at the Daily Kos. We don’t even have to pretend anymore that we aren’t going to socialize everything because the “useful idiots” are going to give the entire election to the democrats. It’s far too late for Obama to lose now!
Comment on October 10, 2008 @ 6:57 am
Obama is just as owned by the financial elite as McCain. Fannie and Freddie gave him more money. He’s backed away from getting us out of Iraq and now wants to expand the war. What Change!
Justabrother is right though, there will be some serious lip service paid to the poor. Who knows, maybe Obama hasn’t been in Washington long enough to be cynical and jaded. He’ll be like Carter if he doesn’t go along with the moneyed plans. The economy will go to poop and people will forget that it’s GWB’s fault and blame O. Four years and he’s out in disgrace and the republicans can run on the premise of being conservative. They are conservative too, they only doubled the debt in eight years.
Comment on October 10, 2008 @ 8:26 am
justabrother…
Obama is an idiot. McCain is too.
Obama is probably going to go down, hard.
When we come apart at the seams,
there will be civil/race? war.
We have more guns.(Dems don’t like guns, remember?)
You will lose.
Period.
SECESSION, is already talking that talk, you wait!
Comment on October 10, 2008 @ 8:37 am
Way to go ‘Bag; you outdid the troll with offensive backwardness.
Comment on October 10, 2008 @ 9:42 am
Newt Newt Newt, Just tryin’ ta get a rise outa the dude…;-)
Nobody knows what the ‘gov’ will do with all this mess, we only know one thing, they will make it worse.
Nobody down here trusts damnyankees anymore, buncha carpet baggin’ crooks, same as always.
The Bro, he’s probably right, Obama will probably win, then Katie bar the door, he’ll finish the job on us Clinton and Bush started, f**k it all up. Then wait and see, that talk is already being talked. I think it’s sad…
Comment on October 10, 2008 @ 4:29 pm
well this is poor economy. I wonder what will happen next
Comment on October 13, 2008 @ 9:25 am