Reinko

CDS Industry: Zero Sum Game or Ponzi Scheme?

The CDS is only a small fraction of total over the counter derivates that total to about 600 trillion of notional amount.

These contracts did cost about 14.5 trillion or roughly one US GDP.

In terms of leverage it is about 1:40.

As usual the problem with stuff like this: Only a small rimple of a few percent in the 600 trillion fantasy world triggers and entire GDP size chunk of money to be paid.

Hardly a 'protective umbrella' after my humble opinion.

Research Zeitgeist: Bank Capitalization Concerns Heat Up

And I forgot to mention that most US commercial bank reserves are not borrowed reserves;

They have negative real reserves and positive borrowed reserves, see the second column in the next file:

www.federalreserve.gov.../

The real reserves are now 130 billion US$ in the negative and what exactly the value of the pledged collateral is is not known right now.

Ha! In the past the Federal Reserve always did put a price on the pledged collateral but they now have programs where the primary dealers are placing a price on the pledged collateral...

All in all it still looks like the entire financial sector is sinking deeper and deeper.

In case how you want to see how all this pledging of collateral works on a day to day basis you can go to:

www.newyorkfed.org/mar...

In the last row you can find some links that track the daily details of the five 'providing liquidity' programs in place until now.

Research Zeitgeist: Bank Capitalization Concerns Heat Up

Also of interest since the latest Z1 release of the Federal Reserve is out:

Total debt of the US financial sector still above one US GDP while the financial sector as a whole picked up about 200 billion US$ Q on Q in new debt in Q1 2008.

Compared with the first quarter after the credit crisis broke out (over 500 billion US$ new debt in Q3 2007) we see the credit crisis actually works: New debt availability is still on the decline and so the profits of the entire financail sector will follow suit.

Source:

www.federalreserve.gov...

Since it is anybodies guess how the financial sector is going to pay back the 16 trillion of outstanding debt, let alone pay for the interest on it, we aren't out of the woods yet.

Is ECB President's Call for a Tightening Cycle a Good Idea?

A very good reason for the ECB to finally start raising rates is by looking at their mandate:

Consumer inflation not above 2%
Money growth not above 4.5%

Money growth is still in the double digits thus feeding inflation and consumer price index running above 3%.

Don't forget macro man: Inflation can get imbedded while slight contractions of the economy don't.

By the way, you should try to make it as a professional comedy player; housing to rebound anytime soon...;)

Sleepless in MuniLand: Interview With David Kotok

Good article, David Kotok definitely knows his ways around but he too misses one little detail that is of a very disturbing nature:

Right now the combined reserves of the US commercial banks are 'officially' 18009 million US$ in the red and when you include the money from the FED money auctions it is 70009 million in the red and declining about 2 billion a day...

Don't believe me?

Go to the Federal Reserve H3 file, here is the link:

www.federalreserve.gov.../

In the 'non borrowed' column you can find the real reserves of the commercial banks. I don't know why media outlets like CNN or Bloomberg do not report on this; I guess this news is 'too big' for the average financial reporter...

Buffett: We Are Not in a Credit Crunch

Of course there is no credit crunch for Buffet and for all those others who have some real backing up on borrowed money.

Just look at the so called h3 release from the Federal Reserve, link:

www.federalreserve.gov.../

The column 'non borrowed (3)' shows the combined reserves of the US commercial banks, as you see they are in the negative zone right now.
And the money auction column says there has been applied 'enough' liquidity to keep bank business rolling.

In the USA there is about 50 billion in money auction stuff and here in Europe it is above 500 billion, this is a reflection of the fact that here in Europe that banks have much more colateral to offer compared to the US banks that have negative total on balance assets...

So indeed, there is no 'credit crunch' at all!

The Monolines Need $200 Billion? No Way

This Tom Brown character gets more funny at the minute, here is an old file of him dating back to September 2007, link:

seekingalpha.com/artic...

Ah ah, CountryWide while in those long lost months Alan Greenspan was still stating that the US housing market was only local and not country wide...

Here is a quote from the above linked article, quote:

I think Countrywide is carrying a much larger burden than it should because we are number one. I came from Ameriquest to Countrywide and I can tell you that it is night and day when it comes to ethics. We get weekly "ethics scenarios" that every employee must complete. We have posters all over the walls preaching ethics. We couldn't get a subprime loan that should be prime through underwriting if we tried. Every subprime loan is run through Fannie Mae's Desktop Underwriter system to determine whether or not it would qualify for an "EA" prime loan. And if it does, we are mandated to sell the 30-year fixed EA loan, even if the subprime 2/28 or interest-only loan provides a lower monthly payment.

I wish more journalists would do their homework instead of taking jabs and spinning things to sell more papers. Unquote.

Comment: In case you have invested in Tom Brown's hedge fund stuff it is advised to scale down a bit... The guy simply does not understand the macro economic details the USA is in.

The Monolines Need $200 Billion? No Way

Very nice to read; is just 15 billion needed or a staggering 200 billion US$? Well facts are facts and let me quote from the above article:

The monolines currently guarantee securities with a face value of $2.4 trillion. Of that, $1.5 trillion are municipals.

Comment: Give me some proof that in fact 1500 billion of these are municipals because now I can only believe you on so called 'face value'. So please a bit more rigor facts and not that weird emotional ranting that defines lots of Americans.

Well Tom Brown, I have a habbit of backing up what I say.

For example I say that total debt that the US economy has on herself is above 50 trillion (or above 50,000 billion and if you write it out it is just 50,000,000,000,000 US$).

Here is the backing up, link:

www.federalreserve.gov...

For example the above link says that the combined US financial sector picked up from Q2 to Q3 2007 the next amount of debt:

15435.3 - 14855.0 = 580.3 billion more debt in just one quarter.

So we can talk long or short if they need 15 billion now and may be 200 billion in the long run but my basic argument is:

Back your stuff up!