Mbuna

Don't Ban Naked Credit Default Swaps if the Law Can't Be Enforced

Credit Default Swaps were invented in 1997 by a team working for JPMorgan Chase. By entering into CDS, a commercial bank shifted the risk of default to a third-party and this shifted risk did not count against their regulatory capital requirements.

So here we have a multi-trillion dollar market that has grown from an artifice of financial engineering specifically designed to create a loophole in financial regulation which will then allow banks to increase their leverage.. Financial engineering of this sort ultimately serves only one purpose, greed, (while generally playing everyone else for a fool at the same time) and does not benefit the broader economy but only gives the illusion of doing so.. And the proof of that statement has already demonstrated itself, in spades. So here we are with huge bloated financial corporations that created tremendous fake earnings for years and now we finally see the financial sector, the emperor of the US economy with 40% of GDP, and its new clothes. It was and is an illusion and the desire to sustain this kind of financial sector will come to naught.


My view of the entire CDS market is that it is essentially nothing more than financial crack. The entire financial sector is completely addicted to something created out thin air to evade regulatory capital requirements, and they all think it is good for the economy!? They are all a bunch of ADDICTS hooked on this financial crack. Everyone I have read that defends CDS strikes me as an addict. And yes Geithner is hooked on it too. From where I stand, the Fed, the Treasury and Wall St are somehow hoping to turn the US economy back into some giant gambling casino when in fact they are addicted to an illusion that will never bear fruit. The entire CDS market should just be shut down, period.
Start from a position of sanity rather than addiction- the financial sector exists to facilitate the lending of capital for the broader economy. The financial sector itself IS NOT THE ECONOMY. You will never ever see the financial sector sustain 40% of GDP in reality because the broader economy cannot support it. It was a house of cards that was never real. What really has to happen is that the entire sector needs a very serious downsizing.

Did CDS Cause All the World's Ills? Confronting the Crisis Backlash

My impression of reading this- CDS's are a relatively recent drug introduced that has become highly addictive such that many addicts go through great and sophisticated lengths to explain the reason for their addiction. Case in point #1: "Allow banks to get regulatory capital relief on their loan books letting them free up capital." Translation- banks have a loophole on their capital requirements thus allowing them greater leverage and thus greater risk but also the possibility of greater profits. Case in point #2: "Allow banks to more efficiently manage credit risk." Translation- We don't have to be responsible! Let someone else be responsible so we can then get even greater leverage and greater profits!

Geez, haven't we seen the result of this already? Why on earth would anyone want to go back there? Addiction perhaps? Banks actually worked before CDS's were around. This is just addict talk on many levels because CDS's are an artificial inducement into the market. Financial engineering of this sort ultimately serves only one purpose, greed, (while generally playing everyone else for a fool at the same time)and ultimately does not benefit the broader economy. And the proof of that statement has already demonstrated itself, in spades. When you can financially engineer a product whose purpose is obviously broad over many sectors of the economy I'll listen. Otherwise this is just a C(rack)DS addict scheming for his next hit using technically sophisticated language about how wonderfully the drug works. Ultimately it is a lie.

Current Popular Argument Against AIG Bonuses Takes the Wrong Viewpoint

On the contrary no sane taxpayer wants to touch what the financial sector has its hooks into.

www.rollingstone.com/p...

And yes Goldman would have failed, beyond a shadow of doubt- not just because of the financial hit they would have taken but the hit that the revelation of their exposure would have done them in. These institutions are so corrupt I say let em all fail. Start fresh.

Bank Stocks Rally: Sustainable or Bear Market Blip?

Allow me to pour some gasoline on your fire here. Hat tip to Naked Capitalism and courtesy of the Financial Times:

A “black hole” in the US commercial property market is set to put further pressure on troubled banks, the head of leading private equity firm Apollo Management has warned.
Leon Black, founder of the firm, said the extra costs of cleaning up the US banking industry could total as much as $2,000bn, putting further strain on the economy. He said the woes of the commercial property had not yet been reflected fully on bank balance sheets.

“You have the black hole of commercial real estate and that hasn’t happened yet,” said Mr Black in a wide-ranging interview on FT.com.

“There you are sitting with $4 trillion of debt and you know not all of it’s bad but a lot of it is diminished and that really hasn’t yet been addressed.”

He warned it would be 12 to 18 months before there are lasting signs of US economic recovery.

BofA Following Citigroup to $5 or Lower

Most people on Wall St. need their head examined, period. It is a fantasy life and most of the columnists here on Seeking make their living off of that fantasy. Reality is right in front of you and doesn't even take any research. Here is part of a comment I posted in July (yes you can look it up to verify) 2008 to-
The Great GSE Meltdown: Market Adding Fuel to Fire?
"This will totally impair the ability for Citigroup (C), Merrill Lynch (MER), and Lehman Brothers (LEH) to raise capital." These 3 companies were clearly insolvent 6 months ago IMO as a result of the gathering of the perfect financial storm which has cut off any possible escape route. The only drama playing out now is how long they can artfully hide their insolvency. Everyone is in over their heads and Bernanke and Paulson can do little more than put bandaids on to try to protect the interests of their constituents. (end of excerpt)

So here we are 6 months later and what happened? Rocket science? Nope just some common practical sense. And yes even after billions of rescue dollars those banks are STILL insolvent, the ones left anyway. One final clue that I have made before- What makes you think that a monetary system contrived nearly 100 years ago can just continue to work off into the unlimited future? The answer is that it CANNOT work indefinitely. Who will start thinking outside the box?

Bank Default Risk Decreases from Apocalyptic to Merely Catastrophic

Lol, well said