dimelab: tempted Topic in The Credit Debacle Catalog at Feed-Adept

tempted Topic in The Credit Debacle Catalog

Rajiv Sethi Tue 2010-06-15 14:25 EDT

Defenders and Demonizers of Credit Default Swaps

The recent difficulties faced by Greece (and some other eurozone states) in rolling over their national debt has let some to blame hedge fund involvement in the market for credit default swaps...Leaving aside the question of whether naked CDS trading has been good or bad for Greece, it is worth asking whether there exist mechanisms through which such contracts can ever have destabilizing effects. I believe that they can, for reasons that Salmon and Jones would do well to consider...such contracts allow pessimists to leverage (much more so than they could if they were to short bonds instead). The resulting increase in the cost of borrowing, which will rise in tandem with higher CDS spreads, can make the difference between solvency and insolvency. And recognition of this process can tempt those who are not otherwise pessimistic to bet on default, as long as they are confident that enough of their peers will also do so. This clearly creates an incentive for coordinated manipulation...

Credit Default Swap; defending; demonic; Rajiv Sethi.

Jesse's Café Américain Sun 2010-05-09 08:30 EDT

Guest Post: The Perils of Credit Money Systems Managed by Private Corporations

Jesse

...The paper system being founded on public confidence and having of itself no intrinsic value, is liable to great and sudden fluctuations, thereby rendering property insecure and the wages of labor unsteady and uncertain.The corporations which create the paper money cannot be relied upon to keep the circulating medium uniform in amount. In times of prosperity, when confidence is high, they are tempted by the prospect of gain or by the influence of those who hope to profit by it to extend their issues of paper beyond the bounds of discretion and the reasonable demands of business. And when these issues have been pushed on from day to day until the public confidence is at length shaken, then a reaction takes place, and they immediately withdraw the credits they have given; suddenly curtail their issues; and produce an unexpected and ruinous contraction of the circulating medium which is felt by the whole community. The banks, by this means, save themselves, and the mischievous consequences of their imprudence or cupidity are visited upon the public. Nor does the evil stop here. These ebbs and flows in the currency and these indiscreet extensions of credit naturally engender a spirit of speculation injurious to the habits and character of the people...Recent events have proved that the paper money system of this country may be used as an engine to undermine your free institutions; and that those who desire to engross all power in the hands of the few and to govern by corruption or force are aware of its power and prepared to employ it... Andrew Jackson, Farewell Address, March 4, 1837

Credit Money Systems Managed; Guest Post; Jesse's Café Américain; peril; private corporations.

Jesse's Café Américain Mon 2009-12-28 21:07 EST

Who Is Buying All These US Treasuries (And Can They Keep It Up in 2010)?

Jesse

...according to the government, US households are absolutely piling into US sovereign and corporate debt at record levels, and at record low interest rates. And almost no one but the Fed is buying Agency Debt...this is why I think we might see quite a bloodbath in the bonds in 2010, as mom and pop get skinned by the Street for weighing in so heavily on this one sided trade in US sovereign debt. The US household sector is a slow moving convoy, presenting a traditional and tempting target for the Wall Street wolf packs...Sprott Asset Management says: "Our concern now is that this is all starting to resemble one giant Ponzi scheme. We all know that the Fed has been active in the market for T-bills...under the auspices of Quantitative Easing, they bought almost 50% of the new Treasury issues in Q2 and almost 30% in Q3...We are now in a situation, however, where the Fed is printing dollars to buy Treasuries as a means of faking the Treasury's ability to attract outside capital. If our research proves anything, it's that the regular buyers of US debt are no longer buying, and it amazes us that the US can successfully issue a record number Treasuries in this environment without the slightest hiccup in the market."

2010; buy; Jesse's Café Américain; keeping; Treasury.

Jesse's Café Américain Thu 2009-11-19 10:48 EST

Tavakoli on Goldman's Lies of Omission

Jesse

Janet Tavakoli asks, Did Goldman Lie? One is tempted to ask, 'were their lips moving?' But why the bluff? Why did Goldman have to pretend it was not concerned at all about AIG, even as the phone records show they were involved in intense and continuing discussions at the highest levels in the bailouts, with a unique and privileged presence in discussions with the government and the Fed in which their own man was the Chairman of the NY Fed. And as someone asked, Why pick on Goldman? Well, they seem to be at the center of everything.

Goldman's Lies; Jesse's Café Américain; omission; Tavakoli.