Skip to comments.A Black Swan in more ways than One. The Gulf Mega Disaster (Generally unknown financial costs)
Posted on 07/13/2010 2:38:27 AM PDT by givemELL
"America cannot afford a Trillion Dollar disaster. Thats what this will cost, count in Trillions not Billions. The cost in lives, displaced people and destruction to the Eco System is on a scale Humanity has never encountered in its recorded history."
(Excerpt) Read more at davidsprime.blogspot.com ...
"Investors should start thinking in terms of BPs Derivative Exposure and the Counter Parties who will be left hold the Bankrupt Bag, It will cost Hundreds of Billions of Dollars to clean this up, the area (Thousands of miles of coast, fishing, Tourism, the living space of Millions of people. ) People will soon come to their own correct assumption that this is an Oil Chernobyl, in fact Chernobyl would be an easier fix.
Comments from Moodys:
In the event of BPs restructuring or bankruptcy, CSO transactions referencing BP or its affected subsidiaries may experience what is called a credit event. If the credit event occurs, the CSO transactions will have to meet their payment obligations to the protection buyers, which will result in the loss of subordination to the rated CSO tranches. In cases where the subordination is no longer available, CSO investors will incur the loss. . We reviewed our entire universe of outstanding CSOs and determined that exposure to BP and its rated subsidiaries appears in 117 (excluding CSOs backed by CSOs) transactions, which represents approximately 18% of global Moodys-rated CSOs. Exposure ranged from 0.26% to 2% of the respective reference portfolios. The transaction with the largest exposure to BP and its subsidiaries is Arosa Funding Limited Series 2005-5
The other four companies and their subsidiaries that were involved in the Gulf of Mexico incident, which are Halliburton, Anadarko Petroleum, Transocean Inc., and Cameron International. Halliburton appears in 43 CSOs, Anadarko Petroleum appears in 28 CSOs, Transocean Inc. appears in 79 CSOs, and Cameron International appears in 6 CSOs.
A study by Monodys outlines that a BP bankruptcy would impair 117 Collateralized Synthetic Obligations (CSOs), which would lead to pervasive losses by a broad range of holders. The 117 effected is a startling 18% of the total CSOs outstanding, which is an indication of the scope and impact of BP financing globally. For those that remember the 2008 financial debacle, you will recall its epicenter was the collapse of Collateralized Debt Obligations (CDO) associated with mortgages and Credit Default Swaps (CDS) of financial companies impacted. CSOs are even more leveraged and toxic.
Fitch dropped BPs credit rating 6 notches on June 15th from AA to BBB which followed June 3rd's AA+ to AA cut.
On June 25th BPs Credit Default Swaps shot up 44 to 580 on the 5 years CDS. This meant it costs $580,000 per year to ensure $10 million in BP bonds over a 5 year contract period. Anything approaching 300 is considered serious risk.
More real costs will be Obama’s extortion of BP and the NAACP piling on trying to say the spill adversely affects people of color.
Synthetic is the operative word.
Collateralized Synthetic Obligations
Synthetic is the operative word.
Odd choice of words. But, of course, new words are made up daily or at least redefined. I hate people messing with the English language.
I’m beginning to think that derivatives and credit default swaps might be hurting us.
Well, we could have said this before the '08 election, too.
When the catastrophe is tallied up, it should be in two columns, one directly attributable to BP and not possibly the fault of bad remediation, and one on the Federal side for damage done by policies which prevented the interception of oil miles offshore, and stupid policy dictates which have already amplified economic damage far beyond one rig having a blowout.
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