It's different this time: this ship is unsinkable! Full speed ahead I say!"
Posted on 03/23/2008 5:49:23 PM PDT by DeaconBenjamin
Check out this thread. Especially post #64 and #157.
Market for derivatives grows at fastest pace in nine years, to $516 trillion
Let me know if you have any other questions.
From the Financial Times, via Mish Shedlock:
Central banks on both sides of the Atlantic are actively engaged in discussions about the feasibility of mass purchases of mortgage-backed securities as a possible solution to the credit crisis.
Such a move would involve the use of public funds to shore up the market in a key financial instrument and restore confidence by ending the current vicious circle of forced sales, falling prices and weakening balance sheets.
The Bank of England appears most enthusiastic to explore the idea. The Federal Reserve is open in principle to the possibility that intervention in the MBS market might be justified in certain scenarios, but only as a last resort. The European Central Bank appears least enthusiastic.
Any move to buy mortgage-backed securities would require government involvement because taxpayers would be assuming credit risk. There is no indication as yet that the US administration would favour such moves. In the eurozone it would require agreement from 15 separate governments.
One argument among policymakers and bankers has been that new international rules have exacerbated the credit squeeze by requiring assets to be valued at their current record lows rather than at face value.
Fed officials are monitoring the impact of the latest barrage of Fed liquidity moves and interest rate cuts. They also believe the US has not exhausted all the options short of wholesale public intervention and further intermediate steps are available to them.
These could include still more aggressive use of the Fed’s own balance sheet to boost liquidity in the markets.
Analysts say the US government also has plenty of scope to boost support for the markets indirectly through the Federal Housing Administration or Fannie Mae and Freddie Mac.
The UK lacks these institutions, which could be one reason why the Bank of England is keenest to explore outright intervention. The UK government has already become heavily involved in buying mortgages since September with the recent nationalisation of Northern Rock, the mortgage lender.
A perfect definition of Crony Capitalism.
I definitely get the feeling that these financial “genuises” has so goobered up the system with these incomprehensible instruments that no one knows what anything is worth anymore. People can understand a share of stock in a real company and a mortgage on a real house. What they can’t understand (or value) is what happens when you lump all these things together every which way. At its core, this is really scary stuff because these derivatives have so permeated our financial system.
And yes, it will keep happening again and again until they are outlawed. This is one huge mess.
It's different this time: this ship is unsinkable! Full speed ahead I say!"
But the notional amounts are great press. Especially for the gold bug doom crowd.
I was reading this and was concerned that it might be a reasoned argument...until the above quote was placed in the article...
The author may be right, but it does seem like he has a bone to pick outside of his discussion of 'economics'.
Tim Bond, head of asset allocation at Barclays Capital, said that U.K. policy makers should copy the Fed's program to inject liquidity into financial markets.
``The Bank of England does not provide the same comprehensive liquidity framework that the Fed has just put in place and such as exists already at the ECB,'' Bond told journalists in London on March 20. ``We need them to provide liquidity to any duration. It would deter the raiders.''
The Fed slashed its benchmark lending rate three-quarters of a point to 2.25 percent on March 18 and implemented a program to swap $200 billion in Treasuries for mortgage-backed securities. The ECB loaned 15 billion euros ($23.2 billion) of funds to meet demand for more cash before the Easter weekend.
The Bank of England lowered its benchmark rate a quarter point in February to 5.25 percent, the second cut of that size in three months.
That's funny. And wrong.
Is that like with the CEO of Goldman Sachs becomes Secy of the Treasury?
What happens when one of the counterparties is insolvent, and can't pay? One of the big 3 monoline insurers, say? How are the positions off-set then?
When an OTC derivative fails to perform, notional value becomes real value.
How is he wrong?
Hey TP, I’m glad you’re finally admitting that the new billions are pulled out of thin air. That’s real progress.
Ok Einstein can you tell us how to price the assets.
Not even the originators can tell you the values.
The fed should have kept out of it and let all the greedy slobs go down along with their greedy customers.
I would call it “defensive capitalism”. Most likely the data is arcane enough so that it would be distorted in publication. Speculators would be all over it, hoping to create a panic.
Ordinarily, that data would be very proprietary. This demand by the government should be no different than an audit. If and when it is released, it should be released with explanation, and if it is bad, what is being to to retain confidence in the market.
That seems to be a rampant phenomenon in every finance discussion I see here, too.
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