Free Republic

What Is Really Killing the Big Banks?   By Christopher Whalen | Friday, February 13, 2009   As the Obama Administration performs triage on the housing and credit markets, one of the most damaging aspects of the financial crisis has been largely overlooked. Christopher Whalen, hailed by Nouriel Roubini as one of the leading independent analysts of the U.S. banking system, explains the problem of credit default swaps.One of the least understood aspects of the financial crisis — but potentially the most damaging — is the market for over-the-counter derivatives and particularly one type of derivative known as a...

50% Chance NYC Will Default On Its Debt In 5 Years Joe Weisenthal|Mar. 3, 2009, 6:16 AM|1 Even if the economy stabilizes a little, it's really hard to see how New York is going to solve its budget woes, given the collapse of Wall Street, big media and real estate. A combination of a bad economy, lower public services and higher taxes could make the city toxic for years to come. No wonder than that credit default swaps on the city's debt are trading at all time wide spreads, implying a 50% chance of default within five years, according to...

Talking Shop With a ‘Vulture’ Investor 2/27/09 at 3:20 PM In the financial industry, there used to be a niche specialty called "distressed investing." Some called these folks vultures, because in the aftermath of a collapse, they would go swooping in to buy up the wreckage on the cheap. That's not much of a specialty anymore — the state of the market means we're pretty much all vultures now. But we thought we could get some perspective by getting in touch with an old friend who is on the front lines — he trades at one of the most established...

Government Risk Rises: Credit Markets Face Structural Collapse by: Rakesh Saxena January 26, 2009 As credit default swap spreads for 5-year British government debt rose to 150 basis points last week, one European regulator raised a significant concern regarding the balance sheets of banks on both sides of the Atlantic. "If you follow the rating agencies, well and good, but if you apply default risk prices to banking assets, capital adequacy ratios of nearly all western banks are open to question," she warned, after watching Euro-based spreads on U.S. government debt rising to 75 bps, and after noting that few...

Downgrades And Downfall How could a single unit of AIG cause the giant company's near-ruin and become a fulcrum of the global financial crisis? By straying from its own rules for managing risk and then failing to anticipate the consequences. By Robert O'Harrow Jr. and Brady Dennis Washington Post Staff Writers Wednesday, December 31, 2008; A01 Third of three parts The contracts were flying out of AIG Financial Products. Hardly anyone outside Wall Street had ever heard of credit-default swaps, but by early 2005, investment banks were snapping them up to insure all kinds of deals in case of default,...

ome Credit Suisse Group bankers were left reeling after the bank said it would pay a substantial percentage of their 2008 compensation with an illiquid group of junk bonds, mortgage-backed securities and corporate loans. The move Thursday represents a radical revamp for the Swiss bank, which posted as much as $4.6 billion in losses so far this year, a number that could increase when it announces full-year earnings. For years bankers had received about half their compensation in cash, and the rest in stock. This year, up to 80% of the stock portion will come via what Credit Suisse is...

Deutsche Bank likely to reveal losses of $1 billion Fri, Dec 12, 2008 Deutsche Bank AG, shaken last quarter by a $1.68 billion loss trading or the firm’ account, is reeling again, this time from about $1 billion of bad bets in a unit led by credit-trader Boaz Weinstein in New York, people familiar with the matter said. The magnitude of the group’s loss, and its impact on the firm’s fourth-quarter results, remain uncertain as the value of some stakes gyrate with the markets and the Frankfurt-based bank seeks to unwind positions, according to the people, who declined to be...

NEW YORK (Reuters) – Bernard Madoff, a long-time fixture and powerful adviser on Wall Street, was arrested and charged on Thursday with allegedly running a $50 billion Ponzi scheme, U.S. authorities said. The former chairman of the Nasdaq Stock Market who remains a member of Nasdaq OMX Group Inc's nominating committee, is best known as the founder of Bernard L. Madoff Investment Securities LLC, the closely-held market-making firm he founded in 1960. But the alleged fraud involved a hedge fund he ran from a separate floor of the building where his brokerage is based. Madoff told senior employees of his...

Every passing day brings more news of more financial bailout requests and more congressional promises for more taxpayer funded bailouts. It's as if the concepts of freedom and capitalism have gone completely missing in Washington DC today. What started a few weeks ago as a $70 billion dollar mortgage crisis (caused by congressional Democrats) has fast become a multi-trillion dollar international disaster that crosses all industry boundaries. According to the same illustrious leaders in Washington DC who caused all of it to begin with, only printing more play money and putting American taxpayers even deeper in multi-generational debt, is the...

A new Citigroup scandal is engulfing Robert Rubin and his former disciple Chuck Prince for their roles in an alleged Ponzi-style scheme that's now choking world banking. Director Rubin and ousted CEO Prince - and their lieutenants over the past five years - are named in a federal lawsuit for an alleged complex cover-up of toxic securities that spread across the globe, wiping out trillions of dollars in their destructive paths.

"Effectively, there isn't any CDS market now." David Goldman, an old friend and credit strategist turned private investor, still goes through the credit run sheets from the dealers. "The business looks like the window of a Brezhnev-era Soviet butcher shop. Mouldy scraps hanging in the window. Old women lining up at 4am to try and buy credit protection on General Motors (NYSE:GM) . What are reported as trades are really ways to establish prices to satisfy the auditors." For several years, I have been among those calling for thoughtful, prudent, moderate steps for the reform of the credit default swaps...

US Treasury 10-yr CDS hits record high Mon, Dec 1 2008, 11:34 GMT http://www.afxnews.com LONDON, Dec 1 (Reuters) - The spread or risk premium on 10-year U.S. Treasury credit default swaps hit a record high on Monday, extending a recent trend as market participants continued to fret about the scale of the government's financial rescue programmes. Ten-year U.S. Treasury CDS widened to 68.4 basis points from Friday's close of 60 basis points, according to credit data company CMA DataVision. Five-year Treasury CDS widened to 52.5 basis points from 46 basis points at Friday's close, it said. (Reporting by Emelia Sithole-Matarise)

Insight: Annihilation on Main Street By Mark Sunshine Published: November 27 2008 15:54 | Last updated: November 27 2008 15:54 Warren Buffett called credit default swaps “financial weapons of mass destruction” and they are about to annihilate Main Street. In a disturbing new trend, international banks are creating syndicated credit facilities that “weaponise” credit default swaps (CDS) by using the trading price of a borrower’s CDS to set the interest rate paid by the borrower. Unfortunately, banks don’t understand that they are arming speculators to ambush and kill unsuspecting and otherwise healthy companies. Regulators are oblivious to this danger as...

UPDATE 1-U.S. Treasury CDS hit record wides-CMA DataVision Mon Nov 24, 2008 11:21am EST (Adds background) NEW YORK, Nov 24 (Reuters) - The spread or risk premium on 10-year U.S. Treasury credit default swaps hit record wide levels on Monday, prompted by worries about how the cost of rescuing banks and carmakers would affect U.S. creditworthiness, CMA DataVision said. As the global financial crisis worsened in recent weeks, traders increased their bets on the bigger toll of the U.S. government's array of programs to help these ailing industries. Ten-year U.S. Treasury CDS edged out to 49.8 basis points from 49.3...

Citi shares in record slump, CDS spreads widen Bank takes on $17 billion of SIV assets, shuts another hedge fund By Alistair Barr, MarketWatch Last update: 4:41 p.m. EST Nov. 19, 2008 SAN FRANCISCO (MarketWatch) -- Citigroup Inc. shares slumped a record 23% Wednesday and credit-default swap spreads on its debt widened after the bank took on more than $17 billion in assets from structured investment vehicles and shut another hedge fund. Citi shares slumped 23% to close at $6.40. The previous biggest one-day drop was 21.7% during the market collapse on Oct 19, 1987. CDS spreads on Citi were...

Uncle Sam's Credit Line Running Out? By RANDALL W. FORSYTH The yield curve and credit-default swaps tell the same story: The U.S. can't borrow trillions without paying a price. WHAT ONCE WAS UNTHINKABLE has come to pass this year: massive bailouts by the Treasury and the Federal Reserve, with the extension of billions of the taxpayers' and the central bank's credit in so many new and untested schemes that you can't tell your acronyms or abbreviations without a scorecard. Even more unbelievable is that some of the recipients of staggering sums are coming back for a second round. Or that...

INSIGHTSCredit Default Swaps: 'Financial WMDs' By Theodore F. di StefanoE-Commerce Times 10/31/08 5:30 AM PT We are all painfully aware of what is happening on Wall Street. In fact, I think that it might take several years for the stock market to regain the value that it has lost in the past year (approximately 35 percent).No doubt, there is plenty of blame to go around as to who is primarily responsible for this financial debacle. However, most experts agree that a prime candidate for blame is the credit default swap. Credit Default Swaps Explained Michael Greenberger, a former staff member...

AIG's crucial role in the banking collapse Oct 09, 2008 Something very strange is happening in the financial markets. And I can show you what it is and what it means... If September didn't give you enough to worry about, consider what will happen to real estate prices as unemployment grows steadily over the next several months. As bad as things are now, they'll get much worse. They'll get worse for the obvious reason: because more people will default on their mortgages. But they'll also remain depressed for far longer than anyone expects, for a reason most people will never...

October 11, 2008 Lehman Brothers demise triggers huge default Tom Bawden in New York and Suzy Jagger in Washington Lehman Brothers, the bust investment bank, triggered one of the biggest corporate debt defaults in history yesterday as it emerged that the US Federal Reserve is harbouring grave concerns about whether Washington’s $700 billion (£413 billion) bailout fund will avert a financial meltdown. An auction of Lehman’s bonds yesterday determined that the bank’s borrowings were worth only 8.625 cents on the dollar. The valuation leaves the insurers of the debt a bill of about $365 billion. It is not clear whether...

Financial crisis: Lehman Brothers liabilities sale fails to pacify market A fresh wave of fear hit banks yesterday as traders tried to settle hundreds of billions of pounds of complex products in a move that could leave some with heavy losses. By Katherine Griffiths, Financial Services Editor Last Updated: 11:24PM BST 10 Oct 2008 An auction to settle insurance liabilities over the collapse of Lehman Brothers has caused fresh anxiety A sale of complex products relating to Lehman Brothers caused new anxiety Photo: REUTERS The cause of the anxiety was an auction to settle insurance liabilities over the collapse of...