Archive for the ‘Economy’ Category
May cause insomnia
Alan Kohler | Business Spectator
I don’t know whether to lie awake at night worrying about over-the-counter (OTC) derivatives or not, so I lie awake at night worrying about whether to lie awake and worry.
I should just buy a worry default swap and go back to sleep. But what happens if the counter party can’t pay? Who IS the counter party? And how many trillions of worry default swaps are out there, ready to collapse like an Egyptian block of flats and turn my dreams to nightmares?
The Bank of International Settlements says there are $US681 trillion worth of over-the-counter derivatives in the world, which sounds like rather a lot. Is that more than there are stars in the sky and grains of sand on the beach?
In any case, what does it mean? Should I worry about that number, or is it like saying there were 59.6 billion cappuccinos produced in the world last year. Is that concerning or not?
Last month the Financial Stability Forum (FSF), which was set up in 1999 as an inter-government body to promote international financial stability, solemnly presented a paper to the G7 in which it recommended, among other things, reform of the OTC markets. Read the rest of this entry »
Problems with the Economy
“There’s an unceasing wind that blows through this night
And there’s dust in my eyes, that blinds my sight
And silence that speaks so much louder than words,
Of promises broken”~Pink Floyd
I hear a number of theories, regarding the future of our economy. On one side, we have the people who wear the rose colored glasses and live in a one season world. On the other side, we have the people who believe that society, as we know it, will break down completely; that it will be absolute chaos and anarchy.
I can’t say for sure that we won’t have a complete breakdown, but I do know that anyone who says the worst is over, or near over, has got their head way up their ass.
My research into the actual cause of the problems, indicates that the banks are holding about 20 trillion dollars worth of worthless debt-related derivative instruments. This was done, basically, in order for borrowers to get loans without having the collateral to back it up.
Once this practice took hold, huge amounts of debt were created, which lead to the housing bubble of the early 21st century. This debt is not likely to ever be repaid, as there is no practical way to come up with the 20 trillion dollars that would be necessary to unwind these positions. Read the rest of this entry »
U.S. Commercial Debt Meltdown
Now the credit derivative implosion problem has worked its way into the commercial paper market which since last week has declined by $90 billion. The word is that the commercial paper market for all purposes is closed down, yet Professor Bernanke sleeps on. No one can say with a straight face that a shut down commercial paper market will fail to shut down the US Economy. It will.
The Dow was down 300 points until rumors of a secret meeting being held at the Fed made their rounds. When that one ran out of steam the next rumor was a major injection of cash was going to be made into Bear Stearns. That has to give you an idea what people think about Bear Stearns’s financial condition and therefore most other major investment banking firms with prime names. Read the rest of this entry »