Posts filed under “Derivatives”
Not with a Bang, but a Whimper: Bank of America’s Death Rattle By William K. Black Wednesday, October 19, 2011 ~~~ Bob Ivry, Hugh Son and Christine Harper have written an article that needs to be read by everyone interested in the financial crisis. The article (available here) is entitled: BofA Said to Split Regulators…Read More
Posted on October 18, 2011 by WashingtonsBlog The Federal Reserve and Bank of America Initiate a Coup to Dump Billions of Dollars of Losses on the American Taxpayer Bloomberg reports that Bank of America is dumping derivatives onto a subsidiary which is insured by the government – i.e. taxpayers. Yves Smith notes: If you have…Read More
Derivatives Ownership Even More Concentrated Than Ever As I noted in 2009, 5 banks held 80% of America’s derivatives risk. Since then, the percent of derivatives held by the top 5 banks has only increased. As Tyler Durden notes: The latest quarterly report from the Office Of the Currency Comptroller is out [shows] that the…Read More
Nasty article in Der Spiegel, Out of Control: The Destructive Power of the Financial Markets, which helps explain what’s behind the financial transactions tax that was recently introduced by Angela Merkel and Nicolas Sarkozy. The article opens, The enemy looks friendly and unpretentious. With his scuffed shoes and thinning gray hair, John Taylor resembles an…Read More
This is pretty damned FUGLY: Click for larger graphic > click for larger chart Mark Gongloff explains the pain: “In the credit-default swap market, spreads are wider across the board, meaning people are paying up for protection. The Markit investment-grade corporate debt index is 3 basis points wider. The index of European sovereign debt is…Read More
Wolfgang Münchau on the complex debt product — a variant of a collateralised debt obligation — the European politicians have turned to solve the debt crisis:
if you own a Greek bond that matures by June 2014, you keep 30 per cent of the redemption as cash, and roll over 70 per cent into a 30-year Greek government bond. The Greeks will have to pay an annual coupon, or interest rate, of between 5.5 per cent and 8 per cent. The precise rate will depend on future economic growth.
Of the money received, Greece will lend on 30 per cent to a special purpose vehicle, another well-known construction from the subprime mortgage crisis. The SPV invests into AAA-rated government or agency bonds, and issues a 30-year zero coupon bond. The purpose of this is to guarantee the principal of the 30-year Greek government bond that you just bought.
With this construction, the downside to your losses is limited. Depending on how some of the parameters of this agreement evolve, you will probably make a small loss, relative to the par value of your holding. If you are lucky, you might come out positive. You will probably not be lucky. But you will still be better off than if you sold today, or if Greece were to default. More important, the accounting rules allow you to pretend that you are not making any losses at all.
The French roll over proposal to address Greece’s debt sustainability problems is a welcome acknowledgement of the need to restructure but, says Jens Larsen, chief European economist at RBC Capital Markets, it will not be enough to solve the issue or reduce the possibility of contagion. He tells Richard Milne, capital markets editor, what he believes the true end game will involve.
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The Greek rollover pact is like a toxic CDO
FT, July 3, 2011 3:49 pm
Here is a blast from the past: Precisely 4 years ago on June 30th, we took a closer look at CDOs. It was in response to a remarkably sanguine question: CDOs: what’s the big deal? We thought they were a big deal, and posed 10 Questions About CDOs. Here are my 10 questions: 1. What…Read More