Posts filed under “Derivatives”

Open Thread: BAC’s Accounting

Killer graphic from Branch Hill Capital:


click for larger graphic

Source: Manal Mehta, Branch Hill Capital


Is there something to Bank of America’s balance sheet worth thinking about ?


What say ye?

Category: Credit, Derivatives, Real Estate

Wolfgang Münchau: Greek rollover pact is a toxic CDO

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.

click for video

(5m 34sec)


The Greek rollover pact is like a toxic CDO
Wolfgang Münchau
FT, July 3, 2011 3:49 pm

Category: Bailouts, Credit, Derivatives, Video

June 2007: 10 Questions About CDOs

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

Category: Bailouts, Derivatives

JPM’s Saul Doctor on Greek CDS

Saul Doctor, JP Morgan research analyst, walks Tom Keene and Ken Prewitt through the complexities of credit default swaps on Greek government debt and why some short Greek paper may actually be a good buy. Q: Tell us the distinction between actual government bonds and credit default swaps. What is the the relative size of…Read More

Category: Derivatives, Think Tank

Grecian Burn – Credit Default Swaps

Aasif Mandvi explains how Goldman Sachs helped Greek people to continue retiring a few years before puberty. The Daily Show – Grecian Burn – Credit Default SwapsTags: Daily Show Full Episodes,Political Humor & Satire Blog,The Daily Show on Facebook

Category: Derivatives, Humor, Weekend

Classic Goldman Sachs Alchemy

Did Goldman mislead Congress about its ‘Big Short?’ The answer, according to PPWIJ* Jesse Eisinger, is an emphatic yes. Eisinger cuts right to the heart of the matter regarding Goldman Sachs possible perjury regarding their “big short.” It was not the actual size of the short, but it was a) How GS got short; and…Read More

Category: Bailouts, Derivatives, Legal

Gundlach: What Currency Is Better Than Gold In A Crisis?


Jeffrey Gundlach: Here’s The Currency That’s Better Than Gold In An Extreme Crisis
Joe Weisenthal
Business Insider May 27, 2011

Category: Bailouts, Derivatives, Video

Isaac Gradman was involved in some of the earliest litigation arising from the subprime mortgage crisis. He received his B.A. in Political and Social Thought with Highest Distinction from UVA, where he was a Jefferson Scholar, an Echols Scholar and a member of the Raven Honor Society. Isaac received his J.D. cum laude from N.Y.U….Read More

Category: Credit, Derivatives, Legal, Real Estate, Think Tank

Uh-Oh: Is Shiller Defending the Failures of Economists?

Was it the hammers or the carpenters? That is the question alluded to this morning by Yale Professor Robert Shiller in the NYT. Shiller is one of my favorite academics working in the field of finance. He tries to (diplomatically) argue we can prevent future crises if only we had better econometric tools. I would…Read More

Category: Bailouts, Derivatives, Psychology, Really, really bad calls

ProPublica won the Pulitzer Prize for National Reporting for its series, “The Wall Street Money Machine.” Its lead reporters, Jake Bernstein and Jesse Eisinger, take a moment to explain the series, how it all started and their reaction after reeling in ProPublica’s second Pulitzer. Theirs was  the first Pultizer  awarded to a body of work…Read More

Category: Bailouts, Derivatives, Legal