Seems like Deutsche Bank and Goldman are the ones who pretty much hedged the subprime crisis — using CDS. I suspect that the current situation leaves them both scared silly — not that Goldman will ever show it.

I been positing elsewhere over the last couple of weeks that this would ultimately happen, and be justified as the lesser of two evils.

Still, I personally would like to tell Trichet to phuck off, even if US officialdom won’t.

Whoops. Thanks. Readers know proofreading is not my strong suit, and the spell check in Blogger hasn’t been working this week.

Northern Rock was officially reclassified as a public enterprise yesterday in a move that means one of the Treasury’s cherished rules for the public finances has been breached.

The Office for National Statistics said it had taken the decision to designate it a state entity because the size of the government’s support for the stricken bank meant it had effective control. The move has the effect of bringing up to £100bn of Northern Rock’s liabilities onto the national debt.

Although the Treasury said the move was only temporary, it means that one of Gordon Brown’s two fiscal rules – that public debt should not exceed 40% of gross domestic product – will be broken. The national debt stands at £537bn, equivalent to 37.7% of GDP. The ONS said the reclassification would add 6.7 percentage points to that figure, taking it to 44.4%.

Real interest rates = Nominal interest rates minus Inflation

TIPS – Treasury Inflation Protected Securities. A bond that receives a fixed stated rate of return, but also increases its principal by the changes in the Consumer Price Index.

A straight treasury bond only has a fixed nominal rate of return when purchased.

TIP usually pay 1- 3 % real return.

Treasuries pay a nominal return, but can even yield a negative real return. Say inflation is 7 % and a treasury pays 4%, so the treasury would yield a negative 3% real return

Ackman did not make the bad business decisions that led to the bond insurers’ woes, so I find it a bit odd that he is the target of your ire. Saying that the emperor has no clothes doesn’t make one responsible for his nakedness. I suggest you read his 145 page slide show on MBIA and Ambac, or his more recent 30 page letter to the regulators before casting aspersions.

Moreover, if this was merely a slander campaign by a determined short, the markets would shrug it off. But the credit default swaps for all the insurers are trading at distressed levels, and for some time.

Ackman has been saying since 2002 that the monolines’ business model didn’t work. If the regulators had listened to him then, the insurers never would have gotten in the position to endanger the financial system.

>> Is he talking about himself there or who? I assume he is speaking in terms of some other underwriter, banker, investor or rating agency and trying to do some PR to make himself look less guilty?