Bloomberg on Guithneer

Nov. 25 (Bloomberg) — Timothy Geithner was among the first policy makers to shine a light on the unregulated $47 trillion credit-default swap market back in 2005. The New York Federal Reserve president has struggled since then to get dealers to carry out reforms.

(I guess he must not have read his March 23, 2005 speech
March 2007 – Yves Smith on Guithner Speech
)

Timothy Guithner March 23, 2007

“As of now, though, there are few signs that the disruptions in this one sector of the credit markets will have a lasting impact on credit markets as a whole.”

If anything, the Obama team has shown they are open to new ideas. The campaign was a beautiful effort of bottom up organization. Hopefully enough smart economists can get their ideas heard to make an impact on where we go from here (hint, hint).

re the Sorkin article, I thought investment banks like Lehman, Bear, and Merrill were under the aegis of the SEC, not the Fed.

The Committee to Save the World (circa 1999)

Who would have guessed that two of These Three Musketeers would be in positions of major influence Ten Years After.

In GM, the scramble has ALREADY HAPPENED.

GM bonds are now trading at levels similar to LEH just before the auction (10-20c on $).
The CDS on GM are basically trading off the recovery rate – i.e the same as if GM had already defaulted.
These are facts which can be independently verified, not opinions.

What folllows is that anyone and everyone who had to pay out the collateral had already done so, or went belly up if they couldn’t get the cash.

The notable exceptions to this being AAA rated cpties (such as Berkshire), who would have to pay it in one lump sum should GM go belly up (AAA rated cpties tend to be extempt from collateral, which is good when it’s good, but disaster should they lose their rating). So, if Mr. Buffet wrote a lot of CDS contracts on GM (I’d be a bit surprised if he did, but you never know), he may well suffer.

And anyone else that needs it.

There are always unintended consequences in a tangled crisis situation where all correlations have gone to one. Pull one toothpick out of a pile and sometimes the whole pile shifts and collapses further. In hindsight, playing the moral hazard purist card turned out to be not such a bright idea with Lehman. The same would surely be true for an impatient “cut the Gordian knot” shortcut on CDSs.

“For any complex problem, there is a solution that is simple, obvious, and wrong.”

The ISDA has gone to great lengths to portray the Lehman CDS settlement as a non-event. Not.

Per Yves above, the scramble happened BEFORE. Impossible to parse it out, but a lot of hedge fund position dumping in October was related to CDS settlements.

And with all due respect, Whalen has impeccable contacts, not just with banks, but with the very large institutional investors who are his customers. He most certainly knows of what he speaks as far as financial products are concerned.

AIG was/is the SIV for the LEH CDS bail. So those claiming it it was 8cents are smoking something.

As for the incremental $1.1 Trillion, its been good for 110 points on the S&P. In other words it only cost the American taxpayer $10 billion per S&P point. So by this measure to get us back to the Oct-07 high we need an incremental $6.5 trillion. As bloom reported yesterday, we have already spend or guaranteed $7.5 trillion. I guess that makes it $13 trillion in new debt and guarantees to get us back to the old high.

said differnetly, on a market cap basis for the S&P 500 the past 3 days have added 885 billion versus the $1.1 trillion spent. Negative leverage, just like the deterioriating debt to gdp ratios

Hank, where is the leverage?

I’m sure this man has vast differences from Paulson and Bernanke. Provided your perspective view is an insular myopic view from someplace on 5th Avenue in lower Manhattan.

Those with a far broader world perspective merely see one more slimy maggot in the teeming mass of maggots that were exposed when the rock was turned over. No functional difference from the rest.