The agonies of Jefferson County, Alabama, which got itself into a too-clever-by-half funding arrangement that put the county on the verge of bankruptcy, have faded from the public eye. However, the type of transaction that caused so much woe, a swaption to supposedly lower financing costs, has been the subject of SEC and Justice Department […]
Read more...This informative discussion that sheds further light on the stresses created by credit default swap settlements comes in the current issue of the Institutional Risk Analytics weekly, “In the Fog of Volatility, the Notional Becomes Payable“: Another example of the ongoing discontinuity in the markets comes in the linkage between the unwind of credit default […]
Read more...Hyperbole has become a mainstay of discourse in the US. The upcoming financial summit set for November 15 in Washington DC is being wrapped in the Bretton Woods brand, when it appears to be a different sort of beast. As a Wall Street Journal story reminds us, Bretton Woods was a three week session among […]
Read more...In case you weren’t keeping tabs (the number and variety of handout-recipients grows with every passing day), AIG was first given a loan (really, akin to a maximum borrowing authorization) of $85 billion with much fanfare and high drama, which was later quietly increased by another $37.8 billion. In the last ten days, AIG has […]
Read more...In theory, moving credit default swaps from over the counter trading to exchange trading should reduce systemic risk. Exchanges fail far less often than individual institutions, and when they do, the damage has less propensity to propagate into a systemic event. As keen as the authorities are to get the big, opaque CDS market on […]
Read more...Overnight Libor showed marked improvement, but with the big worry has not been availability of funding overnight, but the willingness of banks to lend to each other at longer tenors, particularly thirty to ninety days, and the ability of corporations to sell commercial paper at those maturities. Libor continues to improve, but the gains overnight […]
Read more...More cheery news on the credit crunch front. Readers may recall that AIG entered into what was initially an $85 billion and was later increased by $38 billion with no further strings attached. The terms of the initial loan are pretty punitive, with the government loan having a two year term, a high coupon, and […]
Read more...Ed Harrison of Credit Writedowns alerted us to the impact on collateralized debt obligations, which have been crowded out of the headlines as a source of worry by other credit market train wrecks, like the failure of Libor to show much movement despite heroic central bank interventions. Note that the Iceland-related damage applies to a […]
Read more...The backlash is starting to get serious. It is one thing for the man on the street to fulminate about the excesses of financiers. And even those who try to harness that anger find themselves checked. John McCain, who has said that he is going to fix the economy by (among other things) going after […]
Read more...The Financial Times headline reads “Bad news on Lehman CDS” when by most readers’ standards, the content is almost entirely good news. It elaborates on and generally confirms the report that we posted earlier from the DTCC, that the net exposures on Lehman credit default swaps by major protection writers was in fact minor. However, […]
Read more...Reader Tim sent us a link to a press release from The Depository Trust and Clearing Corporation which says that the net payout on Lehman credit default swaps will be comparatively minor, a mere $6 billion, versus the gross exposure, which has been widely reported as in excess of $400 billion. If this proves correct, […]
Read more...All I can say is “ouch”. The theory is that for every loser there is a winner, but in this market with financial players at risk of failure due to hits to weak equity bases and/or runs, we have a serious asymmetry. A significant loss to an important intermediary, either directly, via CDS payouts, or […]
Read more...Those who wrote $400 billion plus of protection on Lehman’s credit default swaps had been expected to make a substantial payout in the 80% to 85% of face value range, but the preliminary auction showed even worse results. How the SEC and Treasury had so little clue that Lehman was in such bad shape is […]
Read more...First it was banks and securities firms, and now the focus of worry has widened to include insurance companies. Reader John referred us to a Reuters article that MetLife credit default swaps are now trading on an upfront basis, which means buyers of protection against the default of MetLife bonds must make an upfront payment […]
Read more...We wrote a couple of days ago that one of the reasons for rescuing AIG was that its failure would have had a devastating impact on EU banks. The insurer had entered into credit default swaps that enabled European banks to evade minimum capital requirements. Thus, an AIG failure would have put a considerable number […]
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