[devildog2067]

Originally Posted by SouthernRaider

Then why did the fed bail out AIG?

AIG sold CDSs on subprime mortgage backed CDOs, not on sovereign debt defaults. There's a big difference. Given the context that we were speaking in (the hypothetical about the US defaulting on its debt) I assumed that you were talking about CDSs written against default of sovereign debt.

I suppose it was my mistake for assuming that you knew this, but the swaps on the subprime stuff have absolutely nothing to do with the US potentially defaulting on its debt. The thing about sovereign debt defaults is that there are always cross-border jurisdictional issues that take years to sort out in the courts. It's an entirely different situation than the one that AIG faced.

[SouthernRaider]

Originally Posted by devildog2067

AIG sold CDSs on subprime mortgage backed CDOs, not on sovereign debt defaults. There's a big difference. Given the context that we were speaking in (the hypothetical about the US defaulting on its debt) I assumed that you were talking about CDSs written against default of sovereign debt.

I suppose it was my mistake for assuming that you knew this, but the swaps on the subprime stuff have absolutely nothing to do with the US potentially defaulting on its debt. The thing about sovereign debt defaults is that there are always cross-border jurisdictional issues that take years to sort out in the courts. It's an entirely different situation than the one that AIG faced.

A CDS on junk debt is a CDS on junk debt.

Goldman should have been ripped apart and their shareholders handed the loss......instead you and I covered their obvious securities fraud.

That debt bubble was just shifted to a government debt bubble that dwarfs the housing "crisis"

This is all clearly by design.

[devildog2067]

Originally Posted by SouthernRaider

A CDS on junk debt is a CDS on junk debt.

Yes.

So... figure out a better way to price credit-default swaps. You'll be a billionaire tomorrow.

What's that, you say? You don't know a better way? I guess we'll just go with the system as it is, then.

MY point, the one you keep missing, is that trying to collect on a swap that's written in another country by navigating another country's judicial system while their economy is melting down... well, you'll have better luck jumping out of an airplane and learning to fly before you hit the ground. Credit default swaps simply have nothing whatsoever to do with a potential US government default, which is what we were talking about.

That debt bubble was just shifted to a government debt bubble that dwarfs the housing "crisis"

That's insane. The government debt bubble has been brewing since the 1960's--the recent recession and related idiocy doesn't even move the needle. We're in huge trouble, but it has everything to do with the New Deal and the Great Society, and almost nothing to do with AIG or Goldman Sachs.

[SouthernRaider]

Originally Posted by devildog2067

Yes.

So... figure out a better way to price credit-default swaps. You'll be a billionaire tomorrow.

What's that, you say? You don't know a better way? I guess we'll just go with the system as it is, then.



That's insane. The government debt bubble has been brewing since the 1960's--the recent recession and related idiocy doesn't even move the needle. We're in huge trouble, but it has everything to do with the New Deal and the Great Society, and almost nothing to do with AIG or Goldman Sachs.

It has everything to do with Goldman and AIG......clear to the few that can connect the dots.

Why have a central bank if you can't nationalize your losses?

[SouthernRaider]

As far as CDS pricing make banks assume their own risk..... that way the system is self regulating.

It would take a non corrupt govt to pull that off though

[devildog2067]

Originally Posted by SouthernRaider

It has everything to do with Goldman and AIG......clear to the few that can connect the dots.

Explain to me, then.

Better yet, explain it to the HRO HUB fund, which blew up after taking a $1.5B position in GKOs. They were hedged with swaps through a French bank which flatly refused to pay.

So here you have a hedge fund which actually hedged its position (that's what the "hedge" in hedge fund is supposed to mean, after all) using a completely legal product and the counterparty to the swap told them to go pound sand. It took years to work its way through the French court system and by the time the French bank was ordered to pay, the fund was out of business and their ability to beat a fair settlement out of the bank was curtailed by their inability to pay for good legal representation.

Explain to me how credit default swaps against sovereign debt defaults matter, when you're trying to collect in a foreign jurisdiction. Oh yeah, the country where you're trying to collect the money is in financial meltdown, too--that's the reason why the convertibility event occurred in the first place.

Credit default swaps do not matter one iota when it comes to a potential default of US Treasury securities. No one in their right mind thinks that there is any possibility at all that the swaps would just get paid on demand. The legal stuff would take decades to sort out.

[devildog2067]

Originally Posted by SouthernRaider

It has everything to do with Goldman and AIG......clear to the few that can connect the dots.

Really.

Explain to me how the unsustainable debt bubble that is Social Security and Medicare is Goldman Sach's fault. I seem to remember something about a couple of Presidents who came up with the laws, and something else about people living a lot longer than they used to, and something about how medical care has gotten a lot more expensive.

Which of those things has anything to do with AIG or government bailouts? Oh yeah, none of them.

The amount of money we pissed away on the bailouts dwarfed by the size of the debt we've created for ourselves with social entitlement programs. You seem incapable of understanding the size of the numbers involved.

[jeager]

Every vacant home in a decent neighborhood
will be bought by a nice RoC Family.
There goes the grade curve at schools, your children
will become servants.
Crime will be a "capitalist disease" and cured by
a family curse of several generations.

[JW1178]

(didn't mean to quote you DD)

I just say, look at Greese. The only thing is that we are so big, nobody will be able to bail us out.

I think at some point it will come to where the US government can't get loans, then as they keep printing money, people will not value the currency. I'm sure you know this, but our money only has value because we think it has value.

I think the only reason we are not seeing a lot more inflation now as we should is because a majority of people are making less than they used to make, so they value their money more. That will only go so far.

It might be the best thing that happens to us, in the long run.
It will be really good for some people, really bad for others. I think people who work in the financial industry will be SOL. That's in my opinion why the government keeps this train going full steam ahead.

[BobbyS]

The good thing, when China takes over, is they will probably nuke N. Korea from here.

[farscott]

Greece was a great example of the International Swaps and Derivatives Association (ISDA), the trade association that acts as a regulatory body that decides whether a "credit event" sufficient to trigger a CDS occurred, not abiding by the rules.

By definition, a default is not making a bond payment for the full amount due on the date it is due per the contract created at the time of bond sale. Greece clearly defaulted by that definition, but it took quite a few petitions for ISDA to agree that either the collective action clauses or the non-payment were a default. At first, ISDA only agreed that certain bonds covered by certain CDS instruments occurred.

Not until 09-MAR-2012 did ISDA declare a Hellenic-wide default had occurred even though Greece had retroactively inserted the clauses into existing bonds on 09-JAN-2012. ISDA stated that the creation of the clauses, which changed the legal contract on which the bonds were offered, did not constitute a default. Only their exercise did. Of course, the clauses were inserted to force the bond holders to accept payments far below face value.

The idea of a CDS to hedge risk in sovereign bonds failed on 09-JAN-2012.

Originally Posted by devildog2067

That's simply not true.

We saw the impact of CDSs in the GKO debacle, and again in Argentina. What happened? Banks argued about whether the default constituted a "convertibility event" under the legal definitions of the contract. Payments, when they happened, took as long as a decade to actually get paid. Funds blew up.

The lesson is that credit default swaps, in the event of a really large default, are worth nothing. They basically don't matter. When paying out the swap would cause the institutions that underwrite the swap to blow up, they simply don't pay.

[SouthernRaider]

Originally Posted by devildog2067

Explain to me, then.

Better yet, explain it to the HRO HUB fund, which blew up after taking a $1.5B position in GKOs. They were hedged with swaps through a French bank which flatly refused to pay.

So here you have a hedge fund which actually hedged its position (that's what the "hedge" in hedge fund is supposed to mean, after all) using a completely legal product and the counterparty to the swap told them to go pound sand. It took years to work its way through the French court system and by the time the French bank was ordered to pay, the fund was out of business and their ability to beat a fair settlement out of the bank was curtailed by their inability to pay for good legal representation.

Explain to me how credit default swaps against sovereign debt defaults matter, when you're trying to collect in a foreign jurisdiction. Oh yeah, the country where you're trying to collect the money is in financial meltdown, too--that's the reason why the convertibility event occurred in the first place.

Credit default swaps do not matter one iota when it comes to a potential default of US Treasury securities. No one in their right mind thinks that there is any possibility at all that the swaps would just get paid on demand. The legal stuff would take decades to sort out.

So a fund that "blew up" is your argument?

It was still a disaster....... multiply that little collapse by the numbers you claim I don't understand.

[SouthernRaider]

Originally Posted by devildog2067

Really.

Explain to me how the unsustainable debt bubble that is Social Security and Medicare is Goldman Sach's fault. I seem to remember something about a couple of Presidents who came up with the laws, and something else about people living a lot longer than they used to, and something about how medical care has gotten a lot more expensive.

Which of those things has anything to do with AIG or government bailouts? Oh yeah, none of them.

The amount of money we pissed away on the bailouts dwarfed by the size of the debt we've created for ourselves with social entitlement programs. You seem incapable of understanding the size of the numbers involved.

The money was not spent on SS and Medicare, rather war and welfare.

The connection between the fed, the big banks, and the national debt is more subtle than you will find in your average CNN article.

[Restless28]

This has been a great thread. Even though I sometimes disagree with DevilDog, I do not here. It's refreshing to see some semblance of optimism here, especially since it is based on facts.

As far as the inflation thing, that is my fear. It is the greatest threat to individual wealth. I assume its almost inevitable that its coming, but I agree with DevilDog, it won't be like Zimbabwe or the Weinmar Republic.

[SouthernRaider]

Originally Posted by Restless28

This has been a great thread. Even though I sometimes disagree with DevilDog, I do not here. It's refreshing to see some semblance of optimism here, especially since it is based on facts.

As far as the inflation thing, that is my fear. It is the greatest threat to individual wealth. I assume its almost inevitable that its coming, but I agree with DevilDog, it won't be like Zimbabwe or the Weinmar Republic.

Fact that CDS's may not pay in a crisis?

How does that make anyone feel better?

They use the contracts to justify excessive risk in the name of unjustified profit. The risk cannot be quantified, but based on recent numbers and events appears to be substantial.

[certifiedfunds]

Originally Posted by SouthernRaider

The money was not spent on SS and Medicare, rather war and welfare.

The connection between the fed, the big banks, and the national debt is more subtle than you will find in your average CNN article.

No.

1. SS and Medicare expenditures far exceed the annual cost of both wars.

2. SS and Medicare are wealth redistributive welfare.

3. The entire annual revenue is consumed by welfare spending. SS and Medicare = >50%


Posted using Outdoor Hub Campfire

[series1811]

Originally Posted by JohnnyReb

How can you default when you just print more money?

The problem then becomes inflation. The only thing preventing runaway inflation at this point is low interest rates.

There will be no callopse of the financial system until those that hold dollers view them as worthless. The biggest danger is losing the status as the worlds reserve currency.

If the rest of the world doesn't want to deal in dollars, then we will have a problem.

This is the plan and its already being put into play through quanitative easing and the buying of our own debt with essentially printed dollars.

And, yes, the result will probably be hyper-inflation, and the eventual collapse of our country. But, it does kick the can down the road a little farther, the only apparent goal of our fiscal policy.

[SouthernRaider]

Originally Posted by certifiedfunds

No.

1. SS and Medicare expenditures far exceed the annual cost of both wars.

2. SS and Medicare are wealth redistributive welfare.


Posted using Outdoor Hub Campfire

Both programs ran at excess for years..... the govt used the excess for other activities that now appears as debt.

[certifiedfunds]

Originally Posted by SouthernRaider

Both programs ran at excess for years..... the govt used the excess for other activities that now appears as debt.

Doesn't change the facts

In order for a SS recipient to receive a check money must be confiscated from one person and given to another. Combine that with the fact that boomers and their parents will receive far more than they ever paid in taxes.

That is wealth redistribution.

That is welfare.

THAT is the primary driver of deficit spending.

SS, MC and DOD exceed annual revenue.


Posted using Outdoor Hub Campfire

[arclight610]

Originally Posted by SouthernRaider

Both programs ran at excess for years..... the govt used the excess for other activities that now appears as debt.

Honestly, there is nothing we could do at this point to service the debt without causing a massive recession, depression, or alot of angry old people.

[Atlas]

Originally Posted by arclight610

Honestly, there is nothing we could do at this point to service the debt without causing a massive recession, depression, or alot of angry old people.

exactly.

[series1811]

Originally Posted by arclight610

Honestly, there is nothing we could do at this point to service the debt without causing a massive recession, depression, or alot of angry old people.

It's starting to dawn on more and more people, (not the ones voting Democrat unfortunately) that there is no way to pay our debt. We can't even figure out a way to get rid of our deficit.

As long as the Democratic voters don't pick up calculators and start using them, the Democrats can keep telling their supporters this problem will easily be solved by taking everyting the rich (while defining what it take to be rich down more and more) have.

Along with the idea that we will grow our way out of this problem by killing businesses and the maker's will to make.

[devildog2067]

Originally Posted by SouthernRaider

So a fund that "blew up" is your argument?

The fact that the fund couldn't get the swaps to pay out is my argument. Are you being deliberately obtuse, or are you just incapable of understanding?

It was still a disaster... multiply that little collapse by the numbers you claim I don't understand.

Of course it was.

I never said or implied that a US debt default wouldn't be a disaster. I simply disputed your attempt to say that credit default swaps would have any effect on the size of said disaster.

My point remains: credit default swaps simply do not matter in the context of a default on the US debt. If that were to happen, it's unlikely that the swaps would pay. Everyone knows this. (It just happened again in Greece, as farscott points out.)

[mhill]

DevilDog and Atlas are spot on in this thread.

No war will come of this.

Worse case is a lot of inflation. I remember the late 70's with Stagflation. My Dad was trying to start a business and getting loans at 18-20% interest. I thought they were crazy. Seemed to work out with how the prices went up. It was a painful time and hard on businesses that had to borrow money. Hard on homeowners trying to buy homes. This is the only way out of the debt. It will probably actually be a lot worse than the 70's though.

I wouldn't be surprised to see some kind of sudden event where your money loses 1/3 it's value suddenly. Putting your money in the bank and hoping for low inflation is a fools bet in my opinion. While this looks on the surface like the safest way to save it is in fact a risky proposition. I'm diversified in real estate, Gas, Electric, and other staples. They may take a hit too. I just feel that I'm hedged against inflation this way.

We are in trouble. However we have been talking about this same problem since the 70's and it's just become worse over time. There is no predicting when the SHTF. Prepare properly.

The US can always print it's way out of a debt problem. That's why they got rid of the gold standard.

[Old School]

Good thread. Just to note, bond holders own debt. The people who own US bonds are only owed an obligation to pay per terms. In case of a default, they do not have a warranty to "ownership" of America.

I suspect a default will not be absolute, more of the haircut that would reduce our obligation. The restructure would likely include budgetary restrictions (to ensure we will have money to pay what is left) so the whole thing would need to be approved by Congress. In that regard, there may be foreign interests driving those budgetary restrictions, so there is an issue of sovereignty, but they can not supersede Congress.

I don't understand the fear of credit default swaps. It's childish to think that all financial instruments will grow and make money forever. We just don't live in a world of unicorns and rainbows. Nothing wrong with having an instrument that allows for a bet on a poorly run entity to fail. What people don't realize is that credit default swaps backfire all the time. People bet on failure that doesn't happen.