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Smaller estimate, still FAR greater than 1 trillion.
http://moneymorning.com/2008/04/02/c...llion-problem/
EDIT: The date explains the lower estimate.
Smaller estimate, still FAR greater than 1 trillion.
http://moneymorning.com/2008/04/02/c...llion-problem/
EDIT: The date explains the lower estimate.
Slide 5
http://www.google.com/url?sa=t&sourc...0LzVaA&cad=rja
Once again - before the peak and thus the smaller amount that is still FAR greater than 1 trillion.
Banks and insurance companies are regulated; the credit swaps market is not. As a result, contracts can be traded — or swapped — from investor to investor without anyone overseeing the trades to ensure the buyer has the resources to cover the losses if the security defaults.
So, all of a sudden in 2008 it becomes apparent that all Wall St is hugely leveraged on MBS which are pretty toxic but whats worse is the insane amount of CDS that are written on those MBS. When it becomes apparent that those CDS are going to have to be paid off because these firms failing it then becomes apparent that there are CDS written ON TOP of other CDS which will have to come in and that the money isn't there to cover any of them.
Yeah, that didn't have anything to do with the cascading fall of confidence in the system. It was those damn people and their loans.
Man, that has got to take the cake for stupid said here.
Move over "man evolved from a snail, you igmo", here comes a new Yoni-ism.
CDS debt, especially naked swaps basically double the losses to an economy from every bond default.
Before it used to be just the people who held the bond that lost money.
Now the hedge fund that issued the swap also takes the hit.
But this is private sector innovation. That would never cause any ill-effects. Musta bin the big bad gubmint.
$50 Trillion is total assets involved in CDS's. They don't say how much of that is related to the mortgage crisis but they do suppose, down in the article...
There's no certainty the losses would even approach $50 or $63 Trillion.Big Defaults, Big Trouble
Suddenly home mortgages along with corporate credit and other types of consumer credit are in question and loss rates, which were very low in 2005-06, are soaring.
That spells big trouble for credit default swaps.
If just 10% of CDS underlying risks go bust, somewhere in the financial system there will be $5 trillion in losses.
Yes, there could well be $5 trillion of profits elsewhere in the system, because derivative transactions theoretically balance out. But once defaults start piling up, it's possible that many of those losses will become real, while the profits simply won't.
For example, hedge funds that have offered credit protection on risks far in excess of their current capital will quickly be unable to pay claims. Their counterparties will suffer unexpected losses, even though they thought they were protected by a CDS.
This article seems to unjustly paint the CDS market as inherently unstable when, it seems to me they don't adequately dispel their own premise "derivative transactions theoretically balance out."
Again, how much of the CDS involved are represented by toxic debt?
Nothing about the amount related to the toxic debt.
You don't understand the amount related to toxic debt is irrelevant because the largest firms that wrote all of these were going down. When AIG failed it wasn't just failing on its CDS written on toxic debt. It was failing on all of them. Confidence in the entire system went through the floor.
Why do you think the amount of CDS outstanding debt has been falling fairly fast since the crisis?
Of course all of the CDS's won't be defaulted on. Just like not all sub prime loans will be defaulted on. Are you claiming 1 trillion in defaulted loans, Yoni? Thats not the point. When you're heavily leveraged on an investment vehicle you don't go "Oh, well I'll get 80 cents on the dollar so ITS OK".
The Treasury did eat $1.1T in toxic debt to get it off the financial sector's books.
the CDO/MBS/derivatives market is separate has been variously estimated to at least $40T, and I too have seen the $60T numbers.
I love how you put up a claim of 1 trillion in toxic debt and then move the goal posts to how much has actually failed when you get shown that 1 trillion was a pretty small drop in the bucket.At least you've backed off your stupid claim that I was somehow confusing CDS outstanding debt with the national debt.
I intentionally bumped this thread because it was incredibly clear just how wrong you were. Thanks for biting hard and sinking that hook even deeper.
Pretty ominous.
I think it's important, to your position in the debate, to actually quantify the amount of assets affected by CDS's underwriting toxic debt. Because Credit Default Swaps are not necessarily the bad thing your blanket argument would suggest.
That's why I laughed at the $63 Trillion dollar figure and decided you weren't serious.
My figure is closer to the truth than $63 Trillion.I love how you put up a claim of 1 trillion in toxic debt and then move the goal posts to how much has actually failed when you get shown that 1 trillion was a pretty small drop in the bucket.
I intentionally bumped this thread because it was incredibly clear just how wrong you were. Thanks for biting hard and sinking that hook even deeper.
Derivatives can certainly play a role in any economy assuming they are properly regulated. When people can write contracts and sell them non stop while having absolutely no ability to pay then of course they are a terribly bad thing. Thats exactly what happened in the build up to the financial crisis. Thats why those companies failed. It wasn't the sub prime mortgages. THATS the point.
Even if I go with the lower end of estimates on the outstanding derivatives debt it still dwarfs your figure. It is likely more fair for me to do that, but that in no way helps your point.
Uh-huh. A Republican-led witch hunt found witches.
Shocking.
Given for a second that ACORN, the multimillion-dollar organization, strong-armed the billion dollar banks into making loans in the housing crisis, the scale of the bubble was such that any such lending directly caused by this organization would have paled in comparison to the scope of the problem.
You are, in essence, attempting to make the argument that a guy pissing in the Mississipi is one of the main causes of the flooding 200 miles downstream.
Sure the guy contributed to the flooding. Was he one of the main causes? No.
The Dunning–Kruger effect is a cognitive bias in which unskilled people make poor decisions and reach erroneous conclusions, but their incompetence denies them the metacognitive ability to recognize their mistakes.[1] The unskilled therefore suffer from illusory superiority, rating their ability as above average, much higher than it actually is, while the highly skilled underrate their own abilities, suffering from illusory inferiority.You got no critical thinking skillz, homie, if you present an obviously politically motivated hit piece's conclusions as proof that a multi-trillion dollar bubble was caused to any large degree by some community organization with a laughably small budget.Kruger and Dunning proposed that, for a given skill, incompetent people will:
1.tend to overestimate their own level of skill;
2.fail to recognize genuine skill in others;
3.fail to recognize the extremity of their inadequacy;
4.recognize and acknowledge their own previous lack of skill, if they can be trained to substantially improve.
The $63 trillion dollars of CDS's are only those that are voluntarily reported to the non-profit organization that tracks them.
The real figure must therefore be higher, but how much is not known.
Of course, nothing stops an en y from issuing multiple naked CDS' on one en y in theory.Sources of market dataData about the credit default swaps market is available from three main sources. Data on an annual and semiannual basis is available from the International Swaps and Derivatives Association (ISDA) since 2001[22] and from the Bank for International Settlements (BIS) since 2004.[23] The Depository Trust & Clearing Corporation (DTCC), through its global repository Trade Information Warehouse (TIW), provides weekly data but publicly available information goes back only one year.[24] The numbers provided by each source do not always match because each provider uses different sampling methods.[3]
According to DTCC, the Trade Information Warehouse maintains the only "global electronic database for virtually all CDS contracts outstanding in the marketplace."[25]
The Office of the Comptroller of the Currency publishes quarterly credit derivative data about insured U.S commercial banks and trust companies.[26]
That would mean that if ten en ies took out CDS' on some company's bonds and that company went under, that would create $11 worth of losses to the economy for each $1 of bond, potentially magnifying losses to the financial sector by many times over.
(edit)
62.2 trillion in 2007:
http://www.isda.org/statistics/pdf/I...nnual-data.pdf
You were off by $800 billion, which, in this case, was a minor rounding error, as scary as that sounds.
Whats even greater is that if you sell bonds you know you are going to fail and buy CDS that will be paid off when those bonds fail. Win Win! Conflict of interest my ass!
I notice you have been remarkably silent on the role played by Fannie and Freddie gobbling up over $1 Trillion dollars in Sub Prime and Alt A mortgage loans at a time when they were nearly fiscally insolvent...and, continuing to project their outlays as being government-backed and damn near impervious to default. Of course, this was made possible with the help of Barney Frank and Maxine Waters who blocked every attempt to reign them in.
So, just what is your figure? Now that we've determined $63 Trillion is laughable...just where is the needle?
Fannie and Freddie's role was bad.
I don't think we've determined any such thing. You may wish for it to be laughable, but there are do ented sources with that figure so I'm not sure how you can say its laughable.
I'll say its on the high side of a range. A range that dwarfs the out standing sub prime mortgages and thus had much more of an influence over the economy.
So, you're suggesting the amount in bad CDS's approaches $63 Trillion or the amount involved in CDS's is $63 Trillion?
I just want to be clear.
The amount invested in the CDS market in total. Obviously not all of that was bad but nor does it all need to be bad for reasons laid out before.
Okay, so how much of it is bad? Bad, as in underwriting bad/toxic debt not, bad as in I don't like CDSs so they're bad.
How much of your 1 trillion dollar in toxic debt is bad? Neither is relevant. When underlying confidence in a system goes then how much of it is actually bad is not important. Whether you get 95 cents on the dollar or 80 cents on the dollar is of no real importance when diagnosing whether something is a good investment. Obviously both are bad investments. If all of of those CDS were called in today how many would be paid? Quite a small fraction of them, of course. I don't have an exact number, but you really don't need one.
I'll give you another system where this is a similar case. Deposit accounts. If everyone were to make a run on the bank today and withdrawl the amount in their account how much would actually be able to be paid out? The entirety of the accounts? Yeah ing right. Why does the system work then? Because of confidence in the system.
When confidence ran out of the CDS market, it had disastrous effects.
Last edited by Winehole23; 10-17-2011 at 12:20 PM.
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