For the financial egg heads around here.

Discussion in 'Politics' started by B_spiker067, Feb 27, 2009.

  1. B_spiker067

    B_spiker067 New Member

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    Explain to me why all the naked credit default swaps/derivatives can't be declared null and void insurance contracts? Return any payments made (with interest) and call it even?
     
  2. Gl3nn

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    Do you have a day or two?


    Just try to use debit cards, not credit cards.
     
  3. lucky8

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    Because these companies were creating derivatives and other securities backed by CDO's and CDS's...essentially racking up their debt backed by money that didn't exist yet. They were using these risky derivatives as a form of debt financing, assuming they would be able to pay them off with the rising house prices. When house prices started to fall, the money they planned on making to pay off the debt holders never came, thus they defaulted on all of the securities they issued. If they write them all off, these companies, particularly AIG, would cease to exist.

    Mind you, this is a very short explanation that leaves out a lot of smaller but important details, but it's pretty spot on I believe

    You should read this article when you have the time. It's long but intersting and entertaining, and sort of explains what went on behind closed doors...
    http://www.portfolio.com/news-marke...11/11/The-End-of-Wall-Streets-Boom?print=true
     
    #3 lucky8, Feb 27, 2009
    Last edited: Feb 27, 2009
  4. B_spiker067

    B_spiker067 New Member

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    What is a "NAKED" Credit Default Swap? Is there such as thing as a "NAKED" derivative?
     
  5. lucky8

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    A naked derivative is one that was created without enough cash-to-cover. Essentially the investor does not have a short position in to cover if the market does not move in the way the investor planned. It gets complicated when defining a "naked" derivative, but just think of it as everytime a CDS was sold, another was created out of thin air...this adds up quickly and it gets to a point where if you write it off, you're fucked. The CDS market is estimated to have a value of anywhere from $40-$50 Trillion...that's a lot of monopoly money...
     
    #5 lucky8, Feb 27, 2009
    Last edited: Feb 27, 2009
  6. B_spiker067

    B_spiker067 New Member

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    It was my understanding that naked meant I was speculating on the price of something in which I had no vested interest. That is I took out insurance on whether or not my neighbor could pay his mortgage. Whereas, covered meant I took out insurance on whether I could pay my mortgage (or the mortgage I supplied to my neighbor as a mortgage broker who kept the loan).

    Is that not the type of derivative/CDS that has balloned by some estimates to $60 Trillion, many multiples of the actual value of the mortgaged properties.?
     
  7. JustAsking

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    Don't confuse the Credit Swaps with the actual derivatives. The derivatives and packaged securities were the product. The risk guarantees were the Credit Swaps, which were not backed by capital nor were they regulated by insurance regulations.

    As lucky8 was saying, everyone was counting on the value of real estate continuing to rise, therefore making even the worst risks profitable.
     
  8. B_New End

    B_New End New Member

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    way off topic... but my friend got me into deadwood, and Al is the shit.
     
  9. JustAsking

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    Damn straight. That is some of the best television in a long time.
     
  10. VeeP

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    Everyone should also catch CNBC's House of Cards. It will be on Sunday at Midnight ET (i.e., late night Saturday). If that's past your bedtime, record it. Prepare to be nauseated.
     
  11. faceking

    faceking Well-Known Member

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    well put.
     
  12. faceking

    faceking Well-Known Member

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    Wrong... it's Bush's fault, it was under his watch (sarcasm).
     
  13. D_Chaumbrelayne_Copprehead

    D_Chaumbrelayne_Copprehead Account Disabled

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    Since the dawn of time, people and businesses have gotten themselves fucked when they count too much on rosy scenarios continuing ad infinitum.
     
  14. faceking

    faceking Well-Known Member

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    True, but last I checked with the dips and dipshits the long-term chart always goes up, while the socialistic outcome is aimed at being flat.
     
  15. D_Chaumbrelayne_Copprehead

    D_Chaumbrelayne_Copprehead Account Disabled

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    No argument. Just sayin' that if your business plan is totally dependent on always getting a winning hand day in and day out, consider yourself totally fucked down the road somewhere.
     
  16. lucky8

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    Well CDS's are like insurance except you can take them out on other people/businesses. To define covered, I'd say look at it this way. You have a long position in a stock, you would also want to take out a short position in case the market moves in the wrong direction; this would classify your investment as covered. If the market moves down, you're covered by your short position. CDS's were basically being used as a short position to cover CDO's and other ABS's(but they were severly abused), and when all these companies defaulted on their CDO and ABS payments, companies like AIG had to pay out all of those short positions(CDS's) people had taken out on CDO's...dunno if that clears anything up for you or not but CDS's were bought by investors to cover for the riskiness of the CDO's...which were backed by the forecast of rising house prices...
     
  17. D_Davy_Downspout

    D_Davy_Downspout Account Disabled

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    Actually if you want to blame someone, blame Phil Gramm and the Commodity Futures Modernization Act, because the market pretty much didn't exist before he created it.
     
  18. B_spiker067

    B_spiker067 New Member

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    I watched the CNBC 'House of Cards' program. The guy who bet naked CDS's was the only honest guy there. He made 600% returns on saying the mortgage CDO's were going to crap out.

    I would force the AIG's he placed BETS with to pay him back ONLY the amount he paid for the CDS's plus interest. Right now tax money is going to this guy when he serves absolutely no function (i.e. no added value), not even as a canary in the gold mine. If AIG went bankrupt he'd be SOL himself too and possibly get no payment. He should be happy to get his money plus interest.

    AIG sold insurance on CDO's in various multiples to different people on a single transaction number. THOSE fuckers knew what they were doing was fraud.

    CAN YOU SAY CLASS ACTION LAWSUIT?

    Or can you say:

    THE TAX PAYER IS BEING RAPED.

    Obama is screwing this up as well as anybody else would have.
     
  19. lucky8

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    Actually, Congress, the Senate, Geithner, and Berkanke are the ones screwing this up, just like Congress, the Senate, Greenspan, and Paulson screwed everything up to begin with. Obama is more like a cheer leader when it comes to the TARP and the recapitalization of the banks, his main claim to fame is the stimulus package. But seriously man, read that article I posted earlier on in this thread. It's not a typical finance article, it's probably the most entertaining article I've ever read actually, and it's funny too. I promise you by the time you're done reading it, you will be in even more disbelief of how all of this was legal. Read it, it's fucking nuts
     
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