Thursday, December 4, 2008

Sovereign credit default swaps move up

CDS' spreads are going up across the board, but Turkey, at $463.50 for every $10,000 in debt, is still at a cheap price, as they have entered in enough derivative transactions that it would even make a banker in Iceland wince.

And now insurance cost on sovereign debt of the US is $60 for $10,000 of our debt, up from $8 at the start of the year.

Does anyone wonder why the Fed is considering other "unconventional" steps to unlock the credit markets?

And then Trichet of the ECB, who hasn't yet made a correct call, laments about being trapped at low nominal rates.

These bankers raised rates while speculators gunned commodities, and as any good Central Banker will do, they'll continually worry about what has happened, instead of what is going to happen, as they continue to look in the rearview mirror.

Commodities are the most leveraged of any "financial" product; yet they can't find a bid as every hedge fund thought they could front run every real buyer of commodities.

Now they are getting trampled.

A debt fueled buying binge that overstated growth and asset prices just doesn't reflate. It was the debt that caused the binge. Are consumers all of a sudden going to have their incomes appreciate at the rate that housing did, magnified by the component of leverage and debt?

20% of homeowners are already underwater on their mortgages, so these individuals are already effective "renters." What chance do these individuals have in trading up in housing? How about trading down by just turning in their key and renting without taxes and homeowner insurance?

Yet Trichet is worried that "inflation" is coming back?

I'd like to see a market in credit default swaps on Trichet, Geithner, Bernanke, Rubin and Paulson.

Because one of these clowns would have a CDS contract equivalent to Iceland's. Just go back to this Fortune article in January entitled Robert Rubin: What Meltdown?:

A lending catastrophe has consumed homeowners, mortgage companies, and the financial system, but Robert Rubin, Citigroup's director and executive committee chair, doesn't seem particularly alarmed.

He told a small crowd at Manhattan's Cooper Union for the Advancement of Science and Art Wednesday that the problems now roiling the markets and forcing the Federal Reserve into a defensive posture are "all part of a cycle of periodic excess leading to periodic disruption," and that we are not in fact on the verge of a financial meltdown.

By the time he finished, Rubin, a thin, graying, distinguished man with a genial manner had charmed the academic crowd. He had catered to their sense of vanity by excoriating politics and elevating the role of higher education.

Which is why Iceland and meltdown is not an oxymoron!

1 comment:

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