Posts Tagged ‘Credit Default Swap’

Dec

And on the 8th day God said, “Murphy, you’re in charge.”

Posted by: Dave in Economy, Life

For some months, I have been writing my thoughts on what has been happening around the world both politically and economically. Surely the motto for the past year must be, “If anything can go wrong, it will.”

The day before Thanksgiving, on November 26th, I warned FallenRepublic’s readers about the dangers of Credit Default Swaps. This, unfortunately, seems only to be the tip of the iceberg. There are many more items out there, with financial dollar amounts making the CDS catastrophe seem small as a mouse in a warehouse. For those who have not read my previous commentary on the dangerous nature of Credit Default Swaps, here is a most useful video explaining the problem and quantifying the CDS portion thereof.

Now, this is not the only problem. As I stated before, CDS were only the tip of the iceberg, tipping in at a whopping $50-60 trillion dollars. You normally would not look at $60,000,000,000,000.00 and find it to be a trivial figure, however; you have not yet seen how large the problem actually is. In the following article, I wish to describe the issues directly facing us financially which do explain Washington, D.C.’s haste to prevent bank failures.

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Tags: bailout, Bank failure, Credit Default Swap, Derivatives, Ecuador, emerging economy

2 Comments

Nov

“The legacy of Democrats and Republicans approaches: Libertarianism by bankruptcy.” – Nick Nuessle

Posted by: Dave in Economy

As we all have seen in recent months, the world has become a cascading wave of financial market volatility with almost every stock market worldwide suffering sizable downward corrections in recent weeks. As these markets lose value, it tells us that investors are pulling their money out of the markets. Traditional trends tell us that most investors, when moving out of stocks move into bonds, therefore; on days when the stock market drops, bonds benefit as money from stocks is placed in bonds.

This is, of course, the traditional model, but there is a historical precedent when both stocks and bonds declined at the same time. That time was the Great Depression. As you watch and wonder what market downturns mean, also keep your eye on many things which can tell you what is coming next. Factors such as drops in stocks and bonds at the same time, which signal wealth being cashed in and removed from the markets, increases in CDS (not CD’s that banks offer, but Credit Default Swaps) which tell us the likelihood of bankruptcy of the issuer of the CDS.