Monday, 13 October 2008

What is Going On?

I have a few question marks:

Banks are writing to small businesses, putting their loan interest rates up by 70%. These letters are arriving as banks have been told to lend at 2007 rates by The Master. Will they bring these rates down again?

How do chairmen of banks manage to keep a decent pension pot, when everyone else's has gone to shit?

Luckily, after a sleepless night (no, not worry) I was able to learn what "Churning" is from the comments on CIF.

Masticator said at 12.29


A period of deflation with taxpayer support for good banks as bad banks are euthanased and their assets taken over, is what is required. The last Depression got bad because good banks went to the wall. That is what must be avoided.

That's exactly what needs to happen but it isn't going to. Far too many of the ultra rich will suffer personal ruin.

Another poster asked how the CDS market could be worth 60 trillion, a sum larger than the planets GDP. Well let me introduce you to the concept of churning. A banker writes a CDS to insure a bond, he then offsets his risk to other parties, i.e. he re-insures, and they in turn offset their risk and so on and so on. Now this sounds OK(ish) so far, however please bear in mind that CDS are not really what they appear. They're advertised as a form of insurance to reduce counter party risk, in reality they're a form of speculative investment which have morphed into an alternative currency. The more churn or turnover in this crap the more the bankers could cream off the top as fees and the bigger their crimbo bonuses (huzzah!). So to put it mildly they had a bit if incentive to ensure that their clients were lured into buying this stuff and sucked in as many counter parties as possible. A million dollars worth of CDOs could well end up as a hundred million in CDS spread over thousands of investors.

Now for the scary bit. As the US housing market collapsed some of these CDS obligations were called in, and hey guess what? It turned out that many of the individuals and companies who wrote these 'policies' had neither the means or inclination to meet their calls. Who would have thought that in a completely unregulated market people might fib about their ability to pay? And so the demand to pay these IOUs has been marching up the chain. This is what's causing the equity markets to go into meltdown as everybody desperately tries to go liquid to pay off this crap, that and blind panic obviously. And the ultimate suckers holding the pile of steaming shit when the music stops? Well the banks of course.

So what's the final bill? No idea, but lets grab a number out off thin air, 10 trillion US net. It might be 5 trillion or 20 or even a hundred squillion for all anybody knows. But if the guesstimates on the size of the market are correct the net exposure will be a lot less for reasons I've explained. But it's still a bloody big number and growing all the time as the economy heads down the toilet.

So what about dratkins point? Why aren't governments organising a clear out and unwinding the banks holding this stuff? Well to do so would be to admit that the trillions in derivatives held by some of the worlds wealthiest and most powerful are actually worthless. Instead we are seeing a more gradual unwinding as counter party risk is transfered to the good old tax payer allowing our elites to enjoy a fun packed retirement in the Bahamas or to wait until the market bottoms and make a killing. Why do you think there is almost no debate or analysis over the central cause of the economic melt down in our media? Coincidence? lol

But things are not all bad...there's plenty of construction work , here Scroll down the article for incredible pics, both actual and projected.


Sen. C.R.O'Blene said...

As wot I wrote on Trubes earlier:

'What really annoys me is that the party of business - the Tory lot, are just sitting around mumbling 'yes' to everything, and are not doing anything to put up an alternative case for a solution.

I fear it all comes down to the fact that such generous expenses, salaries and pensions just obviate any attitude other than smugness in our political wasteland of talents.'

But I like the pics of Dubai...they all came from screenshots of Simcity, and you're the Mayoress Lils...;0)

Electro-Kevin said...

Thank you, Lilith.

I dipped out on the promo. I've told them that the offer's still open if they want me.


Electro-Kevin said...

How many banks will Dubai have ?

Philipa said...

Yes I got a letter the other day telling me the interest rate on my credit card was going up. I'm going to pay them off and be in small to no debt with no savings. It seems hand to mouth and no money is the only way.

We'll be back to bartering chickens soon.

Trubes said...

Now we know where all our money has gone...They can build all the desert cities they like but they will still be plastic souless places to me. It really is obscene.
No doubt all the champagne socialists will have properties out there.....
Hmm Trubies getting angry again...must go and clean the Rabbit's house out.... Quite therapeutic. I can rant at him and he doesn't answer back, just licks my ankles.


Daisy said...

i just figured i would do what i can...while i can...and when i can't...i won't anymore...:)

idle said...
This comment has been removed by the author.
idle said...

Jesus, that's a vulgar place. I went on business in 1990 when it was barely more than a town. Absolutely no interest in going back there now. Why the hell anyone would want to LIVE there is beyond me. I think of all those footballers' houses on palm island and imagine a tsunami. You could blow up that 7* hotel with 100% occupancy and barely a civilised or worthwhile soul would perish.

Sen. C.R.O'Blene said...

You've got a point there Iders - there is a possibility that Palm Islands 1 and 2, and even The Lagoons do have a bit of a future problem beginning to fester, which would be missed by the average thicko footballer.

It is rumoured that since building the place, the flow of water round the banks has been drastically, and I mean almost terminally reduced to a dribble of sluggish, near stagnant unpleasantness.

Time will tell what will happen after all the places are inhabited by the great unwashed/uneducated and their nasty habits, rubbish floating everywhere, and redundant olfactory senses...

They may even return to England, which would bring hard earned money to Gordon Brown's pension funds for ageing celebrities and failed politicians!

On the other hand, it might be just the place to go and live out your life on the 34th floor - rather like those places just North of the Blackwall Tunel ;0)

I wouldn't go there either.

Trubes said...

Ooh I say Lils I've just noticed that Scrobs has 'name dropped' me on his first comment 'As wot I wrote on Trubes earlier'...Fame at last....or is notoriety?

I agree with Scrobs last comment, I wouldn't go to one of desert places for a holiday either. After two weeks on holiday in Tunisia several years ago, I've no desire to either, give my money to robbing Arabs or to be pursued round their mucky souks by them.

One can't help think of a Tsunami happening there..Thers no where to run and the buildings would probably collapse under an innundation. I hope they've got plenty of rock under all that sand.....

Over to you Scrobles darling! Whatcha think ?


Trubes said...

Hey! it's Phillipa's Birthday today!

The Old Tarf said...

"How do chairmen of banks manage to keep a decent pension pot, when everyone else's has gone to shit?"

Isn't Pot and Shit the same thing. We used to say this Pot is really good Shit.

Just to change the subject a little. It is an older seniors moment. Forgot where I was. Oh, well.

Alas, I guess only the Bank Chairman can afford it now. :(

Sen. C.R.O'Blene said...

Actually TrubyDoo, there is that possibility - remote but still there, because sea levels are rising somewhat (forget globule warming, think seismic shift), and a few feet in either direction up or down would make it a nasty place to wander about in after dark...

Also, the main roads on and off these developments are hopelessly inadequate, rather like trying to get everyone off the Isle of Dogs in rush hour, but on one road only, with the traffic lights busted and stuck on red, a bloke in an old Datsun mending a puncture in the middle lane, a policeman intending to book everyone he sees with an unpleasant passenger, three dogs running loose and one of windscreen washer fellers creating havoc...

On the Thursday before Easter...

lilith said...

Well, Scrobs, Elby mailed Annunziata with all the instances the IMF warned Brown that he was playing with fire..and she was pleased. I hope they use it.

I am sorry you didn't get it. Maybe you were runner up and the one that got it will turn out to be useless and they will beg you to reconsider?

I counted 14 banks, Kev.

Pip, very wise. Try and stay within means. It may not always be possible.

Trubes, the rabbit licking your ankles is SUCH a diverting image I have quite forgotten what I was going to say. Oh yes, Dubai is weird.

Daisy quite so.

Iders, vulgar is the word! It's not the kind of place you'd go unless someone else was paying.

I think the drinking laws are a bit tricky there too.

lilith said...

Trubes, of course you are famous.

Scroblene, I have even less desire to travel there than I had which was none, after your description,. sounds worse than Rochdale.

lilith said...

Happy Birthday Pip!

lilith said...

Old getting this shit all the way over there, dude?

Yes, but why can the chairman afford it? Can he help himself to a top up every time the ftse goes down?

The Old Tarf said...

Lilith- it has to be insider trading that does it. Like the bigwigs at Enron how they made a fortune on everyone else's misery.

Anonymous said...

I worked in the UAE in the 1970s when Abu Dhabi was little more than an overgrown fishing village, and Dubai was merely a small settlement on either side of the famous creek. The other emirates consisted of little more than sparsely inhabited sand dunes. Dubai was always the powerhouse of the Emirates with its dhows, entrepot traders ranging across to Iran and up and down the coast of Africa, smugglers and other aimiable ne'er do wells. Abu Dhabi produced more than enough oil to pay for the rest of the country's needs.

The influx of oil dollars has desecrated what really was a pleasant place to pass some time, as I am sure old Gulf hands will confirm. The place started to go downhill when the price of oil was quadrupled in around 1973/4 and the sheikhs, who used to spend most of their time out in the desert with their falcons, became so embarrassed by those untold riches pouring in that they just had to spend it on something. Regrettably they chose the worst option (usually under the malign influence of certain famous international con-men). The rest as they say is history.

I passed through there recently and was very depressed at what had become of one of my (now ex) favourite hangouts. The crudity of the "development" of Dubai is beyond words. The effects of one good Iranian earthquake could one day well wipe it all out!

lilith said...

Nomad! Welcome back, I was missing you :-)

That is a sad tale. I have heard that a lot of the engineers/architects involved in building Dubai were/are second rate.