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.