If Think Subprime Was Bad, Try Credit Default Swaps
MORE GLOOM FOR THE ECONOMY
OIL EXPECTED TO RISE TO $150 A DOLLAR.
(Note that Oil Companies bought two full time ads in Today's NY Times.)
READ: F. William Engdahl -The Financial Tsunami has not reached its Climax Credit Default Swaps: Next Phase of an Unravelling Crisis
While attention has been focused on the relatively tiny US "sub-prime" home mortgage default crisis as the center of the current financial and credit crisis impacting the Anglo-Saxon banking world, a far larger problem is now coming into focus. Sub-prime or high-risk Collateralized Mortgage Obligations, CMOs as they are called, are only the tip of a colossal iceberg of dodgy credits which are beginning to go sour. The next crisis is already beginning in the $62 TRILLION market for Credit Default Swaps. You never heard of them? It's time to take a look, then.
The next phase of the unravelling crisis in the US-centered "revolution in finance" is emerging in the market for arcane instruments known as Credit Default Swaps or CDS. Wall Street bankers always have to have a short name for these things.
As I pointed out in detail in my earlier exclusive series, the Financial Tsunami, Parts I-V, the Credit Default Swap was invented a few years ago by a young Cambridge University mathematics graduate, Blythe Masters, hired by J.P. Morgan Chase Bank in New York. The then-fresh university graduate convinced her bosses at Morgan Chase to develop a revolutionary new risk product, the CDS as it soon became known.
A Credit Default Swap is a credit derivative or agreement between two counterparties, in which one makes periodic payments to the other and gets promise of a payoff if a third party defaults. The first party gets credit protection, a kind of insurance, and is called the "buyer." The second party gives credit protection and is called the "seller". The third party, the one that might go bankrupt or default, is known as the "reference entity." CDS's became staggeringly popular as credit risks exploded during the last seven years in the United States. Banks argued that with CDS they could spread risk around the globe."
BUSINESS WEEK: MORE FORECLOSURES LIKELY
The American homeowner must feel like one of those characters in an old cartoon who has just been hit by a falling piano. After dusting himself off and touching the large bump on his head, he probably doesn't expect another piano to be dangling overhead. But he'd be wrong.
But what's often funny in a cartoon is anything but in real life. With the subprime mortgage crisis already crippling the U.S. economy, some experts are warning that the next wave of foreclosures will begin accelerating in April, 2009. What that means is that hundreds of thousands of borrowers who took out so-called option adjustable-rate mortgages (ARMs) will begin to see their monthly payments skyrocket as they reset. About a million borrowers have option ARMs, but only a fraction have already fallen due.
MORE RECESSION DENIAL
Despite the fact that six major financial firms said the US Economy was in Recession LAST YEAR, much of the media and, of course the Administration are suggesting a recession can still be avoided. Read the way this report in Milwaukee Journal-Sentinel as an exercise in continued denial
Oil Surge, Job Losses Rip Stocks; Combined Factors Have Economists Fearing Recession (FEARING??????)
A spike in oil prices, a big jump in unemployment and the lingering credit crisis combined to spook investors Friday, sending the Dow Jones industrial average on a nearly 400-point nosedive and cementing the view of some analysts that a recession is imminent if not already under way. Spending by consumers accounts for about 70% of the U.S. economy.But some saw Friday's news that the unemployment rate had its biggest one-month increase in 22 years as perhaps the tipping point toward recession
