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Global financial system implosion begins

I reckon you have no idea what you're talking about...RBS has more than enough assets to cover it's positions.
 
Dow down 7%. We seem to be at risk of a significant spreading deleveraging. No one will lend because everyone becomes fearful companies will fail and so they start failing as they run out of cash or there clients fail to pay them.

I have a couple of friends who run realy small bussiness doing things like staging or putting on VJing for promoters. They have poured there heart and souls into bussiness that might fail soon because no one will lend them money or they might just be getting paid less and less. As for me, well I work for a firm that is not exactly bursting with cash having just developed a new upgrade to the software we sell. Ive never been under illusions or celebrated this crisis.

But at some point we will turn a corner and we will begin recovering. Dunno when.
 
Shit, VJ'd at the Boxing Club Chatem Street, long time ago now, hope they are OK. This ain't over yet: CDS market = down to US$56trillion early this month, assuming UK has 20% share of that...£5trillion each % of that which is dodgy=£50 billion...


ETA:Actually..
 
FTSE has dropped 400 points.

They 'suspect large losses early on, then some gains to be made back during the day........'
 
The markets are leading eachother into doom, with the US markets tanking at the end of yesterday, encouraging the Asian markets to tank overnight, and now Europe getting hammered today. The UK markets arent doing quite as bad as the European ones as I write this.

Peston thinks today is the day of reckoning for the CDS woes, as its the day that Lehman liabilities need to be settled:

http://www.bbc.co.uk/blogs/thereporters/robertpeston/2008/10/day_of_reckoning.html
 
david dissadent said:
I have a couple of friends who run realy small bussiness doing things like staging or putting on VJing for promoters. They have poured there heart and souls into bussiness that might fail soon because no one will lend them money or they might just be getting paid less and less. As for me, well I work for a firm that is not exactly bursting with cash having just developed a new upgrade to the software we sell. Ive never been under illusions or celebrated this crisis.
Click to expand...

I've decided that there is no chance of selling anyone in banking any new software for at least 6 months so I'm going to put the business I started on hold for a bit and start job hunting...there's sod all out there at the moment, the last time I was looking I was getting 2 or 3 calls a call, now there's nada :(
 
elbows said:
The markets are leading eachother into doom, with the US markets tanking at the end of yesterday, encouraging the Asian markets to tank overnight, and now Europe getting hammered today. The UK markets arent doing quite as bad as the European ones as I write this.

Peston thinks today is the day of reckoning for the CDS woes, as its the day that Lehman liabilities need to be settled:

http://www.bbc.co.uk/blogs/thereporters/robertpeston/2008/10/day_of_reckoning.html
Click to expand...

I understand that RBS and Barclays are liable for a lot of the Lehman stuff. Just read a description of their £30 bn assets as "cloth tents in a hurricane" against their liabilities. I'm with RBS so looks like I'll have to write off my overdraft.
 
I rang Lloyds Bank up the other day, at theend of the phone call the woman offered me a loan substantial loan.

*scratches head*
 
GM and Ford fight for survival:

America's biggest car manufacturers, General Motors and Ford, are facing a long, hard battle for survival tonight after Wall Street abruptly lost confidence in their financial stability in the face of plummeting vehicle sales.

In the course of a few hours, GM's shares crashed by 31% to close at $4.76, their lowest level since 1950, while Ford's stock plunged by 21% to a 20-year low of $2.08 on mounting concern that both companies are at risk of bankruptcy.
Click to expand...

http://www.guardian.co.uk/business/2008/oct/09/ford-generalmotors
 
elbows said:
Can anybody explain what that means in simplish terms?

Cheers
Click to expand...
For example, a pension fund owns $10 million worth of a five-year bond issued by Risky Corporation. In order to manage the risk of losing money if Risky Corporation defaults on its debt, the pension fund buys a CDS from Derivative Bank in a notional amount of $10 million that trades at 200 basis points. In return for this credit protection, the pension fund pays 2% of 10 million ($200,000) in quarterly installments of $50,000 to Derivative Bank. If Risky Corporation does not default on its bond payments, the pension fund makes quarterly payments to Derivative Bank for 5 years and receives its $10 million loan back after 5 years from the Risky Corporation. Though the protection payments reduce investment returns for the pension fund, its risk of loss due to Risky Corporation defaulting on the bond is eliminated. (However, the fund still faces counterparty risk if Derivative Bank becomes insolvent and cannot honor the CDS contract). If Risky Corporation defaults on its debt 3 years into the CDS contract, the pension fund would stop paying the quarterly premium, and Derivative Bank would ensure that the pension fund is refunded for its loss of $10 million (either by taking physical delivery of the defaulted bond for $10 million or by cash settling the difference between par and recovery value of the bond). Another scenario would be if Risky Corporation's credit profile improved dramatically or it is acquired by a stronger company after 3 years, the pension fund could effectively cancel or reduce its original CDS position by selling the remaining two years of credit protection in the market.
Click to expand...

For example, if a company has been having problems, it may be possible to buy the company's outstanding debt (usually bonds) at a discounted price. If the company has $1 million worth of bonds outstanding, it might be possible to buy the debt for $900,000 from another party if that party is concerned that the company will not repay its debt. If the company does in fact repay the debt, you would receive the entire $1 million and make a profit of $100,000. Alternatively, one could enter into a credit default swap with the other investor, by selling credit protection and receiving a premium of $100,000. If the company does not default, one would make a profit of $100,000 without having invested anything.

It is also possible to buy and sell credit default swaps that are outstanding. Like the bonds themselves, the cost to purchase the swap from another party may fluctuate as the perceived credit quality of the underlying company changes. Swap prices typically decline when creditworthiness improves, and rise when it worsens. But these pricing differences are amplified compared to bonds. Therefore someone who believes that a company's credit quality would change could potentially profit much more from investing in swaps than in the underlying bonds, although encountering a greater loss potential.
Click to expand...



The market for credit derivatives is now so large, in many instances the amount of credit derivatives outstanding for an individual name is vastly greater than the bonds outstanding. For instance, company X may have $1 billion of outstanding debt and there may be $10 billion of CDS contracts outstanding. If such a company were to default, and recovery is 40 cents on the dollar, then the loss to investors holding the bonds would be $600 million. However the loss to credit default swap sellers would be $6 billion. When the CDS have been made for purely speculative purposes, in addition to spreading risk, credit derivatives can also amplify those risks. If the CDS were being used to hedge, the notional value of such contracts would be expected to be less than the size of the outstanding debt as the majority of such debt will be owned by investors who are happy to absorb the credit risk in return for the additional spread or risk premium. A bond hedged with CDS will, at least theoretically, generate returns close to LIBOR but with additional volatility. Long term investors would consider such returns to be of limited value. However speculators may profit from these differences and therefore improve market efficiency by driving the price of bonds and CDS closer together.
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http://en.wikipedia.org/wiki/Credit_default_swap

Ok basicaly so far as I understand it, the people who are counterparty to the lehmans debt owe about 90c on every dollar of debt they wrote. I am very very far from an expert on all this so I might have it arse about tit. But the hedge funds and banks who wrote Lehmans CDS's would have to pay several hundred billion dollars to whoever took them out. This means they are having a fire sale of whatever they can sell to raise the cash to pay off this debt. I will read up more extensively over the weekend and see if I can get a better or more accurate picutre on this.

(actualy the final settlement was 8.65 cents on the dollar)

Here is an expanation of how the acution market works....
http://www.hemscott.com/news/static/tfn/item.do?newsId=67476086219818

This should mean that of $400 billion of lehmans CDS's about $365 billion is expected to be paid out. If you are owed money by a hedge fund from a lehmans CDS then the hedgefund themself might go bankrupt.

Sorry folks I do not work in the financial system and that is my best understanding right now. Ill work away and ask around and see if I can get a clearer answer.

Incidently this is likely to be pushing down the price of oil as people with oil futures sell them even at a loss to get the cash to pay of the Lehmans CDS. Just a thought.
 
Ill add one more thing. Someone is comming into a lot of money over the next few weeks with all this. Who ever bet right is going to have alot of money to invest in bargins.
 
Announcement from Paulson in next 15 mins. Can't help but think this will go the same way as the previous stuff - appears to be not cast iron, so it all falls even more.
 
elbows said:
Can anybody explain what that means in simplish terms?

Cheers
Click to expand...

Peeps who took a bet on Lehmeans going tits up, with the bet being placed with a bookies who have also gone tits up, are actually gettin 90.5% of what they were owed.

This is because everyone's been phoning around working out who had laid out what with whom and offsetting ie i had a bet with the bookies, the bookies offset the bet with you. You and me settle direct with each other.
 
Thanks to people for the explanations.

Well, the G7 seem to have failed to come up with a concrete plan, and there are signs that Europe is divided on some important issues, so I dont think there is too much for the market to take reassurance from come Monday.

The head of the IMF has warned that we are on the brink of systemic meltdown.

As detail of the bank nationalisation plan emerges, along with US plans to do similar, it becomes clear that they have tried to go for the least obtrusive form of nationalisation they can. I assume that if this stuff doesnt work, and systemic collapse seems more inevitable, that they will take stronger measures. Ultimately if a whole part of the system remains siezed up or melts altogether, I guess they will botch together a government aternative to try to keep the rest of the system intact.

Berlosconi has floated the idea of closing the markets for a few weeks whilst big plans are made. I dont think they want to do that, but if the damage due to the symbolism of such a move is dwarfed by the damage caused by leaving panicked markets open, I guess they will do the unthinkable.
 
Oh maybe I am wrong, it didnt sound like the G7 had said anything special but the following article kinda suggests otherwise:

http://www.guardian.co.uk/business/2008/oct/11/globaleconomy-marketturmoil

I did notice Alistair Darling sounding more authoratitive yessterday, and if other nations follow a similar plan to Britain regarding recapitalisation, it might look like we had lead the way! Which may not be such a good thing if it doesnt work ;)

Anyways Im also confused because on the onehand that article suggests that if this plan fails then governments will end up nationalising banks lock, stock and barrel, but then later it talks about the next things they might try, which are described as 'tantamount to nationalisation' but dont sound like the full nationalisation of banks that people think of when they hear the phrase?
 
OK things are a little clearer now that I actually found out what the 5 points in the 5 point G7 plan are:

http://www.guardian.co.uk/business/2008/oct/11/marketturmoil-georgebush

• Pledge to save key banks from collapse

• Action to free-up credit and money markets by providing ample amounts of liquidity from central banks

• Support for the part-nationalisation of banks and other institutions by the taxpayer purchase of shares

• Stronger deposit protection schemes to reassure savers their money is safe

• Force banks to disclose the true state of their losses
Click to expand...

Sounds like the US taxpayer may be getting more than just toxic debt for their $700 billion:

Facing the most severe stockmarket crash since 1929, Henry Paulson, the US treasury secretary, said the US would use some of the $700bn, earmarked by Congress to buy up Wall Street's "toxic waste", to buy stakes in US banks.
Click to expand...

And a few good figures that give an overview of the market's bad week:

Yesterday alone, the FTSE closed down 8.9%, slipping below the 4,000 mark for the first time in five years. It fell 381.74 points, to 3,932.06, a 21% fall over the week, wiping £250bn off the value of Britain's companies in the City's worst week since the crash of 1987.

Across Europe, every major market saw at least a fifth wiped off its value during the week. The Dow Jones industrial average fell more than 700 points at the opening bell, but later rallied to finish 128 points down on 8,451. The Dow has fallen by 18.1% this week.
Click to expand...
 
A Dashing Blade said:
Peeps who took a bet on Lehmeans going tits up, with the bet being placed with a bookies who have also gone tits up, are actually gettin 90.5% of what they were owed.

This is because everyone's been phoning around working out who had laid out what with whom and offsetting ie i had a bet with the bookies, the bookies offset the bet with you. You and me settle direct with each other.
Click to expand...

I read it very differently, Lehmen's book has to be closed, and all accounts settled, those who couldn't settle without selling the position on, got under 9% of the face value of the contract towards meeting their obligations by selling the position. And the media talk was of about 12-13%

Cash is king, government money just means more bullets to end it all..
 
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