are complex little known financial instruments (insurance contracts) that are on the brink of triggering "the most colossal rights issue in the history of the world, all at once .. mandatory." If, out of a list of several hundred major companies, any nine go bankrupt
, the CDO's are in default, which would mean a mass transfer of cash (real money) from unsuspecting investors around the world goes into the banking system. How much? Nobody knows, but it’s many trillions. Banks will be flush with cash, perhaps ending the credit crisis, while many investors (individuals, charities, municipalities) will be wiped out. Alternatively, the triggering of default on the trillions of synthetic CDOs could be a disaster that tips the world from recession into depression. Nobody knows, but it won’t be a small event. Thus far the count is six
: three Icelandic banks, Countrywide, Lehman and Bear Stearns.
posted by stbalbach
on Dec 1, 2008 -
Letter from Iceland. There you see the Iceland of today – the victim of an economic 9/11 and one of the very few places in the world where the words “financial meltdown” can be used without fear of exaggeration. [more inside]
posted by jason's_planet
on Nov 15, 2008 -
The End of the Wall Street Era.
“We always asked the same question,” says Eisman. “Where are the rating agencies in all of this? And I’d always get the same reaction. It was a smirk.” He called Standard & Poor’s and asked what would happen to default rates if real estate prices fell. The man at S&P couldn’t say; its model for home prices had no ability to accept a negative number.
The author of Liar's Poker
on the collapse of the subprime industry.
posted by bitmage
on Nov 11, 2008 -
Soros on the banking crisis:
"A deep recession is now inevitable and the possibility of a depression cannot be ruled out.
When I predicted earlier this year that we were facing the worst financial crisis since the 1930s, I did not anticipate that conditions would deteriorate so badly." - Soros lays out some ideas about what can be done to fix the markets ... Planet money had another nicely done piece on the debacle last Friday
posted by specialk420
on Nov 10, 2008 -
Wall Street Lays Another Egg.
"Not so long ago, the dollar stood for a sum of gold, and bankers knew the people they lent to. The author
charts the emergence of an abstract, even absurd world—call it Planet Finance—where mathematical models ignored both history and human nature, and value had no meaning."
posted by homunculus
on Nov 7, 2008 -
Confused about what caused this whole credit crisis? Let me Paddy Hirsch from Marketplace explain it to you in this
surprisingly entertaining and easy to understand video. While you're there, check out his explanation of short selling
and credit default swaps
. I wish this guy was my finance professor.
posted by JPowers
on Oct 23, 2008 -
Afraid to read the daily news?
Need some broader perspective on The Credit Crunch? There are lots of different ideas by lots of different authors floating about ... [more inside]
posted by Mutant
on Oct 13, 2008 -
We already talked
(self-link, sorta) about Zeitgeist: The Movie
. Its author, Peter Joseph, recently released Zeitgeist: Addendum
. (beware: last two links are two hour movies) This time, it’s about money and debt, scarcity and resources. The first, financial part may look like an extended Ron Paul
ad, but then there’s a sudden turn towards resource-based utopian techno-communalism, and an endorsement for The Venus project
. It seems to me like "Kropotkinian anarchism meets The Matrix". In these rough times
, is it time for a big leap? [Also announced: The Zeitgeist Movement
, still not active]
posted by Baldons
on Oct 7, 2008 -
"Through the quarter-century in which China has been opening to world trade, Chinese leaders have deliberately held down living standards for their own people and propped them up in the United States. This is the real meaning of the vast trade surplus—$1.4 trillion and counting, going up by about $1 billion per day—that the Chinese government has mostly parked in U.S. Treasury notes. In effect, every person in the (rich) United States has over the past 10 years or so borrowed about $4,000 from someone in the (poor) People’s Republic of China." James Fallows on how the trade deficit between China and America works and what it means for the future.
posted by afu
on Sep 30, 2008 -
"In the limit of an infinite economy, the number of initial downgrades is Poisson distributed.
This captures the idea that the shock initially affects only a small number of firms.
Nonetheless, the distribution of the total number of defaults has slowly decaying tails ... A firm might well be able to absorb its shock, but it might not be able to absorb both the shock and the resulting deterioration in the average rating. The initial downgrades may thus trigger additional defaults that, in turn, further deteriorate the average rating, and so on. In
a large economy, this cascade can be described by a branching process." Ulrich Horst, Journal of Economic Behavior & Organization, 2007. (Internet supplement!
) [more inside]
posted by geoff.
on Sep 30, 2008 -
A private FDIC
The Certificate of Deposit Account Registry Service
, or CDARS
, is a way to conveniently spread bank accounts across multiple banks. CDARS, run by privately held Promontory Interfinancial Network, offers its customers up to $50 million of deposit insurance
, or exactly 500 times single account limit mandated by the FDIC. Promontory does this by arranging to distribute client funds nationwide in $100K increments to over 2,300 banks. Promontory is nothing if not well connected: while founders Mark Jacobsen previously served as Chief of Staff at the FDIC
, co-founders Alan Blinder was Vice Chairman of the Federal Reserve
and Eugene Ludwig was Comptroller of the Currency
, several former members of the FDIC currently serve on Promotory's board.
Not surprisingly, some folks are openly critical of Promotory, some going so far as to state "It undermines a lot of the safeguards around the FDIC deposit fund."
posted by Mutant
on Sep 26, 2008 -
Follow the money: for the past year, the big trade
was short bank stocks, and use the cash to go long oil. Massively profitable, but now that trade is unwinding. So where is the big money being invested now? Lots of places: diamonds
, fine art
, and Madonna
posted by Mutant
on Aug 20, 2008 -
The Scholar Ship
, an international floating university stewarded by top universities in Morocco
, the United Kingdom
, and Ghana
, have temporarily suspended all voyages
due to lack of funds - mainly caused by the withdrawal of main sponsor and initiator Royal Caribbean International
. The program ran two voyages in 2007
before shutdown. Alumni and prospective students on Facebook
are busily sourcing options to revive the organization, while Semester at Sea is offering spaces
to students who were accepted for the now-cancelled voyages. [more inside]
posted by divabat
on Jun 14, 2008 -
The rapid growth of electronic trading since 1976
has benefited equity market participants by improving competition, reducing cost and increasing liquidity while insuring better pricing.
One unexpected side effect has been the recent emergence of "dark pools of liquidity"
, or the secret stock market. [more inside]
posted by Mutant
on May 20, 2008 -
I asked Nathan Myhrvold, C.E.O. of Intellectual Ventures and widely considered to be one of the smartest people in technology, if he is brilliant. "If you put yourself in that camp, you might be correct," he teased. "But then, you're also an asshole." The Brilliant Issue
profiles Porfolio's picks for best game-changers, upstarts, rebels, connectors and other influencers. [more inside]
posted by Non Prosequitur
on May 2, 2008 -