Posted by guest , Oct 10, 2008 10:49AM

@1- Crap I just saw several of my buddies JAM's sign off

Posted by guest , Oct 10, 2008 10:51AM

Traders don't lose money; CDS lose money.

Posted by guest , Oct 10, 2008 10:54AM

what is M*CO?

Posted by guest , Oct 10, 2008 10:55AM

I don't get it. Please explain.

If I bought LEH CDS to insure against LEH bond default, how much would i get? Don't tell me only 9% of the insured amount?

Posted by guest , Oct 10, 2008 10:55AM

Can someone explain to me what the CDS "auction" is all about?

I was under the impression that if you buy CDS, in the event of a credit event (such as a bankrupcy) you turn over your bond to the CDS writer and then the writer pays you the face amount. Am I wrong? I thought today was just to net out all the payments to all the different players. Are CDS buyers getting less than face value on the notes they hold? Thanks.

Posted by guest , Oct 10, 2008 10:55AM

MD of the prop desk just told me and my colleague Jack that we are subject to downsizing. Said they might have to lay me and Jack off.

Posted by guest , Oct 10, 2008 10:56AM

@5 you would get your face value, you deliver your bonds at 9.75 and you get paid par

Posted by guest , Oct 10, 2008 10:56AM

Damn it bess. The 9.75% is the valuation of the LEH bonds, NOT THE CDS INSURANCE!

Posted by guest , Oct 10, 2008 10:57AM

Hahaha, #7. So old...

Posted by guest , Oct 10, 2008 10:57AM

so fucking wrong, bloomberg spells it out if you have no idea what you are talking about

Sellers would have to pay out the difference between the amount of debt protected by the derivatives and the bond value, meaning they'd have to pay out 90.25 cents on the dollar if the initial auction results held. A final price is scheduled to be announced at 2 p.m. in New York, according to Creditfixings.com, a Web site run by auction administrators Creditex Group Inc. and Markit Group Ltd.

Posted by guest , Oct 10, 2008 10:57AM

@9 is right, sort it out DB

Posted by guest , Oct 10, 2008 11:00AM

9.75+91.25=101, isn't par 100?

Posted by guest , Oct 10, 2008 11:01AM

BESS NO COVERAGE ON THE ENRON ART DEALER DEBACLE? THERE MUST BE LOTS OF SNICKERING IN THE NATURAL GAS TRADING WORLD.

Posted by guest , Oct 10, 2008 11:02AM

Guess you can't calculate the bad news...unless there is 101% of news?

Posted by guest , Oct 10, 2008 11:07AM

This market is getting ridiculous:

http://upzero.com

Posted by guest , Oct 10, 2008 11:11AM

Why wasn't I surprised about the Enron art story?

~Jimmy Krack Corn
East Texas Gas Trader

Posted by guest , Oct 10, 2008 11:11AM

Wow...

I just made the mistake of clicking on the upzero nonsense, thinking there might be something moderately entertaining. Instead, it is a site offering to sign you up for credit cards or some bullshit.

Bess, take this clown down to chinatown.

Posted by guest , Oct 10, 2008 11:11AM

Is M*CO morgan stanley?

Posted by guest , Oct 10, 2008 11:11AM

Watching MS just melt down - holy shit

Posted by guest , Oct 10, 2008 11:12AM

Agreed, that should read, "for those of you short the CDS, of the insurance you sold, LEH bonds delivered will pay 9.75 cents; and then there is the bad news"

Posted by guest , Oct 10, 2008 11:14AM

http://www.bloomberg.com/apps/news?pid=20601103&sid=a7u7y24vbV38&refer=us

@ 11 is correct. but next time help a brother out and put the link.

Posted by guest , Oct 10, 2008 11:14AM

Can someone clarify what CNBC reported, missed it

Posted by guest , Oct 10, 2008 11:14AM

@15

Err... no? Bloomberg said the auction is to set the price of the LEH bonds? So the LEH CDS sellers can calculate the payout?

Posted by guest , Oct 10, 2008 11:15AM

Auction is for LEH bonds. Auction determines recovery and hence CDS protection writers under a cash settlement protocol payout 1-Recovery. If LEH bonds are trading at 9.75 to the dollar, recovery rate is 9.75% on a CDS contract

Posted by guest , Oct 10, 2008 11:16AM

#6 - CDS are not insurance. If they were sold as insurance products, they would then be subject to oversight & regulation and would have required assets behind them to guarantee their ability to pay-off in case of default.

Posted by guest , Oct 10, 2008 11:16AM

Thanks for the clarification, bros.

-#6

Posted by guest , Oct 10, 2008 11:18AM

Woohoo! 65 stocks in the S&P 488 are under $10 a share. Time to buy guys! All in baby!

Posted by guest , Oct 10, 2008 11:19AM

That's what I like about Bloomberg news. They always throw a grade-school level paragraph in there so 1) casual readers can understand the story, and 2) traders who are so wigged out can make sure they just read what they actually read.

Posted by guest , Oct 10, 2008 11:20AM

I would like to take a moment and thank everyone for clearing this up.

Posted by guest , Oct 10, 2008 11:23AM

29 you must be mentally challenged

Posted by guest , Oct 10, 2008 11:23AM

Who are all these Yahoo people asking about how CDS settlement works?

Posted by guest , Oct 10, 2008 11:25AM

When does the final contract settle (i.e. when will we find will all the bodies are buried)?

Posted by guest , Oct 10, 2008 11:25AM

MS is done

Posted by guest , Oct 10, 2008 11:27AM

#35

Yes, Done like Britney!

Posted by guest , Oct 10, 2008 11:28AM

Morgan Stanley to be nationalized.

Only question is if it'll be done in Washington or Tokyo.

-

Let me be the first to say

"DEAR GOD NO DON'T SELL MORGAN TO NINJAS!"

Posted by guest , Oct 10, 2008 11:28AM

MCO is Moody's. My guess is that many of the analyst in Structured Finance will get das boot. If it were up to me I would fire the entire firm and start over fresh. You need to put a new face on the rating agencies that is not tainted by the latest debacles.

Posted by guest , Oct 10, 2008 11:28AM

if it's MCO, then its Moody's

Posted by guest , Oct 10, 2008 11:31AM

The ratings agencies should be forcably nationalized and purged. They caused at least 75% of this disaster between "AAA 7%" and shooting firms in the back of the head.

Posted by guest , Oct 10, 2008 11:34AM

#37, I would rather Morgan Stanley be sold to the real Ninjas with cash.

The alternative is to sell Morgan Stanley to the American Ninjas.

And just in case you have been in a cave since January, American Ninjas are people with NO INCOME, NO JOB, NO ASSET!

Posted by guest , Oct 10, 2008 11:35AM

@34, 2pm. Creditfixings.com will post then, but since they've already done a prelim number, maybe they will post again before then?

Posted by guest , Oct 10, 2008 11:36AM

If the US doesn't come out with support for GS/MS in the next 3 hours, they will be bankrupt this weekend. The selling is going to accelerate as CDS sellers fear having to pay out 90% on their defaulted bonds.

Paulson had better start buying the common or making a big injection or this is going to become a massive mess to unwind next week.

Either than or when MS starts trading at < 9B market cap, maybe Mack can just mail the keys to Mitsubishi.

Posted by guest , Oct 10, 2008 11:38AM

Can we recruit him back to Fed or to Treasury?

http://online.wsj.com/article/SB122360251805321773.html

Posted by guest , Oct 10, 2008 11:41AM

www.mpegmovieheaven.com

Posted by guest , Oct 10, 2008 11:42AM

I wonder if Paulson hit the acceptance stage yet?

Posted by guest , Oct 10, 2008 11:42AM

Look what happened with LEH, they are not going to let the same fate befall MS and GS. Right?

Posted by guest , Oct 10, 2008 11:43AM

Oooh, oooh, oooh. Can I advise Mitsubishi on this transaction???

The $9B is still money good, but we want all 1.06B shares, bitches.

Posted by guest , Oct 10, 2008 11:47AM

#44

Volcker can't dig it anymore. He's older than Yoda and his role as the Hatchet man in busting the World Bank members to save Paul Wolfowitz's ass made me a persona non grata on the world stage.

But who said the office of the Treasury Secretary has to be one person. Why can't it be two or even three.

The enormity of the task before us warrants the consideration of two Treasury Secretaries in the next administration.

Posted by guest , Oct 10, 2008 11:49AM

What a bunch of unpatriotic whiners !

True patriots know to “ask not what your country can do for you, but what YOU can do for your oligarchy!”

Get out there and buy some stocks and stop thinking like a bunch of selfish citizens! This country didn't get to be the greatest in the entire whole-wide universe by the serfs asking what's in for THEM!!!

There’s a war coming up too. So if you know any dumb-ass young males, remember they need to be patriots!! Encourage them to enlist.

Posted by guest , Oct 10, 2008 11:52AM

@27:

CDS is indeed a type insurance:

Bloomberg:

Hedge funds, insurance companies and banks typically buy and sell credit protection, which is used either to insure a bond against default or as a bet against the company's ability
to pay its debt.

Posted by guest , Oct 10, 2008 11:52AM

50: Good thinking. We can have a Secretary of the Real Treasury who keeps track of actual assets (gold in the USBD, deposits in the checking account, the petty cash box, etc) and a Secretary of the Imaginary Treasury who keeps track of the Social Security "trust fund," the Medicare/Medicaid accounts, the Bailout Bank (which is what I'm calling the 700B fund) and so forth.

Posted by guest , Oct 10, 2008 11:53AM

Fuckwit at #51

Just in case you didn't realise, the current administration are all oligrachs. Bush, Cheney, Rice, et al owed their rise to power to the oil companies.

There's a war coming alright, one that the US will lose before Uncle Sam can't pay the troops and your regulars are depleted and weakened by your mistakes to invade Iraq and Afghanistan.

Posted by guest , Oct 10, 2008 11:54AM

I just called Gasbag and asked him how the market was doing. He really appreciated the call.

917-359-5025

SPODE

Posted by guest , Oct 10, 2008 11:56AM

MS ain't over till Cramer says buy.

Posted by guest , Oct 10, 2008 11:56AM

This entire ratings industry is totally retarded. Imagine a bunch of dweebs in a dark room rolling 17 sided Dungeons and Dragons dice.

Posted by guest , Oct 10, 2008 11:57AM

450, that kind of commie camp did you crawl out of?

Volcker busted the corrupt diplomats across the worked who used WB as their personal piggy bank. Other than the fact that Wolfowitz was a Bush lackey and a highly disagreeable character to work with, he actually did put a fire under the ass of the thousands of WB employees who did not work and simply skimmed off all the perks and kept directing money to their corrupt buddies.

If that makes someone persona non-grata on the world or any fucking stage, I want thousand of those people everywhere!

Posted by guest , Oct 10, 2008 11:57AM

#52 Thank you for making my (#27) point. There are going to be a lot people who will have some splaning to do to the regulators.

Posted by guest , Oct 10, 2008 11:58AM

correct me if I'm wrong but isn't it possible to write a naked CDS.

Can the aggregate notional value for CDS on a given reference exceed its notional bond amount? Example: LEH had 2B in debt outstanding but there have been 6B in CDS written.

Posted by guest , Oct 10, 2008 11:59AM

If Obama wins, I reckon a combination of Ben Bernanke and Gene Sperling will make a good team.

Bob Rubin's reputation is tarnished beyond repair. He couldn't save Citi, what good will he do to the nation.

Posted by guest , Oct 10, 2008 12:02PM

If Obama wins, I reckon a combination of Ben Bernanke and Gene Sperling will make a good team.>>

Dr. Phil and Dr. John would be a better team.

Posted by guest , Oct 10, 2008 12:03PM

Bess...

How does one 'lose' something that one never had?

LEH debt = $100B...LEH CDS = $400B Insurance.

How does a CDS holder who paid 27 cents per $Hundred on CDS, "lose" anything when he gets back 9 cents on the $Dollar? Please tell me what I'm missing.

The Guy from Delaware

Posted by guest , Oct 10, 2008 12:03PM

http://www.creditfixings.com/information/affiliations/fixings/auctions/current/lehbro.shtml

Posted by guest , Oct 10, 2008 12:03PM

$60

Nope, it was perfectly legal to write a CDS without owning the underlying asset (no margin, no reserve required). That's why the CDS market is sooooooo much larger than the market value of the underlying bonds.

Posted by guest , Oct 10, 2008 12:07PM

@63- it's a quote from erin burnett, why dont you ask her.

Posted by guest , Oct 10, 2008 12:10PM

After Erin Burnett announced the 9.75% price, Steve Liesman asks her "Is that bad?" And he was dead serious, he didn't know.

Posted by guest , Oct 10, 2008 12:11PM

@65, I thought CDS was app. 20X - 30X leveraged, so had to post 3 - 5% equity.

Posted by guest , Oct 10, 2008 12:16PM

#58

Fact of the matter was, Wolfowitz used his position to score his girlfriend a plum job with above grade pay.

Bush sent Volcker in to bust those country representatives who were the going after Wolfowitz. Volcker started digging up dirt about those countries and guess what?? Those countries re-muthafickin-taliated and Wolfowitz was forced to leave the World Bank. The only reason Wolfowitz's exit looked half dignified was because of the US media. The European media portrayed his exit rather more harshly.

The reality is everyone has dirt under their shoes and a skeleton or two in their closet. Big deal. Don't point fingers unless you are squikey clean!

Posted by guest , Oct 10, 2008 12:21PM

43 nails it. It's entirely rational to run like hell from something that will bankrupt you. See: hurricane insurance in Florida.

The issue with the CDS trade as it existed isn't the payouts; it's that none of this was ever supposed to happen, so no one gave any serious thought to paying out on the CDS.

You can do the math at your desk easily enough - 35% probability of 90% loss (payout) on X billion CDS I'm writing = Holy God.

Posted by guest , Oct 10, 2008 12:25PM

I'm waiting for Warren Buffett to come up with the porn analogies to describe the situation we're in.

Posted by guest , Oct 10, 2008 12:26PM

Everybody on this site appears to be living in f'n denial. Get your dumb asses out of the recent past, and step into the new world of economics.

These f'n bogus $400B of ludicrous insurance face value will NEVER be paid on $100B of actual debt, Never. The payors DO NOT HAVE the f'n money.

This is clear, so understand it from TGFD: A 9 cent per $dollar payout on $100B of Debt is an absolutely fabuluous return to the CDS holder who paid 27 cents per $Hundred on that same $100B of Debt. 0.09 / 0.0027 = 33.33 times on invested premium.

If the f'n payors had any f'n brains, they would pay back 30 cents per $Hundred on the $100B and be done with it.

You fucking clowns all think somehow that this is still business as usual. As TGFD sees others often say on DB, "WAKE THE FUCK UP PEOPLE".

The Guy from Delaware

Posted by guest , Oct 10, 2008 12:27PM

learn something motherfuckers.

http://www.creditfixings.com/information/affiliations/fixings/auctions/current/credit_event_auction_primer.pdf

Posted by guest , Oct 10, 2008 12:40PM

TGFD here. I must modify my @#72 rant.

That 33.33 times return on invested premium must be divided by 4 to account for the $400B CDS vs $100B Debt.

That is still a fabuluous return of 8.33 times return on invested premium.

WTF is wrong with that?

The Guy from Delaware

Posted by guest , Oct 10, 2008 1:04PM

70: That's the part that would be absofuckinglutely hysterical if it wasn't happening to us.

Say LB issued ten billion in various counterparty obligations in any given time period. For fun, we'll say that that was in a hundred obs at 100M each. A CDS issuer says, "Hey, I'll insure* a couple of those bad boys. If one goes bad, I'll be out the hundred mill less any recovery, but hey, it's only a hundred mill."

But here's the catch. THERE IS NO RISK OF DEFAULT ON ANY GIVEN OBLIGATION. What, is LB going to say, "Whoops, the Ukranian grain harvest failed and we didn't get paid, screw you, counterparty, we're not paying you jack on that ob. But while you're on the phone can I interest you in a line on Italian commercial paper?" Oh, Hell no. If *an* ob fails, they'll make it good.

The ONLY risk of CD for a large counterparty is that the cp ITSELF goes broke and ALL their obs fail. It's kinda like flood insurance. You don't get floods where one damn house in a subdivision gets fifty feet of water and the rest are fine. It's all or nothing. Turns out it was "all." How anybody could take the very notion of CD insurance seriously is totally beyond me. Maybe they need to check the classrooms at HBS for formaldehyde or something.

___

*It IS insurance whether you call it that or not, because the only two possibilities are insurance or unlawful gambling. Trust me.

Posted by guest , Oct 10, 2008 1:16PM

@#75...

TGFD likes your comments. They appear to agree with mine.

One thing I'm confident about is this:

If and When this whole debacle ends and is resolved, the CDS species as we know it will be f'n extinct.

The Guy from Delaware

Posted by guest , Oct 10, 2008 1:35PM

#69, Really?

Wolfowitz's girlfriend got a job which maybe paid 20k above what she would have otherwise gotten. PLUS the issue was conflict of interest, not pay per se.

That is the same if siphoning off $300MM meant to build health care facilities for poor people? And that is just ONE case. They just skimmed off billions of dollars meant for the poor just like that in collusion with the politicians.

So your stand (and that of the europeans) is that because everyone is not squeaky clean, hence such rampant corruption should be excused?

Posted by guest , Oct 12, 2008 12:20AM

70 and 77 begin to raise the nightmare scenario, and that is AIG. Remember, you did not have to own a Lehman bond to enter into a CDS, and that is called a naked CDS(buying the insurance when you do not own the bond). So I could have bought a CDS from AIG FP, betting that Lehman would default on their bonds, even though I do not own the bond. I do not know how much I would have put down for say 1 million dollars of Lehman bonds, but I would have been paid $910,000(91 percent of a million). $4 billion of Lehman bonds went into default, but since nobody had to actually own a Lehman bond, the total CDS value could be MANY TIMES THAT $4 billion. We need to find out how much taxpayer money AIG is paying out for naked swaps, because we are essentially paying for AIG FP's gambling losses.

Posted by guest , Oct 12, 2008 11:42AM

I've almost finished provisioning the bunker...anyone know where I can get 50 gallon drums of Grey Poupon?

Posted by guest , Oct 14, 2008 7:36PM

#27 Wrote this, which is wrong: #6 - CDS are not insurance. If they were sold as insurance products, they would then be subject to oversight & regulation and would have required assets behind them to guarantee their ability to pay-off in case of default.

Credit Default Swaps (CDS) are indeed debt insurance. The problem is that Congress specifically voted in the late 1990's NOT to regulate them, thereby not requiring institutions to put asside financial assets to cover them, nor were they subject to oversight. In fact, they are all very private contracts. One of the really big reasons banks right now are reluctant to lend to each other specifically because they do not know how much CDS debt the lendee has.