Big CDS Day On The Way

Posted by Equity Private, Oct 05, 2008, 7:28pm

Credit Default Swaps for Fannie and Freddie will see their recovery set tomorrow in an auction described by Reuters as "...the largest settlement of the contracts the market has ever seen." That this has rather serious ramifications for the CDS market in general, at least as a stress-test of the potential for mass settlement when its needed most, in the face of a significant collapse. Reuters continues:


Twenty-two dealers will participate in the auctions, which will determine how much protection sellers will recover after paying out the insurance. The timeline for the auctions follows. 8:30 a.m. to 9:30 a.m. - Auction participants will submit initial bids and offers for the debt backing the credit default swaps. 9:30 a.m. to 11 a.m. - Auction administrators Creditex and Markit will calculate the midpoint of the bids and offers and also determine the open interest of the contracts.

Hot damn!

UPDATE: Don't miss the 60 Minutes coverage, "CDS for Dummies"

"WALL STREET'S SHADOW MARKET - Steve Kroft looks at some of the arcane Wall Street financial instruments that have magnified the economic crisis. L. Franklin Devine is the producer."

Fannie, Freddie CDS auction timeline [Reuters]

0Recommend this! 33Comments

Tags: cds, Fannie Mae, Freddie Mac

Comments

1

Posted by guest, Oct 05, 2008 7:36PM

Who are the jackasses who invented credit default swaps, anyway?

The lovliest comments of all come from the Milken Institute - commenting on the current mess. Just. Wow.

2

Posted by guest, Oct 05, 2008 7:49PM

Such a good point - if it was called insurance in the first place, and reserves had to be set aside, this whole mess would have been manageable.

$50 to $60 TRILLION! F-ing scary.

3

Posted by StupidEquityGuy, Oct 05, 2008 7:52PM

I wonder if Euro banks were big players in the US CDS market for Fanny and Freddy.

The demand for US Dollars and the sharp spike down in Euros has an itch at the back of my brain asking... Why do they need so many US Dollars?

http://quotes.ino.com/chart/?s=FOREX_EURUSD&v=dmax

4

Posted by guest, Oct 05, 2008 8:05PM

SEG if your account performed anything like mine last week you've gotta be getting a little bit concerned about getting your chips out of the casino at this point?

Anyone, thoughts on "safest" bank in doomsday scenario? Deutsche? Allied Irish? Credit Unions? Can I just keep my deposits at the Fed? Anyone.... Beuler?

5

Posted by guest, Oct 05, 2008 8:05PM

Tel Aviv Stock Exchange plunging. (First major market to open since Bush signed the bailout)

http://www.jpost.com/servlet/Satellite?pagename=JPost%2FJPArticle%2FShowFull&cid=1222017460012

6

Posted by guest, Oct 05, 2008 8:17PM

Come on, this market is child's play for SEG. His "trading slut" analysts are making him 100's of percent during this volatility. Sure, mere mortals are having tough weeks, but not SEG. (I'm not sure what he was doing when the VIX was at 12 for years, but right now, I'm pretty sure he thinks you're a moron if you're not hitting the ball out of the park).

Just what I gleen from the master's previous pontifications.

7

Posted by guest, Oct 05, 2008 8:18PM

You can use TreasuryDirect...

They send you a nifty secret decoder card when you sign up...

8

Posted by guest, Oct 05, 2008 8:22PM

The 60min job was a hatchet job. They acted as if CDS was only tied to CDO/MBS...CDS are on all corp debt.

And they failed to explain that wise investors HEDGE THEIR BETS - and that CDS is a form of hedging.

Watch the GM piece on electric cars...

VC of GM - "Man made global warming is a crock of shit!"

--The Great Santini

9

Posted by Investorcluzo, Oct 05, 2008 8:35PM

@santini - was that 60minutes or fox news? those was some shiesty spin cycle $hit if I've ever seen it..."the heads of major banks allowed interns to ..." seriously, do they call that "investigative" reporting? now I know why "mainstreet" is/was overwhelmingly against the "bailout".

10

Posted by guest, Oct 05, 2008 8:36PM

@6

I'd have to agree if you're not hitting the ball out of the park right now, you are a moron.

When I said cashing out chips, I meant because I'm up. If you're down, the casino will do the cashing of the chips for you.

11

Posted by guest, Oct 05, 2008 8:38PM

Jim Grant used the word "criminal" and Dick Fuld to testify in front of waxman tomorrow... I bet a few people on that comittee heard that word and are licking teir chops, " Yeah Yeah it IS criminal, let's hang this Fuld motherfucker... his ass is mine!"

Dickie played it wrong once. Then, he told Waxman to get lost last week; he fucked himself again.

12

Posted by guest, Oct 05, 2008 8:38PM

Jim Grant used the word "criminal" and Dick Fuld to testify in front of Waxman tomorrow... I bet a few people on that committee heard that word and are licking their chops, " Yeah Yeah it IS criminal, let's hang this Fuld motherfucker... his ass is mine!"

Dickie played it wrong once. Then, he told Waxman to get lost last week; he fucked himself again.

13

Posted by guest, Oct 05, 2008 8:40PM

Fuld is going to show his face! EP/Bess - live blog testimony?

http://www.marketwatch.com/news/story/lehman-ceo-fuld-testify-monday/story.aspx?guid=%7B7D6DC4E8%2DC4D9%2D46B3%2DAB44%2D088DF3DDE96A%7D


14

Posted by Investorcluzo, Oct 05, 2008 8:42PM

correction: "that" was some shiesty spin cycle $hit (typing too fast, those guys got me worked up).

15

Posted by guest, Oct 05, 2008 8:42PM

I have to say, I'm a hedge fund guy, and generally sick of this Wall Street baliout crap, but I didn't disagree with a lot of what I heard on the 60 Minutes piece. Seriously, the fact that regulators let $50-60b of CDS get done without any meaningful controls is totally reckless.

Yes, CDS makes sense as, and SHOULD BE a form of hedging, but it's the unhedged end of the market that is blowing up now. AIG (for example) wasn't hedging. They were selling as much as possible....the proverbial picking up pennies in front of a train....and it was totally unchecked.

If the CDS market was better regulated, and you had to post reserves like traditional insurance, there wouldn't have been the liquidity on the back end to sell the crap mortgages on the front end and this crisis wouldn't be but a small fraction of what it is now.

~J

16

Posted by guest, Oct 05, 2008 8:44PM

Cluzo...actually they said if they had let interns handle these trades they would not have had the stones to make these bets...

But i'm sure some terns would've fucked it up some other way...invest long in FNE/FRE - "hey they pay a nice dividend"


- The Great Santini

17

Posted by guest, Oct 05, 2008 8:45PM

sorry, meant $50-60TRILLION

~J

18

Posted by guest, Oct 05, 2008 8:48PM

If only Jimmy Cayne weren't such a fan of McGriddles........we may have survived this!!!

19

Posted by guest, Oct 05, 2008 8:48PM

"Fuld is going to show his face! EP/Bess - live blog testimony?"

Extremely likely.

20

Posted by guest, Oct 05, 2008 8:50PM

$50-60B of CDS is the original cost of the insurance, correct? So the overall CDS exposure would be $50B/Average cost of insurance as percent of the corporate bonds on which the insurance was being bought.

So, assuming the average CDS was priced at 50bps (from far calmer times), that is 200 X 50B = $10T of exposure.

Someone, please, please point out that I am wrong here, and by magnitudes!

I so want to be wrong, this is too scary!

21

Posted by guest, Oct 05, 2008 8:53PM

6 here

I guess if your model is built on day-trading, you're a dope if you can't knock the cover off the ball now. You're not going to build a sustainable model if you're depending on a 30-40+ VIX to make money. At some point, you're going to blow up. I'm admittedly out of my league here, because our shop was built on long-term investing, and we've kicked the shit out of the market year in and year out, including this year. Nothing fancy.

There are lots of ways to make money in the market; I just have a distaste for those who hold themselves out as superior to others. Wall Street is full of pricks.....we should recognize that most of us are extremely intelligent - unfortunately, many of us feel we have to tell each other how smart we are as well.

22

Posted by guest, Oct 05, 2008 8:59PM

@21:

nature of the beast. wall street attracts the insecure seeking to make a name for themselves. Cannot be avoided. No different than the main street house flippers though. How man TV shows were there in the last 5 years about flipping houses? I guess now it'll be flipping burgers...

and I'm reaffirming my statement that Skilling and Fastow should be released tomorrow. At least their ponzi scheme only effected willing participants.

23

Posted by guest, Oct 05, 2008 9:22PM

@22...I would not call the rank and file employes at Enron - "willing."

24

Posted by guest, Oct 05, 2008 9:35PM

@23:

I would

25

Posted by guest, Oct 05, 2008 9:53PM

@24...agree to disagree.

Not every single person at Enron was cooking the books and fudging the accounting or helped to lie about it. No doubt the majority were responsible or enabled in some way but not all.

Fuck it though - we got bigger problems now.

But Skilling and Fastow should stay where the fuck they are.

26

Posted by guest, Oct 05, 2008 10:10PM

dumb question : how will they know how to bid if the price of the underlying securities isn't established ?

27

Posted by guest, Oct 05, 2008 11:07PM

The total amount of CDS exposure is $56 Trillion, according to 60 Minutes tonight.

28

Posted by guest, Oct 05, 2008 11:11PM

Shrug, SEG has 2 guys who manage 5% of assets makings 100%. Too bad the rest of his firm is down 30%

29

Posted by guest, Oct 06, 2008 12:37AM

Folks. Why the sudden hate on SEG?
Come on. It's true that this volatile market is extremely profitable to short term traders.

@21

You're right. There are many ways to make money in this current market. You can daytrade (unsustainable), structured options play or plain positioning.

30

Posted by guest, Oct 06, 2008 7:36AM

All you iowa kids should have stayed on the farm and milked your cows instead of going to wall st. Anyways, I guess the mid-westerners did pay a lot of rent in shitty neighborhoods, so NY landlords made a few bucks.

If any mid-west chicks wanna come over and share a happy ending with me, post here.

31

Posted by Anal_yst, Oct 06, 2008 9:29AM

60 Minutes' attempt to explain the complex securities largely at the heart of our current prediciment(s?) was something approaching a noble intent. However, their very biased reporting (which no doubt went completely unnoticed by J&J6P) is a tradgedy.

Anyone get the name of that bespectacled, big-eared doof they found to essentially sh!t all over everyone on Wall Street?

32

Posted by guest, Oct 06, 2008 12:03PM

#31 why dont you worry about clearing trades

33

Posted by guest, Oct 06, 2008 12:17PM

What's the update on this ep?

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