Tableland

Well this is the debate - inflation or deflation - which is the bigger menace and what are we facing? If we look at commodities and housing we can see deflation unfolding all around us, yet the inflationistas make a good argument too.

The basic reading of the current situation is that certain governments are filling their pants about recession and are therefore devaluing our currencies and trying to artificially prop up a collapsing housing market. Of course we know from a reading of history that many similar interventions have failed, and so I am not hopeful this time round.

Subject to changing conditions, I predict a continued slide in commodities, a massive rise in unemployment, and hefty percentages off house prices.

DrWho

[quote=TheSubMainMan;6908890]...Lying behind the sub-prime mess is a much bigger beast, called CDS's.../quote]

I think TPTB are all well aware of that and it's already factored in... AIG only got into trouble because they were at the end of the chain...

DrWho

Last stat I saw was ANZ had around $24billion and Westpac were next up with around $15billion...

MTPockets

No that's not true. What AIG actually did (the unregulated London unit in particular) was to bank huge premiums by writing insurance on debt default risk without any appreciation of cross-correlation of those risks. That wasn’t insurance – they were gambling. They made huge amounts of money because they were so well rated and therefore didn’t have to post any collateral (and the underlying securities were also well rated) and they didn’t hedge the risk. They have effectively just ‘insured’ the same risk again and again and again as institutions passed it on…

So one could argue they are at the front of the chain. Insurance firms are meant to be specialists in risk-assessment – especially ‘fat tail’ risk (extreme risk that's not meant to happen very often) - without anybody to so blithey insure the contracts there wouldn’t be such a chain in the first place, or the contracts would mostly be offset by one firm against another (buyer-seller), so if one firm defaulted that risk would be spread around. Instead of that, a huge net exposure sits with one institution. Their accounting practices are also under investigation…

Factored into what? How do you factor in £60tn? And those figures for Oz banks are too low. Even the domestic indices (e.g. iTraxx) are at record highs, let alone exposure to overseas and [hopefully not] emerging market default risk - some of which are pretty much off the charts.

ponyrama

Sorry - dont mind me........I was looking for "AA" as in Alcoholics Anonymous and I seem to have wandered into "Accountants Anonymous".

I think I'll have another drink instead!

DrWho

But doesn't that make them at the end of the chain... with nowhere to go when payout time comes...?

Those figures were from the Australian a few days ago... and if they're public knowledge then surely they're already allowed for...? It's unknown quantities that worry everyone isn't it...? Do you have some more up to date figures...? Surely if the exposure of the Aussie banks was as bad as you're suggesting (trillions...?) then we'd have seen them all nationalised by now just like everywhere else... I mean none of the banks over here (or anywhere) have balance sheets to cope with anything like that...

MTPockets

Hi. I read your message as an assertion that AIG 'only got into trouble' beacuse they were the poor guys at the end of a chain. All I meant was that wasn't true as they created the burden of the chain in the first place - the antithesis of what an insurer should be doing - but yes you're right about nowhere to go - except to the taxpayer, which is bullsh!t.

$40tn - no that's the approx notional value of all cds's, not australian exposures. Was just trying to make the point that a previous poster's number of $600tn for all derivatives isn't the issue - but also that no share prices/bond rates etc. are yet accounting for a potential loss of 40tn because you can't 'allow' for those sort of losses and keep trading. The actual figures you quoted for Ozzie banks - I've read higher numbers but I wasn't trying to be anal about it - I don't know the total - not sure anybody does - again just making the point that the greater the global default probability priced in the greater those numbers will grow.

Anyway, as the previous poster point out, I'm being really dull so I'll shut up now - just a little annoyed at how most of the press reports a great deal of this news - there's a lot going on behind the scenes that's pretty odd, and that worries me, like possible Fed intervention in commodities markets, like the fact jpmorgan transferred $138bn to lehman just after they declared bankruptcy...and were refunded that $138 by the Fed...things that point to questions of real (in)solvency

TheSubMainMan

Stop the press, well the printing press that is, although they don't need to print the stuff anymore they just type it in to a computer...wizzzz'

For those Men out there who like a good documentary that will explain a lot of what is going on today, check these two videos out:

part one:

http://video.google.com.au/videoplay...04832383&hl=en

and part two:

http://video.google.com.au/videoplay...12239683&hl=en

Must warn you thou, there over three hours long! Worth every second...

Spread the knowlege..