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Bond insurers MBIA, Ambac post bigger losses; shares dive By MarketWatch Last update: 9:54 a.m. EST Nov. 5, 2008 BOSTON (MarketWatch) -- A pair of bond insurers saw their stocks plunge Wednesday morning after they reported wider quarterly losses as the companies continue to get buffeted by their exposure to complex credit derivatives linked to the sagging housing market. Ambac Financial Group Inc. (ABK AMBAC Inc) said its third-quarter loss widened to $2.43 billion, or $8.45 a share, from a $360.6 million, or $3.53 a share, loss. Chart of ABK The company blamed the bigger loss on hits from credit...

Toxic corporate CDOs may touch $1 trillion (originated from Bloomberg)

Welcome to Lesson 3 of ‘The Basics of Credit Derivatives’. For this lesson I will be referencing the following article: The Ballooning Credit Derivatives Market: Easing Risk or Making It Worse?, which was published in November 2005 by the Wharton School at the University of Pennsylvania. My comments will be in Red. Let’s get started: The Ballooning Credit Derivatives Market: Easing Risk or Making It Worse? (continued) Published: November 02, 2005 in Knowledge@Wharton Short Squeeze Rosen estimated there are $25 billion in credit derivatives riding on $2 billion in Delphi bonds. Just as any catastrophe triggers insurance claims, Delphi's problems...

Lesson 1 can be found here: Lesson 1 Welcome to Lesson 2 of ‘The Basics of Credit Derivatives’. For this lesson I will be referencing the following article: The Ballooning Credit Derivatives Market: Easing Risk or Making It Worse? , which was published in November 2005 by the Wharton School at the University of Pennsylvania. My comments will be in Red. Let’s get started: The Ballooning Credit Derivatives Market: Easing Risk or Making It Worse? (continued) Published: November 02, 2005 in Knowledge@Wharton Credit Default Swaps Credit derivatives are contracts that go up or down to track the fortunes of underlying...

Welcome to Lesson 1 of ‘The Basics of Credit Derivatives’. For this lesson I will be referencing the following article: The Ballooning Credit Derivatives Market: Easing Risk or Making It Worse?, which was published in November 2005 by the Wharton School at the University of Pennsylvania. My comments will be in Red. Let’s get started: The Ballooning Credit Derivatives Market: Easing Risk or Making It Worse? Published: November 02, 2005 in Knowledge@Wharton When Delphi filed for bankruptcy October 8, investors had to start assessing their losses on more than $2 billion in the auto parts maker's bonds, which have recently...

A nuclear winter? Sep 18th 2008 From The Economist print edition The fallout from the bankruptcy of Lehman Brothers WHEN Warren Buffett said that derivatives were “financial weapons of mass destruction”, this was just the kind of crisis the investment seer had in mind. Part of the reason investors are so nervous about the health of financial companies is that they do not know how exposed they are to the derivatives market. It is doubly troubling that the collapse of Lehman Brothers and the near-collapse of American International Group (AIG) came before such useful reforms as a central clearing house...

Reuters - Saturday, September 20 US SEC STAFF RECOMMEND EXEMPTION FOR MARKET MAKERS IN DERIVATIVES COVERED BY SHORTING ORDER

Three-month Libor marks biggest jump in nine years TED spread widens to level not seen since Black Monday 1987 By Lisa Twaronite, MarketWatch Last update: 5:37 p.m. EDT Sept. 17, 2008 SAN FRANCISCO (MarketWatch) -- A closely watched measure of global borrowing costs made its biggest jump in nine years Wednesday and another lending risk gauge rose to a level not seen since Black Monday in October of 1987, as banks grew increasingly wary to lend to each other and sell-shocked investors sought refuge in safe-haven short-term Treasury bills. Three-month Libor in U.S. dollars jumped 19 basis points to 3.0625%...

Global credit system suffers cardiac arrest on US crash By Ambrose Evans-Pritchard Last Updated: 11:59pm BST 17/09/2008 Have your say Read comments The global credit system almost grinds to a halt as yields on US Treasury bills reach zero for the first time since the Great Depression, writes Ambrose Evans-Pritchard The global credit system came close to total seizure yesterday. Key parts of the derivatives market shut down and a panic flight to safety depressed the yield on three-month US Treasury bills to almost zero for the first since the Great Depression in 1934. The closely-watched TED-spread measuring stress in...

Commodities ravaged as traders flee risk Leo Lewis, Asia business correspondent Surging fears of Armageddon in the global financial system ravaged a wide selection of commodities across Asia as groups ranging from hedge funds to day traders spent the day in a headlong flight from risk. The shock waves from the bankruptcy of Lehman Brothers reverberated through markets for vegetable oil, soy beans, rubber and industrial metals as confidence in the financial system faltered, global growth prospects dimmed and cash became king. Broad baskets of commodities — once seen by speculators as a sure-fire bet because of China and India’s...

Wall Street crisis: Is this the death knell for derivatives? On page 62 of last year's accounts, under the heading "off balance sheet arrangements" Lehman had derivative contracts with a face value of $738bn Nils Pratley guardian.co.uk, Monday September 15 2008 09:18 BST If this is the death of Wall Street as we know it, the tombstone will read: killed by complexity. Derivatives in their baffling modern forms – collateralised debt obligations, credit default swaps and so on – lie at the heart of the failure of Lehman, Bear Stearns, Fannie and Freddie, and even our own Northern Rock. The...

Derivative traders open session to reduce Lehman risk Sun Sep 14, 4:04 pm ET NEW YORK (Reuters) – A rare emergency trading session opened Sunday afternoon to allow Wall Street dealers in the $455 trillion derivatives market reduce their exposure to a potential bankruptcy filing by Lehman Brothers. U.S. regulators and bankers were making last-ditch efforts on Sunday to prevent toxic assets from ailing Lehman Brothers (LEH.N) spilling into global markets and rupturing investor faith in the international financial system. "This is an extremely, and I stress extremely, rare event. It also speaks to the more general notion that, in...

Insight: The adventure never ends in the derivatives Wonderland By Aline van Duyn, US markets editor Published: September 11 2008 19:17 | Last updated: September 11 2008 19:17 The experiences of those frazzled executives in charge of reducing risks in the credit derivatives market are starting to resemble Alice’s adventures in Wonderland. Alice shrank after drinking a potion, but was then too small to reach the key to open the door. The cake she ate did make her grow, but far too much. It was not until she found a mushroom that allowed her to both grow and shrink that...

The Tax-Dodge Derivative Anita Raghavan 09.11.08, 6:55 PM ET While Lehman Brothers was fighting for its life in the markets today, it was also battling in a Senate panel's hearing on whether the company and others created a set of financial products whose primary purpose is to dodge taxes owned on U.S. stock dividends. The "most compelling" reason for entering into dividend-related stock swaps are the tax savings, Highbridge Capital Management Treasury and Finance Director Richard Potapchuk told the Senate's Permanent Subcommittee on Investigations. Lehman Brothers , Morgan Stanley and Deutsche Bank are among the companies behind the products. "Without...

The bailout culture turns 10 Commentary: Today's bailouts find roots in the Fed's handling of LTCM By David Weidner, MarketWatch Last update: 12:01 a.m. EDT Sept. 11, 2008 NEW YORK (MarketWatch) -- In less than two weeks, Wall Street will pass a milestone that on the surface probably doesn't seem to have much relevance today: the 10th anniversary of the bailout of Long-Term Capital Management. But the LTCM near-collapse and rescue set in motion Wall Street's unchecked rush to risk during the decade by signaling to the market that the government would ultimately come to the rescue. Wall Street is...

Fannie and Freddie's New Derivatives Cliffhanger The bailout triggers settlement of $1.4 trillion in unregulated credit-default swaps. Do the hedge funds have the money? by Ben Levisohn In taking over Fannie Mae (FNM) and Freddie Mac (FRE), Henry M. Paulson Jr. and the U.S. Treasury Dept. cleared up uncertainty surrounding the companies' common stock, preferred shares, and senior and subordinated debt. But Uncle Sam's intervention also triggered a default event, according to the International Swaps & Derivatives Assn., and now roughly $1.4 trillion in outstanding credit-default swaps, a type of derivative contract, must be settled. You remember the credit-default swap...

Fannie, Freddie bailout triggers credit default swaps More than $1 trillion of derivative contracts will need to be settled By Alistair Barr, MarketWatch Last update: 1:30 p.m. EDT Sept. 8, 2008 SAN FRANCISCO (MarketWatch) - The U.S. government's seizure of Fannie Mae and Freddie Mac has triggered more than $1 trillion of credit default swaps tied to the mortgage giants. The International Swaps and Derivatives Association said in a memo on Monday that 13 major credit default swap dealers unanimously agreed that a credit event had occurred.

Worsening the Fallout By: Financial Armageddon Sunday, August 24, 2008 11:14 PM Sectors: Consumer Staples , Finance Symbols: NYT, UBS When over-the-counter derivatives really began to gain traction in the financial world, Wall Street insiders and industry regulators constantly proclaimed their virtues -- and ignored their shortcomings. Among other things, they argued that these paper promises would allow complex risk to be broken down into its constituent parts and redistributed to those who wanted and understood the exposure they were taking on. In truth, no one really knew what it was they were slicing-and-dicing, what new risks were being created...

Counterparty risk climbs as US financials slum

Buckle Up With transparency and truth in short supply, caution is warranted BY TONY ALLISON Investor Jim Rogers minced few words, as usual, when asked about the U.S. Treasury Department's plan to shore up Fannie Mae and Freddie Mac. “It is an unmitigated disaster”, said Rogers. “Taxpayers will be saddled with debt if Congress approves (U.S. Treasury Secretary) Henry Paulson's request for the authority to buy unlimited stakes in and lend to Fannie Mae and Freddie Mac.” "These companies were going to go bankrupt if they hadn't stepped in to do something, and they should've gone bankrupt with all of...