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More GE (IMPORTANT) (CDS: out-of-control wrecking ball?)
Market Ticker ^ | 03/05/09 | Karl Denninger

Posted on 03/06/2009 3:20:17 AM PST by TigerLikesRooster

More GE (IMPORTANT)

Off the wires, no link.

"DJ reports GE Capital credit default swaps worsen even as GE released a statement emphasizing its strong cash position. The CDS are most recently quoted at 17.5 points up front, from 16.5 points up front earlier today, according to Phoenix Partners Group. That means investors must pay $1.75 mln up front, plus a $500,000 annual fee, to protect $10 mln of GECC senior bonds against default for five years."

That means the first year cost is $1.75 + $500k, or $2.25 million.

That's 22.5% first year cost to insure $10 million against default!

This means that the market is saying that the odds of GE going bankrupt within the next twelve months is greater than one in five, and that assumes zero recovery.

If the bonds would recover more than 80% in the event of a default then it is implying more than a 100% risk of default, which is obviously impossible.

This is occurring despite GE's CFO appearing this morning on CNBC making the case quite clearly that there is no risk of default under any materially possible scenario. In other words, his assertion is that the odds of default are zero.

One of two things must be true:

1. GE's CFO is lying and must be indicted for doing so. 2. This so-called "market segment" (CDS) has become so ridiculously overlevered, unsupervised and able to cause failures that it is now within days or even hours of CAUSING GE to fail - not due to GE's own internal problems, but due to positive feedback that the CDS market is capable of and is generating on the initiative and as a consequence of the action of participants in that market.

Either way a major change needs to occur right here and now, lest we find ourselves with no pensions, no Social Security, no Medicare, no annuities and no government.

THIS CAN NO LONGER BE DELAYED OR TOYED AROUND WITH; WHEN "THE BEZZLE" REACHES THE POINT THAT IT STARTS DESTROYING THE NATIONAL CORPORATE INDUSTRIAL GIANTS THAT MAKE UP OUR ESSENTIAL INFRASTRUCTURE, MILITARY AND COMMERCIAL ENTERPRISES THROUGH NO FAULT OF THEIR OWN IT IS A NATIONAL SECURITY EMERGENCY AND MUST BE DEALT WITH IMMEDIATELY.


TOPICS: Business/Economy
KEYWORDS: cds; default; ge; gloomdoom; mark2zero
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1 posted on 03/06/2009 3:20:17 AM PST by TigerLikesRooster
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To: TigerLikesRooster; PAR35; AndyJackson; Thane_Banquo; nicksaunt; MadLibDisease; happygrl; ...

Ping!


2 posted on 03/06/2009 3:20:37 AM PST by TigerLikesRooster (from "Irrational Exuberance" to "Mark to Zero": from '96 to '09)
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To: TigerLikesRooster

They’ll take JPMorgan down with them according to another story a few days ago.


3 posted on 03/06/2009 3:22:39 AM PST by driftdiver (I could eat it raw, but why do that when I have a fire.)
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To: TigerLikesRooster

The smoke is wafting away, and the mirrors are shown to be of the ‘fun house’ variety....


4 posted on 03/06/2009 3:35:04 AM PST by Uncle Ike (At some point, government has to be the next bubble to burst. (H/T Freeper This_far))
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To: TigerLikesRooster

cds market has become illiquid. it doesn’t take alot these days to move it. risk managers are in control.i really don’t put much weight on that market anymore.


5 posted on 03/06/2009 3:51:44 AM PST by wiggen
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To: TigerLikesRooster
Either way a major change needs to occur right here and now, lest we find ourselves with no pensions, no Social Security, no Medicare, no annuities and no government. THIS CAN NO LONGER BE DELAYED OR TOYED AROUND WITH; WHEN "THE BEZZLE" REACHES THE POINT THAT IT STARTS DESTROYING THE NATIONAL CORPORATE INDUSTRIAL GIANTS THAT MAKE UP OUR ESSENTIAL INFRASTRUCTURE, MILITARY AND COMMERCIAL ENTERPRISES THROUGH NO FAULT OF THEIR OWN IT IS A NATIONAL SECURITY EMERGENCY AND MUST BE DEALT WITH IMMEDIATELY.

But what happens when "The Bezzle(r)" IS the gov't?

6 posted on 03/06/2009 4:04:34 AM PST by Roccus (The Capitol, the White House, the Court house.....................America's Axis of Evil!)
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To: Roccus
Hope.

and Change, of course. /sarc>

Cheers!

7 posted on 03/06/2009 4:32:51 AM PST by grey_whiskers (The opinions are solely those of the author and are subject to change without notice.)
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To: Roccus
What happens when the Beezle is GE itself. Remember GE has become much more a financial house than a manufacturing house. Live by the sword die by the sword. Let them go through bankruptcy eat the garbage and sell off the valuable assets at pennies on the dollar.

After all these are private enterprises. Why should I care what happens to shareholders who didn't vote when boards were elected that rubbers stamped managements that took their company down.

8 posted on 03/06/2009 4:46:11 AM PST by AndyJackson
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To: TigerLikesRooster

Who is issuing these credit default swaps and can they be honored in event of bond default? My guess is many parties have originated these CDS probably AIG among them


9 posted on 03/06/2009 4:55:59 AM PST by dennisw (Archimedes--- Give me a lever long enough and a fulcrum to place it, and I shall move the Earth)
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To: AndyJackson
IF the market were allowed to self correct, that is what should happen. The gov't however, will NOT allow this.

What you state is truth, common sense and logic. Sadly, once gov't, especially the one we are saddled with now wades in, truth, common sense and logic do nothing but cloud the issue.

My bank opens in an hour. I have every intention of being there. Granted, my pieces of green paper may be inflated away. There is NOTHING I can do about that. But they are MY pieces of green paper and I CAN do something about my ability to access them.

10 posted on 03/06/2009 5:00:42 AM PST by Roccus (The Capitol, the White House, the Court house.....................America's Axis of Evil!)
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To: TigerLikesRooster

I saw the CFO on CNBC yesterday. Kernen ate his lunch. it was so obvious that he was lying. When Kernen eats your lunch it is time to leave the field. GE options tell the story.


11 posted on 03/06/2009 5:00:45 AM PST by mad_as_he$$ (You want me to buy heavy metal? Metallica?)
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To: Roccus
My bank opens in an hour. I have every intention of being there. Granted, my pieces of green paper may be inflated away. There is NOTHING I can do about that. But they are MY pieces of green paper and I CAN do something about my ability to access them.

Take your money out of the bank before they take your money out of the bank
Mattress money is totally cool these days
Especially since we don't have any inflation at all

Those green pieces of paper are more commonly called FRNs. Federal Reserve Notes. Legal tender for all debts public and private. I really like the ones with Ben Franklin on them

12 posted on 03/06/2009 5:05:57 AM PST by dennisw (Archimedes--- Give me a lever long enough and a fulcrum to place it, and I shall move the Earth)
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To: TigerLikesRooster

GE has big investments in Eastern Europe. Making light bulbs and more. The East Europe situation is awful


13 posted on 03/06/2009 5:07:41 AM PST by dennisw (Archimedes--- Give me a lever long enough and a fulcrum to place it, and I shall move the Earth)
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To: AndyJackson

GEs biggest problem is government. They’ve bent their bottom line to meet quarterly reporting goals. They stopped being a company with a long term cash/profit goal and started being a stock marketing business.

It did not start with Immelt either, though he is getting the blame.


14 posted on 03/06/2009 5:49:18 AM PST by 1010RD (First Do No Harm)
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To: Roccus

Letting the market do anything, liberty itself, is antithetical to politicians and government from DC to your local town.


15 posted on 03/06/2009 5:51:18 AM PST by 1010RD (First Do No Harm)
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To: 1010RD

I don’t know. Their Long Term Debt surpassed their Total revenue in 2002. Now they are at 330 Billion in LTD. Even with increasing revenue their debt has almost double in a very short time span.

http://moneycentral.msn.com/investor/invsub/results/statemnt.aspx?Symbol=GE&lstStatement=10YearSummary&stmtView=Ann


16 posted on 03/06/2009 6:49:20 AM PST by neb52 (Currently Reading: Dirk Gently's Holistic Detective Agency by Douglas Adams)
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To: neb52

You’re right, but GE, along with thousands of other businesses, has been incentivized to look at the short term by quarterly reporting requirements.

At the quarter’s end there is a mad rush to “make the number”. It creates the wrong incentives.


17 posted on 03/06/2009 7:13:21 AM PST by 1010RD (First Do No Harm)
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To: Uncle Ike
The smoke is wafting away, and the mirrors are shown to be of the ‘fun house’ variety....


18 posted on 03/06/2009 12:23:38 PM PST by TenthAmendmentChampion (Be prepared for tough times. FReepmail me to learn about our survival thread!)
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To: dennisw
Read this article to understand the history and risk of AIG's Credit Default Swaps:

Behind Insurer’s Crisis, Blind Eye to a Web of Risk

19 posted on 03/06/2009 12:26:51 PM PST by TenthAmendmentChampion (Be prepared for tough times. FReepmail me to learn about our survival thread!)
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To: driftdiver
They’ll take JPMorgan down with them according to another story a few days ago.,

Glad I sold my JPM a few weeks ago, wish I had 52 weeks ago.

20 posted on 03/06/2009 12:28:48 PM PST by NeoCaveman (hey who ordered the trillion dollar crap sandwich? FUBO. Ugly and incendiary entertainer fan.)
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