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.
Ping!
They’ll take JPMorgan down with them according to another story a few days ago.
The smoke is wafting away, and the mirrors are shown to be of the ‘fun house’ variety....
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.
But what happens when "The Bezzle(r)" IS the gov't?
and Change, of course. /sarc>
Cheers!
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.
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
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.
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.
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
GE has big investments in Eastern Europe. Making light bulbs and more. The East Europe situation is awful
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.
Letting the market do anything, liberty itself, is antithetical to politicians and government from DC to your local town.
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.
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.
Glad I sold my JPM a few weeks ago, wish I had 52 weeks ago.
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