Coming late to the party relative to this article. There is something that has not been well attended to regarding the establishment of a value for derivatives. Most of us here recall the “close call” Paulson referred to with the “rescue” of Bear Stearns, which “prevented’ a total world-wide derivative meltdown. The meltdown was diverted and postponed as Bears’ derivatives were not marked to market, thereby establishing what was feared would be a low salvage price (10 cents on the dollar?). Fast forward now to July 24, 2008. The National Australian Bank marked to market 1/2 of a tranch of derivatives it shared with Lehman Brothers on Friday, July 24. They loaned 75% of the purchase price which was about 22 1/2 cents on the dollar, thus establishing a price of about 5 1/2 cents on the dollar.
The Congress was proposing a potential $25 billion liability related to Fannie Mae (which had about $5 trillion of toxic mortgages out of the $12 trillion in mortgages they held). The Australian sale on Friday blew their fantasy $25 potential billion liability out of the water...5.5% of $5 trillion is a marked to market value of $275 billion in Australian terms, thus costing the taxpayers ultimately $4.725 billion should there be an eager buyer, and the full $5 trillion if there was not an eager buyer. Thus exposed, the Congress met immediately, the next day, Saturday, July 25, 2008 to pass the Housing Bill before, in addition, Lehman Bros. marked to market their half of the tranch in the US on Monday, July 27, 2008. On Monday, July 27, 2008 the Lehman sale of their half of the tranch was about 5% without them loaning the buyer part of the purchase price as the NAB had done. Thus THE VALUE OF DERIVATIVES WAS CONCRETELY PROVEN ON FRIDAY, July 25, 2008, and derivatives and the unwinding in unstoppable progress now, to run for about 5 years in its’ remorseless course, are known to be practically valueless. After all, how does one borrow money to even pay the short term rollover interest payments?
I have seen in several places that all the gold on the planets surface is about 4 billion ounces. At just a measley
$1000 an ounce, $4 trillion gets it all (coins, jewelry, bullion)...won’t even cover Fannies’ liability.
For gold bugs, success will be relatively short as the price per ounce inevitably rises. History shows that Kings or modern govts have all repossessed gold when it rises too high. FDR did it instantly in 1933. Our govt. will do it again when it considers the time right.
$50 trillion is quoted today in a piece as the amount of equity the world has lost so far...only $650 trillion to go.