Posted on 04/23/2009 12:48:06 PM PDT by MaestroLC
Excuse me? Chrysler can’t prepare its own bankruptcy filing?
What HAS happened, though, starting with LTCM in the 1990s and continuing (and worsening!) throught the present day, is that the risk models HAVE NOT been updated to reflect the (obviously) greater-than-modeled risk that Goldman, JPM, MorganChase, Murder Pinch (that's Merrill Lynch, for those in Rio Linda) et al. have stacked up. They've ALL been under-margined in any real-world sense for years, but the merde did not hit the ventilateur until they began ''stacking'' risk.
'Stacking' works like this: First, we'll create a derivative product...how about a whole bunch of dodgy mortgages, ok? Squizzle them all together and call the package, let's say, a 'Special Investment Vehicle' (SIV) or more simply a 'Collateralised Debt Obligation' (CDO). This is a derivative ''security'' (cough, pardon my retching).
Now, assuming only that the buyers of said ''security'' are not total idiots (and some are, but that's beside the point), the buyers are in many cases going to want insurance against the failure of the security. That's reasonable enough, I've no problem with it.
The problem that has manifested itself over the past X years (you pick the number) is that the notional 'insuror' of such a 'security' has tended STRONGLY to become the issuor of said security. This situation is and always has been plain old-fashioned crazy, and just rife with all sorts of conflicts of interest, for which we are paying right this minute, and will do for decades yet untold.
So, our issuor of some derivative ''security'' has become also its insuror, and guess what this putative ''insuror'' is using to ''insure'' it? Another derivative.
This, m'friend, is stacking. There can be -- and I daresay there are or have been, in this goofy game, too! -- even a third layer of derivative instruments involved in this goofy structure.
You simply must disabuse yourself of the notion that, if some derivative instrument has a notional worth of $1 trillion or so (as in the article), that any sort of borrowing between some unnamed two parties has occurred; it hasn't. It purely HAS NOT.
The problem occurs, and has occurred (and, I've no doubt) will continue to occur when the market moves in such a way as to place the writer (or 'seller', if you prefer) of the derivative instrument in question at a greater dollar risk than the margining model suggests is proper. The other way to say this is that the volatility (which itself is a statistical measure, btw) of the derivative instrument in question has increased beyond the means of the seller (or 'writer', or, in the case of credit default swaps, the current villainous instrument, the 'issuor') to continue to hold the trade as losses mount.
Evil situation? You bet. Greedy and mendacious bastards involved? Absolutely. Never a quarrel from me.
However, and nonetheless, in these situations -- or even in such a humble situation as buying or selling wheat futures -- NO ONE has borrowed ANYthing. OK?
Best regards, m'FRiend!
Pensioners are not creditors...there are laws on the books and contracts as well... but again shred the UAW contracts while insisting bonus contract must be honored for the bailed out banks...hypocrisy at its worst.
Agreed. The democrat-communist party is on the move and will try to own most of Americas captalist buisness in the next four years and only liberals will run them, which is disaster in the making and communism on the march.
I never said anything about AIG so save that argument for someone else.
I don’t want to bail out any of them. Rich, poor, big exec or the little guy.
I don’t want MY hard earned dollars going to any government bullcrap or a union.
I’ve had enough of it. There shouldn’t be any union-set “stipulations” attached to bankruptcy. Period.
Well, with millions of auto related jobs at stake and real unemployment figure approaching 15%, prepare for depression. We can not absorb massive job losses at this moment...prepare for a weaker less prosperous American as well...we have nothing to stimulate our way out of this economic mess...left. Our industries will be officially destroyed if the autos fail...sad day for American. Those of you who think this will be easy are wrong...it will cause serious economic fallout- much like Lehmans did.
So the only way we stave off depression is to bailout the autos? Again?
Sorry...we’ve been listening to that horse crap for 8 months and every bailout has made things worse.
WHY protect the UNION’s pensions and health care? At TAXPAYER expense? TARP is Taxpayer Ass Rape Program!
No. UALs pensions were shredded. I see no evidence of that happening here. And CEOs have gone to jail in past financial shenanigans. I see the UAW getting rewarded. As a matter of fact, it looks as if the UAW is getting all it wanted.
What will happen is that the UAW will use the "new" Chrysler as its personal slush fund. They'll milk it for all its worth then go back to the government, hat in hand. Without unloading itself of the UAW and the onerous union contracts, Chrysler can never be profitable. But, you see, that's actually part of the plan.
I know that and you know that. Why doesn't Kevin DeMeritt, president of Lear Financial, know that?
BTW, do you know the ONE event in derivatives trading where borrowing/lending actually does take place? Keep in mind, I'm absolutely not talking about borrowing from Uncle Fred in order to fund one's account.
Physical delivery?
Good answer, mate!
I don’t get it. Since when has the federal government had authority to file bankruptcy proceeding for any company? If the Federal government is broke, they can file bankruptcy proceedings for themselves and leave everyone else alone.
Oh yeah, I remember, Chrysler demanded that taxpayers bail them out, and the idiots in the federal government thought that taxpayers should have to pay for the bailout.
Get the Federal government out of the bailout business now.
A late question, but what happened to the “Daimler-Chrysler” company? All of a suddent Chrysler was bankrupt and Fiat gets mentioned. What happened to Daimler association?
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