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Title: ANATOMY OF A PANIC: "There are $750 trillion worth of credit derivatives"
Source:
Huffington Post
URL Source: http://www.huffingtonpost.com/ron-i ... natomy-of-a-panic_b_83692.html
Published: Jan 28, 2008
Author: Ron Insana
Post Date: 2008-01-29 06:42:57 by Uncle Bill
Keywords: CDO, CDS, ABCPP
Views: 2121
Comments: 5
Huffington Post The global financial markets have just begun to recover from a financial panic that has driven some 43 stock markets around the world down over 20 percent a piece from their most recent all-time highs. In the parlance of the financial world, that means that there are 43 "bear markets" in stocks occurring simultaneously around d the planet, including a bear market that's mauling Wall Street. The financial market pressure was so intense over the last 48 hours that the Federal Reserve, our nation's famous central bank, took the nearly unprecedented step of slashing short-term interest rates by three-quarters of a percent, the largest single one-day cut in over 20 years, with a promise of more rate cuts to come ... possibly as early as next week. Equally dramatic and surprising is that the cut came just 10 days before the Fed was scheduled to meet in Washington, where and when it was expected to make those cuts anyway. The plunge in the global markets reflected a very real and palpable fear that our real estate recession and associated "credit crunch" will drive us into a deep and lasting recession, if one hasn't started already. The story of the financial crisis we are witnessing is mind-numbingly complex, if told in the words of Wall Street. The global credit crisis, that erupted from the collapse of the U.S. sub-prime mortgage market, takes an extraordinarily circuitous route from Main Street to Wall Street and back again, and then on to the rest of the world's financial markets. Unlike the virtuous circle of prosperity that we have seemed to enjoy, the world over, in the last seven years, it appears that a vicious cycle of calamity be unfolding before our very eyes. It began with the bursting of the bubble in residential real estate here in the United States. It quickly spread to other hot real estate markets around the world. Complex debt instruments that were linked to sub-prime mortgages, both here and abroad, imploded in value. The credit collapse spread by waves of delinquencies, defaults and foreclosures in sub-prime real estate, caused a contagion effect in other highly complex credit derivatives that were sold by Wall Street as safe bets to presumably savvy institutional investors around the world. If your eyes are glazing over, it is entirely understandable. Many of the financial engineers who created these highly complex, and highly levered, investments didn't fully understand how the structures would behave, themselves, particularly when stressed in unanticipated ways. But that never stopped them from creating more and more financial products with complicated names like "Collateralized Debt Obligations," (CDOs), or "Credit Default Swaps," (CDS) or "Asset-Backed Commercial Paper Programs (ABCPP), that were built around highly risky sub-prime mortgage securities or other flaky investments, and then leveraging them to the hilt. By the way, there is no more dangerous or incendiary combination on Wall Street than taking newly engineered financial instruments and using loads of borrowed money to boost their returns. These highly leveraged bets make investors tons of money when times are good. But, when times go bad, it's look out below! Billionaire investor, Warren Buffet, very famously referred to these derivative products as "financial weapons of mass destruction." As always, the "Oracle of Omaha" was right. Unlike our experience in Iraq, we found our WMDs on Wall Street, or more accurately, they found us, with potentially grave consequences for the global economy. There are some $750 trillion worth of credit derivatives trading on global markets. That compares, rather unfavorably, to the $50 trillion of global economic output, or GDP. As we enter a phase where these financial WMDs implode in value, they imperil the health of the global financial system and threaten to bring, not only our economic activity, but also the vibrancy of the world's economy to a crashing halt. Hence, the Federal Reserve, which has come very late to the rescue, slashed interest rates by a record amount on Tuesday. The Fed, and other central banks around the world, however, need to do much, much more to create an environment of calm and eliminate the possibility of further catastrophic "WMD" events, some of which may be getting ready to explode as I write. The Fed let far too much time pass watching this crisis unfold over the last 11 months. The Fed fiddled while our homes burned. They can still put out the fire, but they need to use every tool at their disposal and get their counterparts around the world to do the same. While their efforts to stave off crisis Tuesday were virtually unprecedented, they were not unwanted nor unwarranted. We can only hope they will finish the job they started so sheepishly, so those sheep who, in great herds, bought overvalued homes and followed the markets blindly over the last several years, won't be led to the slaughter. 
Anatomy of a Panic
By Ron Insana
January 28, 2008
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#1. To: Uncle Bill (#0)
3/4th of a quatrillion. Wrap your mind around that number.
Mark If America is destroyed, it may be by Americans who salute the flag, sing the national anthem, march in patriotic parades, cheer Fourth of July speakers - normally good Americans who fail to comprehend what is required to keep our country strong and free - Americans who have been lulled into a false security (April 1968).---Ezra Taft Benson, US Secretary of Agriculture 1953-1961 under Eisenhower
Relax...the sheeple have nothing. They are in the majority. The elites have everything and they hold it all in dollars and dollar traded instruments. Let their freaking system collapse. Won't be pretty, but it ain't pretty now.
"There are indeed two political parties in the US. The state-lovers and the freedom-lovers." - ghostdogtxn
You're right, however the globalist elites in banking are dependent upon the masses contributions to their fraud to sustain it especially in times like now. Collapse is the desired result. The Depression of the 30's was contrived just like the looming collapse today. It's all artificially contrived just like before ... liquidity dried up, soup lines and sheeple beggars kneeling before the cigar smokers kissing as much ass as their blistered lips can tolerate, hoping to secure a burger. Makes me sick to see once proud people reduced to shit eating beggars.
"Give us liberty and give them death" ... noone222 1-10-08
There's quite a few freaks out there. Maybe those freaks'll take out a few cigars smokers on their way out.
"There are indeed two political parties in the US. The state-lovers and the freedom-lovers." - ghostdogtxn
I wonder.
Ron Paul for President - Join a Ron Paul Meetup group today! The Revolution will not be televised!
#2. To: Uncle Bill (#0)
#3. To: angle (#2)
the sheeple have nothing.
#4. To: noone222 (#3)
#5. To: Uncle Bill (#0)
The Fed let far too much time pass watching this crisis unfold over the last 11 months. The Fed fiddled while our homes burned. They can still put out the fire, but they need to use every tool at their disposal and get their counterparts around the world to do the same.
I would rather be exposed to the inconveniences attending too much liberty than to those attending too small a degree of it.-T Jefferson
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