What I imagine O-Joe to look like, at the bottom of this page (4th pic):

Animal Anomalies 6

"Credit default swaps resemble an insurance policy, as they can be used by debt owners to hedge, or insure against credit events such as a default on a debt obligation. However, because there is no requirement to actually hold any asset or suffer a loss, credit default swaps can be used to speculate on changes in credit spread.

Credit default swaps are the most widely traded credit derivative product[1]. The typical term of a credit default swap contract is five years, although being an over-the-counter derivative, credit default swaps of almost any maturity can be traded." (wikipedia)

ok i get it...like being able to take out a life insurance policy on anybody you want, on the surface of the planet...even though you have no "insurable risk".

AND um..."the most widely traded derivative..."

maybe the virtual world does trump "reality" what ever that is.

sk

on a previous thread you took a swipe at Krugman for differentiating monetary base, treasuries, and private securities.

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i don't get why. i thought monetary base was kinda like M1.

i grant you (and misean and others that krugman is politically left on most issues...notably NOT on free trade)

...but isn't krugman right on this issue about credit and euqilibrium and monetary base?

TIA

tj and the bear,

yes, thanks for the list of CDS institution exposure.

caused me to re think an institution where i have an investment.

scary stuff.

The bad credit and housing markets has helped to breath new life into an old story - that boomers retiring (or dying) will lead housing prices down.
Aging Boomers could burst housing bubble

"[A]according to a study by two University of Southern California researchers, a bubble of even more monumental proportions lies just ahead. They call it the "generational housing bubble," and maintain that it will be fueled by the same Baby Boomers who have been bidding up prices since 1970 as they moved higher and higher on the housing ladder.

Now, though, the 78 million Boomers are about to enter the years when people tend to become sellers rather than buyers. And as a result, they expect "many more homes (will be) available for sale than there are buyers for them."

...

Myers' and Ryu's foreboding prophecies bring to mind a 1989 study by a pair of Harvard economists, who predicted a 47 percent decline in housing prices during the 1990s because Boomers would stop buying as they aged. Housing-industry economists lambasted that forecast as pure poppycock, and it eventually blew up in smoke.

...

Mankiw and Weil "may have miscalculated the timing of the decline, predicting its beginning 20 years or more prematurely," the new study says. "But the Baby Boomers will finally start retiring from the housing market."

....

Myers and Ryu project that the ratio of those 65 and over to people 25 to 64 will surge 30 percent in the decade between 2010 to 2020 and 29 percent more in the 2020s, altering the delicate balance between buyers to sellers for the foreseeable future. "

worth a read.

Wonder how long it will take for the Nikkei to catch the Dow...

Was simply talking about the index level - not return wise - but if you take a look at the Nikkei in 1989 until now....

Don't rule that out for the Dow

Something fishy writes:
If a country has given away most of its material based industry then it needs to get a good service industry going. Insurance is a service industry that has not done all that well in the past. A good disaster brings up prices and profitability for new insurance firms, and is good for some people in the country and will be a better component of GDP and maybe even GNP in the future.

I do a lot of work in the insurance industry and there is no industry in the U.S. that has more overcapacity and over-employment. The insurance biz is tailor-made for Internet transactions, yet it has hired increasing vast numbers of employed bodies for years and years. Productivity has been declining for at least a decade. There's a lot of mistrust of insurance companies due to systematic near-fraud practices in property-casualty and long-term care policies, so many Americans no longer believe insurance companies will pay claims.

There are huge investment losses yet to be revealed in life insurance companies that will cause losses and suffering. Don't count on insurance to bail out our economy.

Can you imagine an economy that is so frail that people have to make a living by selling insurance policies to each other? It's almost surreal.

tj and the bear

what's safe?

Leveraged Losses: Lessons from the Mortgage Market Meltdown † David Greenlaw, Jan Hatzius, Anil K Kashyap, Hyun Song Shin US Monetary Policy Forum Conference Draft Embargoed until 11AM EST February 29, 2008

they suggest that of the several kinds of financial institutions credit union may be best positioned to withstand...

but

since its gonna vary from CU to CU, bank rate.com helps to get an individual idea.

but

yeah i don't know what to trust...so besides this and staying below the fdic limits (ncua for CUs) with Cert deposits, i guess treasuries and PMs.

however none of those three is at an attractive entry point given price and interest.

maybe we are left with prayer, the vote, and a well stocked closet or cellar.

Especially if they are still working for the company and can't withdraw the funds before they evaporate.

I've been in 100% in MMs for over a year now (thanks to an early exposure to the bubble blogs), if it "breaks the buck" I'm going to be f'in pissed, this stupid MM only nets 3% a year.

Well, actually the relative performance of this "safe" MM is +40% since the other 7 plan options are uniformly down 10% for 1Q08.

I've been in 100% in MMs for over a year now (thanks to an early exposure to the bubble blogs), if it "breaks the buck" I'm going to be f'in pissed, this stupid MM only nets 3% a year.

Hopefully with a 3% yield it's mostly in T-Bills.

Unfortunately, the MM funds offered to a lot of "captive" investors (401k, etc) are mostly interest capture vehicles for those running the funds. The low yields may be more of an issue of high fees than low risk.

You can look at the funds prospectus and get a general idea of what it's holding. But, some of the funds have been playing end-of-quarter games to make the funds look less "risky". It was one of the reason that the ABCP market tightened at the end of the quarter.

Anonymous writes 03.09.08 - 9:51 pm :
What happens at a micro-level when an individual directs deffered comp to switch his/her money from an equity fund into one of the fixed income options?

In our plan, Fidelity provides the mutual funds and Vanguard provides the fixed income/money market options. Is it as simple as Fidelity liquidating enough equities in the funds to provide the $$$$'s for the switch?
Anonymous | 03.09.08 - 9:51 pm | #

Anonymous, I went through this with my wife’s 401K a while back. We use T. Rowe Price. I had murder with them. I wanted to put all our money in CD’s. They told me I could only use their funds that were available. I finally (after getting very upset) was told that I could open the TradeLink account and sell the funds and transfer 98% of the cash into the TL account then buy FDIC insured CD’s. That’s what I did. I was told I had to leave 2% in one of their funds. The TL account is just a trading account where if I wanted to I could do my own buying and selling of stocks. I hope this will help you.

PS

I sure am glad I did it when I did. The funds are way down. It’s all about capital preservation for us till we feel comfortable getting back in to a fund.

The fed/treasury will end up 'owning' the banking industry - at least all the big IBs & money center banks - whether they intended to do so or not. What they do with them after that is anyone's guess.

Yeah, I think it's almost inevitable that a big part of the banking industry gets nationalized. And once that happens the banking industry is going to become a lot less efficient and it's going to be hell to get the bueracrats to give up their new found power.

I do contract work for both private and government organizations that do similar jobs.

Just from what I've seen I don't want the government running anything that's not absolutely necessary for them to do.

I have to conclude from my own experiences that if the government gets involved in too many aspects of the economy our standards of living will increase at a much slower pace.

If the government were great and efficient at doing things then honestly I'd have no problem with them playing a larger role in the economy.

I don't see that's the case.

Yeah, I think it's almost inevitable that a big part of the banking industry gets nationalized

They won't call it 'nationalization' though... it will be some other word but the effect will be the same... huge injections of USD from the Fed/UST via some kind of 'official process'... then all kinds of strings & regs to protect the investment.

Might as well just buy the stock out in the open & put their own directors on the BOD - be more honest that way.

DCRodgers - I posted that a few days (week?) ago... I was going on a trip to a Japanese transplant & about laughed my ass off.

DCRodgers - it definitely is worth the repost! THX. I actually get to pick up the paper version of the Onion on my travels - that one is sitting right next to the John - it still makes me laugh.

dryfly and DCRogers:

try googling:

Japanese transplant dryfly calculatedrisk

And I found:

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Danny we been hashing this one a long time - two years we were already well into it.

Here is the link...

dryfly: That even sounds boring to me - I'm not sure I'd read my own stuff it sounds so dull... so I don't do it, just hang out here & keep my 'tactical' thoughts to myself.

As a Midwestern-raised, Californian-seasoned pragmatist, 'tactical' sounds mighty interesting after all the high-concept sh*t we've been fed for the past years...

on a previous thread you took a swipe at Krugman for differentiating monetary base, treasuries, and private securities.

TIA
mock turtle

In a deep theory framework which I think he claims to inhabit then the framework is obvious - Money provides a representional form for exchange and value storage and that's it. In a fiat debt backed currency that we live in, any asset that the Fed takes on as collateral out of which US$ are produced is merely directly representational of each other ( with suitable haircuts ). So T-bills get their representional value as do private securities from the very source of money itself - they are mere representations of the monetary base ( or the monetary base is transforms of them ).
Prof. Krugman MUST know this. If he doesn't then he's a idiot. I don't think he's a idiot. I reckon he's a shill.

-K

i wouldn't call krugman a shill but would agree he is thoroughly partisan...a liberal democrat thru and thru.

mock turtle, isn't that redundant? Democrats are liberal by definition, aren't they?

Wait. Was it meant as a slur? Is it bad to be liberal?

Dictionary definition of liberal:

1. tolerant of views differing from one's own.
2. of democratic or republican forms of government as distinguished from monarchies and autocracies
3. favoring reform or progress.

Which specific political meaning of "liberal" do you think of as a slur?

In a fiat debt backed currency that we live in, any asset that the Fed takes on as collateral out of which US$ are produced is merely directly representational of each other ( with suitable haircuts ).

That's wrong. A bank is able to use a security as collateral for a loan. At the end of the loan period the security comes back. There is no prospect of a long-term transfer of ownership (if the bank defaults on the Fed it's going to be dead,dead,dead). A short-term loan is very much not the same thing as a sale, as many leveraged firms are finding out right now. The fact that spread are bouncing around vigorously right now shows Treasuries and MBS are not even approximately equivalent to a given cash value proportional to their face values.

Last week Markit announced it was considering an ABS index (credit cards, auto loans), and all of us in the office had a good laugh. Those poor souls in ABS land have no idea what's coming. When you suddenly introduce a means to directly short a market that otherwise didn't have one, interesting things happen.

We trade CMBS and CMBX on a daily basis, and the effect of having CMBX in existence has absolutely killed us.

We heard stories from a trading desk saying they get several calls a day from people who will ask questions such as "what is cmbx" "how does it trade" and then on the same phone call, they will buy some shorts.

Scary.

Asset delfation & goods inflation now due to credit crunch & dying dollar; asset deflation & wage inflation later due to demographics & high real interest rates

Chris,

aka 'Lies, damn lies and statistics'...

And it looks like a lifeboat scramble underway...

Morgan, Credit Suisse Break Ranks on Clear Channel (Update1)
By Pierre Paulden

March 10 (Bloomberg) -- Banks struggling to find buyers for $131 billion of unsold loans that financed last year's leveraged buyouts are starting to break ranks and hold individual negotiations with investors.

Instead of sticking together in a lending group, or syndicate, Royal Bank of Scotland Group Plc to Morgan Stanley and Credit Suisse Group have each sought buyers for their portion of Clear Channel Communications Inc.'s $22 billion buyout financing, said people with knowledge of the situation. They declined to be identified because the talks are private.

[snip]

OT: Yowsers! 54% of "under $500k" Orange County listings are 'distressed'. Also, Bum count in Corona Del Mar is up to 5.

MoM,

A second to that - maybe you would consider an occasional guest posting?

All too often critically important information is lost in aggregation, though if you look for additional information sometimes you can find indicators e.g. examing GDP increasing along with the Gini coefficient (but I wax wonkish here...)

What you said, details matter...

One more vote for a dryfly blog...

The devil is in the details...