Read this

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If you need explanation of terms, ask.  Think it's something everybody should have a rudimentary understanding of, so that when your Republican senator starts crying "no regulation," while simultaneously supporting a bail out of a bunch of reckless millionaires, you can tell him, "fuck you, you fucking mother f u c k e r"

 

It remains unclear, exactly, what doomsday scenario Federal Reserve officials consider themselves to have averted. Some on Wall Street say the fear was that a collapse of Bear could take other banks, including possibly Lehman Brothers or Merrill Lynch, with it. Others say the concern was that Bear, which held $30 billion in mortgage-related assets, would cause further deterioration in that beleaguered market.

Still others say the primary reason the Fed moved so quickly was to divert an even bigger crisis: a meltdown in an arcane yet huge market known as credit default swaps. Like C.D.O.’s, which few outside of Wall Street had ever heard about before last summer, the credit default swaps market is conducted entirely behind the scenes and is not regulated.

Nonetheless, the market’s growth has exploded exponentially since Long-Term Capital almost went under. Today, the outstanding value of the swaps stands at more than $45.5 trillion, up from $900 billion in 2001. The contracts act like insurance policies designed to cover losses to banks and bondholders when companies fail to pay their debts. It’s a market that also remains largely untested.

While there have been a handful of relatively minor defaults that, in some cases, ended in litigation as participants struggled over contract language and other issues, the market has not had to absorb a bankruptcy of one of its biggest players. Bear Stearns held credit default swap contracts carrying an outstanding value of $2.5 trillion, analysts say.

“The rescue was absolutely all about counterparty risk. If Bear went under, everyone’s solvency was going to be thrown into question. There could have been a systematic run on counterparties in general,” said Meredith Whitney, a bank analyst at Oppenheimer. “It was 100 percent related to credit default swaps.”

Amid the regulatory swirl surrounding Bear Stearns, analysts have questioned why the Securities and Exchange Commission did not send up any flares about looming problems at that firm or others on Wall Street. After all, they say, it was the S.E.C., not the Federal Reserve, that was Bear’s primary regulator.

Although S.E.C. officials were unavailable for comment, its chairman, Christopher Cox, has maintained that the agency has effectively carried out its regulatory duties. In a letter last week to the nongovernmental Basel Committee of Banking Supervision, Mr. Cox attributed the collapse of Bear to “a lack of confidence, not a lack of capital.”

IT’S still too early to assess whether the Federal Reserve’s actions have succeeded in protecting the broader economic system. And experts are debating whether the government’s intervention in the Bear Stearns debacle will ultimately encourage riskier behavior on the Street.

“It showed that anything important is going to be bailed out one way or the other,” says Kevin Phillips, a former Republican strategist whose new book, “Bad Money,” analyzes what he describes as the intersection of reckless finance and poor public policy.

Mr. Phillips says that it’s likely that the Fed’s actions have ushered in a new era in financial regulation.

“What we may be looking at is a rethinking of the whole role of the Federal Reserve and what they represent,” he says. “If they didn’t solve it in this round, I’m not sure they can stretch it out and do it again without creating a new law.”

On Capitol Hill, leading Democrats like Senator Christopher J. Dodd of Connecticut, chairman of the Senate Banking Committee, and Mr. Frank of the House Financial Services Committee are pushing for just that.

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GS is widely considered the most "plugged in" of the investment banks. These losses will not just be paper losses.

LONDON (Thomson Financial) - Institutions have written off less than half of the losses associated with the bursting of the credit bubble, economists at Goldman Sachs Global Economic unit said Tuesday.

GS Global Economic research estimates U.S. leveraged financial institutions - which include banks, broker-dealers, hedge funds and government-sponsored enterprises - are likely to suffer about $460 billion in credit losses, after loan loss provisions.

Residential mortgage losses will represent about half the damage, with another 15% to 20% coming from commercial mortgages, Goldman Sachs (nyse: GS - news - people ) said.

But so far, said GS Global Economic, its banks team has tallied only $120 billion in announced write-offs since the credit crisis began.

GS Global Economic said write-offs may differ from actual credit losses to U.S. leveraged institutions because hedge funds and other private investment vehicles are unlikely to announce credit losses publicly.

In addition, investors should take into account write-offs disclosed by foreign institutions. Write-offs are also likely to include losses from credit derivatives contracts, but the counterparties to these contracts will not publicly quantify the offsetting gains, according to GS Global Economic.

Mark.cotton@thomson.com

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SO today Clear Channel's buyers obtained an injunction from a judge in Bexar County, Texas, compelling the banks (big names all) to pony up the cash required to complete the buyout.

The banks were unwilling to pony up the cash because no one wants to buy the debt from them, so they would have to immediately take a hit on it. In effect, they would be losing on the deal as soon as it was completed.

[Bindare_Dundat]

If you need explanation of terms, ask.  Think it's something everybody should have a rudimentary understanding of, so that when your Republican senator starts crying "no regulation," while simultaneously supporting a bail out of a bunch of reckless millionaires, you can tell him, "fuck you, you fucking mother f u c k e r"

 

Lower the dosage, bro.

[calmus]

thank you, phil gramm

 

Swiss financial giant UBS has reported that its writedowns as a result of the sub-prime crisis have more than doubled to about $37bn (£18.5bn).

It has announced $19bn of fresh asset writedowns on top of the $18.4bn it wrote off in 2007.

UBS also said that it was seeking to raise 15bn Swiss francs ($15bn; £7.5bn) in capital by issuing new shares.

The latest developments are damaging to the firm, which is the European bank worst hit by the credit crisis.

The announcements came as it said it expected to post a first-quarter net loss of $12.1bn.

   Today's announcement will alarm both UBS shareholders and the markets
Robert Peston
BBC Business editor

It also announced that its chairman and former chief executive Marcel Ospel would not be seeking re-appointment.

Widespread damage

UBS also unveiled plans to create a new business that would handle US property assets which had become worthless.

It said that it was confident that this would "deal effectively with the firm's real estate exposures and allow the bank to focus on strengthening its core operations".

The US sub-prime problems have hit the balance sheets of banks worldwide.

UBS management warned that it expected 2008 to be a difficult year for the firm and the industry as a whole.

In 2007 it reported its first annual loss since UBS was created from the merger of Union Bank of Switzerland and Swiss Bank Corporation in 1998.

Sub-prime loans were lent to US homebuyers with low incomes or with patchy credit ratings.

These investments quickly soured as higher interest rates pushed up mortgage payments and triggered a wave of defaults.

As well as resulting in the collapse of Bear Stearns, it has also hit other big Western banks, including Wall Street giants Merrill Lynch, Citigroup and JP Morgan Chase, and BNP Paribas, France's biggest bank.