Scott Koblish

Derivatives-

Once again Derivatives (CDS's, CDO's) have fallen off the radar, but they are coming back to bite everyone in the ass.
This is from the New York Times-
"Much of the fear centers on the unknowable. It is unclear just how bad banks’ losses on consumer loans, credit cards and mortgages will be as the economy weakens. Commercial real estate loans are deteriorating (the value of commercial mortgage backed securities dropped 20% just in the last two days) , and it is unclear whether banks have sold the worst of their holdings. Then there are all the investments that lurk off of banks’ balance sheets, in the so-called shadow banking system. And a new uncertainty has leapt to the forefront as the automotive industry teeters, sending investors scrambling to calculate how much banks are exposed to these loans."

I want everyone to repeat to themselves, quietly, the words "shadow banking system", over and over again. All day long, and then at night, before you close your eyes, I want you to say "what the fuck does THAT MEAN, 'shadow banking system?'".

Derivatives = Shadow banking system. Derivatives are NOT ON THE BOOKS. At Banks. They have debts and credits that no investor or creditor can ever find out about. How could ANY trust in any institution that has a "shadow system" ever be maintained? Well, it won't. The commercial paper market had completely seized up because no one knows what lurks in the "shadow banking system" and no one will loan any money to banks because of it, and the last time the commercial paper market seized up, in mid September, things fell completely off a cliff. You have no way of knowing what the books really look like, because they've been cooked with these goddamn Derivatives. Derivative assets that were tied to "toxic mortgage securities" that were supposed to be bought by the fed for the lat month, but WEREN'T. Not one penny spent on saving our asses.

The Derivatives are there, and they are coming for your bank, and they are going to destroy it.

posted by Scott Koblish @ 12:14 AM