wizardwatson
Member
- Joined
- Jun 15, 2007
- Messages
- 8,077
I'm hoping this to be kind of an educational thread because I don't fully understand this domino effect that is occuring in this CDS market but I think understanding it even a little gives you an ominous and stark view of the implosion that is currently happening.
http://www.investors.com/editorial/IBDArticles.asp?artsec=16&issue=20080917
This wealth evaporation that is occurring is likely to be catastrophic if Rockwell and company are right in that government help (read: bailouts) is only making it worse.
In places I've read that the US market for these types of derivatives may be on the order of 60+ trillion dollars. The degree to which we allow these bailouts which socialize the losses only causes more pain on top of the pain we will feel when this fake money evaporates and we finally see the results in retirement pensions, 401ks, and finally I'm guessing inflated prices in all sectors as well as many franchise/subsidized businesses closing their doors.
The crux is, the malinvestment created by all this central bank money pumping has already happened. The derivative contracts are in place and what we are seeing is a calling in on all this debt as the real economy (read: market) is becoming sort of self-aware of the malinvesting and is pulling back (a needed correction that the MSM is calling 'panic'). As it pulls back the rate of investing (the rate of money creation) is slowing and causing defaults. Problem is the CDS market is relatively new and has never been tested in a default scenario.
So it doesn't seem like the government can really do anything except socialize the losses (hyperinflate dollar) or just shut the market down like Russia (Go to police state, go directly to police state, do not pass go, do not collect $200), they're hands are tied. They can't stick their nose in between millions of transactions happening worldwide and play mediator.
Anyway, that's my haphazard attempt to understand it. Feel free to chime in.
http://www.investors.com/editorial/IBDArticles.asp?artsec=16&issue=20080917
This wealth evaporation that is occurring is likely to be catastrophic if Rockwell and company are right in that government help (read: bailouts) is only making it worse.
In places I've read that the US market for these types of derivatives may be on the order of 60+ trillion dollars. The degree to which we allow these bailouts which socialize the losses only causes more pain on top of the pain we will feel when this fake money evaporates and we finally see the results in retirement pensions, 401ks, and finally I'm guessing inflated prices in all sectors as well as many franchise/subsidized businesses closing their doors.
The crux is, the malinvestment created by all this central bank money pumping has already happened. The derivative contracts are in place and what we are seeing is a calling in on all this debt as the real economy (read: market) is becoming sort of self-aware of the malinvesting and is pulling back (a needed correction that the MSM is calling 'panic'). As it pulls back the rate of investing (the rate of money creation) is slowing and causing defaults. Problem is the CDS market is relatively new and has never been tested in a default scenario.
So it doesn't seem like the government can really do anything except socialize the losses (hyperinflate dollar) or just shut the market down like Russia (Go to police state, go directly to police state, do not pass go, do not collect $200), they're hands are tied. They can't stick their nose in between millions of transactions happening worldwide and play mediator.
Anyway, that's my haphazard attempt to understand it. Feel free to chime in.
