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Discussion Forum : News and Current Events : The Dynamics of the 8/9/07 Stock Market Panic ... continue ...

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Fuegodedios
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Joined: 2007/2/21
Posts: 220
Richmond, VA

 Re:

Well dear brothers I work in this industry and see it first hand everyday. I hear six verses from the book of james everyday come to my heart. They go a little something like this.

James5:1-6

1Come now, you rich, weep and howl for your miseries which are coming upon you.

2Your riches have rotted and your garments have become moth-eaten.

3Your gold and your silver have rusted; and their rust will be a witness against you and will consume your flesh like fire. It is (E)in the last days that you have stored up your treasure!

4Behold, the pay of the laborers who mowed your fields, and which has been withheld by you, cries out against you; and the outcry of those who did the harvesting has reached the ears of the Lord of Sabaoth.

5You have lived luxuriously on the earth and led a life of wanton pleasure; you have fattened your hearts in a day of slaughter.

6You have condemned and put to death the righteous man; he does not resist you.


Dear brothers and sister let us hold fast to the Author and Finisher of our Faith Jesus( Hebrews 12:2) and who is sovereignly working out his plan for the ages as he upholds all things (Hebrews 1:3)


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Demetrius

 2008/9/15 11:16Profile
rookie
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Joined: 2003/6/3
Posts: 4790


 Re:

U.S. Mortgage Rates May Wreak Further Havoc After Libor Climbs

By Kathleen M. Howley

Sept. 16 (Bloomberg) -- The biggest jump in the London interbank lending rate in seven years could wreak further havoc on the U.S. housing market and there's nothing the Federal Reserve can do about it.

About 6 million U.S. mortgages, including almost all subprime home loans and 41 percent of prime ARMs, are linked to the London Interbank Offered Rate, or Libor, according to First American CoreLogic in Santa Ana, California. Today's rate more than doubled after Lehman Brothers Holdings Inc. collapsed and American International Group Inc. struggled to stave off bankruptcy. If it remains elevated, it will boost the one-month to one-year Libor indexes that average the daily rate, said Keith Gumbinger, vice president of HSH Associates Inc., a Pompton Plains, New Jersey- based mortgage research firm.

``If this is more than a flare, if the rate remains high, there is no doubt it will have an effect on resetting mortgage contracts in the U.S.,'' Gumbinger said in an interview. ``Even a small bump in the one-month rate will be additional stress on the marketplace.''

Rates on those home loans are beyond the reach of Federal Reserve Chairman Ben S. Bernanke and others on the Federal Open Market Committee, which is meeting today. The so-called Libor- indexed loans, including the subprime mortgages that helped spark the global credit crunch, have interest rates that are set by London bankers who report to the British Bankers' Association.

ARM Adjustments

The overnight Libor rate in U.S. dollars soared 3.33 percentage points to 6.44 percent today, its biggest jump in at least seven years, according to the British Bankers' Association. Many Libor-linked U.S. mortgages don't limit the size of a loan's first adjustment, with caps of 2 percent on subsequent changes. That means a monthly mortgage bill could double or even triple when it first resets.

``If the Libor market seizes up and stays that way, it's going to complicate everything,'' said Bill Fleckenstein, president of Fleckenstein Capital in Seattle. ``What you are seeing is the unwinding of the financial system as we know it.''

Banks tightened lending as AIG was downgraded by Moody's Investors Service and Standard & Poor's, adding to evidence that the fallout from the collapse of the U.S. mortgage market is spreading. The surge in funding costs came less than a day after Lehman's bankruptcy, the biggest in history, and Merrill Lynch & Co.'s sale to Bank of America Corp.

Fed Meeting

The FOMC began its meeting this morning and is scheduled to announce its decision at about 2:15 p.m. in Washington. Policy makers have cut rates seven times from September 2007 to April 2008. They suspended the easing as oil prices surged, increasing expectations inflation would accelerate.

Yesterday, the federal funds rate soared as high as 6 percent, triple the Fed's target, as banks hoarded cash. That spurred the Fed to pump $70 billion into money markets through repurchase operations, the most since September 2001.

Premiums on investment-grade U.S. corporate bonds climbed. The extra yield investors demand to buy such bonds instead of Treasuries with a comparable maturity soared to 3.80 percentage points, the highest since Merrill Lynch began keeping the data in 1996, from 3.44 percentage points on Sept. 12.


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Jeff Marshalek

 2008/9/16 14:36Profile
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Joined: 2003/6/3
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 Re:

Fed Said to Reverse Stance, Consider AIG Loan Package (Update2)

By Erik Holm and Hugh Son

Sept. 16 (Bloomberg) -- The Federal Reserve is considering extending a ``loan package'' to American International Group Inc., the insurer facing a cash shortage, according to a person familiar with the negotiations.

The stance by federal regulators is a reversal from a position they held as late as last night, and people with knowledge of the talks are ``cautiously optimistic,'' said the person, who declined to be identified because negotiations are confidential.

The person gave no timetable for reaching an agreement or estimate on how much money New York-based AIG would need. New York Fed spokesman Andrew Williams declined to comment and AIG spokesman Nicholas Ashooh didn't immediately return a call seeking comment. Treasury spokeswoman Jennifer Zuccarelli had no immediate comment.

AIG is searching for capital to stave off a collapse after its credit ratings were cut late yesterday. AIG's fight to stay afloat is the latest tremor to shake the global financial industry, less than a day after Lehman Brothers Holdings Inc. filed for Chapter 11 bankruptcy protection and Merrill Lynch & Co. sold itself to Bank of America Corp.

``To the extent that a bridge loan or some type of liquidity provision allows AIG time to sell some assets on its balance sheet and time to maintain it's investment-grade rating at A or higher, I think it's a good move,'' Bill Gross, co-chief investment officer of Newport Beach, California-based Pacific Investment Management Co. said in a Bloomberg TV interview.

`A Necessary Step'

``The Fed doesn't have to necessarily put its own capital at risk,'' Gross said. ``We'll see what the plan says, but I think it's definitely a necessary step.'' ...


(end of article)

This man Bill Gross has been cheer leading for government intervention incessantly...

Side note...The bond fund that Bill Gross manages...the largest fund in the world which is owned by a German bank...has over 750 million invested in AIG.


The kings of this earth are walking in a drunken stupor...

In Christ
Jeff




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Jeff Marshalek

 2008/9/16 16:13Profile
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Posts: 4790


 Re:



10:35 am : The Treasury is setting up a temporary financing program at the Fed's request. The program will auction Treasury bills to raise cash for the Fed's use. The initiative aims to help the Fed manage its balance sheet following its efforts to enhance its liquidity facilities over the previous few quarters.


(end of article)

This sounds like the Federal Reserve, a private banking system, is bankrupt...

And now the government is printing money to bail them out...

In Christ
Jeff


_________________
Jeff Marshalek

 2008/9/17 11:19Profile
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Joined: 2003/6/3
Posts: 4790


 Re:


AIG’s Dangerous Collapse
& A Credit Derivatives Risk Primer
by Daniel R. Amerman, CFA | September 17, 2008
Print
Overview

While it may look superficially similar to the recent implosions of such investment giants as Fannie Mae, Freddie Mac and Lehman, the takeover and bailout of AIG is quite different, and means that the market is entering the next and even more dangerous phase. What is driving the fall of AIG – and potential government losses that may far, far exceed the $85 billion bailout announced late on September 16th - is not mortgages or real estate (directly), but fears that AIG’s huge, global credit-default swap positions will unravel. The $62 trillion dollar credit derivatives market is 50 times the size of the subprime mortgage derivatives market, and is indeed larger than the entire global economy.

Unfortunately, few people understand credit derivatives, or the full risks to the United States and global markets and economies. In this article, I will take a Credit Derivatives Primer that I published in the spring of 2008 - which anticipated this exact type of event - and update it for the current situation. Through reading this article, you should be able to greatly increase your knowledge of what credit derivatives are, and why they are a far greater danger than subprime mortgages. We will end with introducing some concepts about how individuals can protect themselves and even profit from these unprecedented market conditions – something you won’t find in recent financial history or conventional investments.

The Rapid & Dangerous Collapse of AIG

“The particular risks that brought the company (AIG) to the brink of bankruptcy seem to lie not with its core insurance businesses but with its derivatives-trading subsidiary AIG Financial Products. AIG FP, as it's called, merits a mere paragraph in the nine-page description of the company's businesses in its most recent annual report. But it's a huge player in the new and mysterious business of credit-default swaps: derivative securities that allow banks, hedge funds and other financial players to insure against loans gone bad.” Time, September 17, 2008

On September 1st, few knew that AIG, the largest insurance company in the world with over $1 trillion in assets, was in deep trouble. By September 12th, the rumors about major trouble were everywhere. By September 15th AIG’s corporate life expectancy was being measured in days, and the question was: bankruptcy, buyer or bailout? By the evening of September 16th, the federal government had massively intervened, making an $85 billion loan to AIG in exchange for a controlling 79.9% equity share of the company.

Welcome to the brave new world of credit derivatives driven collapses. A world that is far more dangerous than the world of subprime mortgage derivatives. A complex world that because of its sheer size can potentially cause more damage in a matter of days than the subprime mortgage derivatives caused in their first year in the headlines. The chart below shows the relative size of the credit derivatives and subprime mortgage markets.



How great is the real danger? The bulk of the remainder of this article explains the extent of the danger. With a few market changes, this is the credit derivatives primer as published at numerous websites on May 2nd of 2008. There is also new material at the end of the article, talking about what could be anticipated, and introducing some solutions.

A Credit Derivatives Primer

In the article, The Subprime Crisis Is Just Starting, we explored the roots of the subprime crisis, demonstrated how mortgage securitizations work, and then used this knowledge to show why 2008 could be a much more dangerous year for the subprime mortgage markets – and the global financial system – than 2007. In this article, we show how the same fundamental – and quite human – motivations that created the subprime market crisis also imperil the $62 trillion global credit derivatives market.

Assumptions and Extraordinary Personal Profits

Let's consider the simple heart of what credit derivatives are all about. A major investor has the opportunity to make an attractive-looking investment that involves taking a risk. For instance, a bank or insurance company sees an opportunity in lending to a corporation, but they are concerned about the financial safety of the corporation. They would prefer to keep most of the positive returns from the investment, but not take the risk of the company defaulting. So, as the employee of a company that creates financial derivatives (a credit swap in this case), what you do is promise – for a fee – to take the risk for them. Your company makes assumptions about how bad the risk will be, and based on those assumptions, you determine that this trade is profitable for your employer. You then personally take a nice chunk of those profits in your next bonus as a reward for having been smart enough to get your company into this lucrative transaction. And because this upfront booking of expected profits from these transactions is so lucrative, not only do you get an enhanced bonus -- but so do the other members of your group, your supervisor, their supervisor, and the president and other senior officers of the firm.

Now, this is not to say that you and the other members of your group have entirely assumed the risk away. You make some allowance for the possibility that out of all these contracts that you're entering into, you may have to actually make some payments. To cover the possibility of losses, you set aside a reserve, or buy a credit derivative from another company to cover, or both. The key to your bonus this year is the particulars of the assumptions that your group makes about what those expected losses will be in the future. The lower the assumption for expected losses, then either the greater your profits in a given transaction, or the more competitive your bid, and the greater your chances of beating out competitors who are seeking the same “lucrative" business.

For example, if your firm is being paid $12 million to guarantee payment of a $500 million loan for ten years, and your group assumes there is a 4% chance of having to pay out $250 million on that guarantee, then your expected losses are $10 million – and your firm’s expected profit is $2 million. This is shown in the top chart below, “Making Money With Credit Derivatives”.



However, let’s say that your group comes back and re-examines those assumptions. You find that if you make fairly minor and quite reasonable appearing changes to two of your assumptions, the potential loss on the derivative drops from an expected $250 million down to $225 million. Make two other minor changes in other assumptions that are also each individually reasonable, and the chances of that loss occurring drop from 4% down to 3.5%. As shown above in “Making A FORTUNE With Credit Derivatives”, rerun the numbers with a 3.5% chance of losing $225 million – and your expected losses drop to $7.9 million, while your profits just doubled, going from $2 million to $4.1 million!

Now, it quickly becomes clear to any reasonable person that if you can double the profits your firm recognizes on a transaction by keying in four small assumptions changes on a computer model, each of which sounds individually reasonable, and the end result of those changes is to double the bonus you get paid this year – then the key to making some serious personal money is making the right assumptions! Something that is equally plain to your peers at competitive firms

to read the rest of the article...

http://www.financialsense.com/fsu/editorials/amerman/2008/0917.html

In Christ
Jeff


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Jeff Marshalek

 2008/9/18 10:35Profile
rookie
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Joined: 2003/6/3
Posts: 4790


 Re:

Today our government has taken on the full responsibility to save the world financial system. Treasury Secretary Paulson, who has already announced that he will not remain for the full term of his office, has spearheaded an effort to transfer the risk of failure from the private economy to the public economy. The financial industry is attempting to transfer it's debt to our children's children. These same people will also continue to lobby government to remove the "death tax" from their children.



Do the sons of the king pay taxes? What does Scripture say?

Do you see the power of Scripture and how it brings light to the darkness of this world....

In Christ
Jeff


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Jeff Marshalek

 2008/9/19 9:46Profile
rookie
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Joined: 2003/6/3
Posts: 4790


 Re:

The next phase of this financial crisis will be centered in the credit derivatives market. Companies like Ford and GM will continue to experience greater and greater financial distress because no one will lend them more money...the SEC just added GM to the list of financial stocks that cannot be shorted.

The financial industry in the past, has insured against risk of default by corporations like these. As the perceived risk increases, the cost of insurance also increases. Ford and GM have to pay higher and higher interest rates for much needed capital.

Likewise, insurance companies like AIG have not adequately set aside capital to cover the losses generated by failing business models like Ford and GM. AIG has many divisions which are profitable. They insure homes, cars, businesses, life insurance...etc. Yet one division, the credit derivative entity, has depleted capital reserves to the point where they do not have enough money to meet their daily obligations.

The size of this credit derivative market dwarfs the subprime mortgage problem by a multiple of 50. The estimated size of this financial engineering debacle is 62 trillion dollars.

another day another plan...

In Christ
Jeff


_________________
Jeff Marshalek

 2008/9/22 20:52Profile









 Re:

Quote:

rookie wrote:
The financial industry is attempting to transfer it's debt to our children's children. These same people will also continue to lobby government to remove the "death tax" from their children.

Do the sons of the king pay taxes? What does Scripture say?



It is clear who the Government is treating as its own. Just like in the days of Colonialism, the kings took the gold and riches from the colonized or enslaved territories and brought them to their own countries for themselves to spend, so today the corrupt governments are acting as occupators and tyrants in their lands, transferring the wealth of their nations to corporate and private bank accounts. In this case, it is a transfer not of wealth (for the people have been stripped naked), but of debt and future responsibility. How things have changed!

This is like me choosing not to pay our family bills so I can keep giving our money to our neighbor to build his palace, all at the cost of sending my kin to debtors' prison in the end! This is called treason, not good stewardship, and clearly shows where is my allegiance and my belonging.

In Christ,
Slavyan

 2008/9/23 6:24
rookie
Member



Joined: 2003/6/3
Posts: 4790


 Re:

Banks Admit Bailout Won't Work
Posted Oct 17, 2008 09:48am EDT by Henry Blodget

So much for that story. A few days ago, when Hank Paulson called the heads of the nine families to Washington and shoved cash down their throats, he announced that the banks would use this new taxpayer cash to lend. They won't, of course. They'll hoard it like a starving family who has just been given a grocery cart full of food.

And after a few days of silence, even the banks are finally admitting that. So it's back to the drawing board for Paulson & Co.

Next steps? Find a way to force the banks to write their assets down to nuclear winter levels, so 1) private investors don't have to worry about getting sandbagged and therefore invest more in the banks, and 2) the banks know they won't be forced to take more multi-billion dollar losses. Only then will the banks begin to lend again. And at that point, the only challenge will be finding people and companies to lend to, in an economy headed straight into the tank.)

NYT: , John Thain, the chief executive of Merrill Lynch, said on Thursday that banks were unlikely to act swiftly. Executives at other banks privately expressed a similar view.

“We will have the opportunity to redeploy that,” Mr. Thain said of the new capital on a telephone call with analysts. “But at least for the next quarter, it’s just going to be a cushion."...

“I don’t think that the market wants to see that capital being put to work to leverage the business up again,” said Roger Freeman, an analyst at Barclays Capital, which acquired parts of the now-bankrupt Lehman Brothers last month. “My expectation is it’s quarters off, not months off, before you see that capital being put to work.”...

Jamie Dimon, the chairman and chief executive of JPMorgan, said his bank was in a stronger position to use the money than some of its competitors.

“It’s clear that the government would like us to use the capital,” Mr. Dimon said on a conference call with analysts on Wednesday. “If you are a bank that is filling a hole, you obviously can’t do that.”

Who is "a bank that is filling a hole"? Seven of the nine that just got taxpayer money.


(end of article)


Even if the banks were willing to lend money, who can afford a loan?



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Jeff Marshalek

 2008/10/17 12:16Profile
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Joined: 2003/6/3
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 Re:



CDO Cuts Show $1 Trillion Corporate-Debt Bets Toxic (Update1)

By Neil Unmack, Abigail Moses and Shannon D. Harrington

Oct. 22 (Bloomberg) -- Investors are taking losses of up to 90 percent in the $1.2 trillion market for collateralized debt obligations tied to corporate credit as the failures of Lehman Brothers Holdings Inc. and Icelandic banks send shockwaves through the global financial system.

The losses among banks, insurers and money managers may spark the next round of writedowns on CDOs after $660 billion in subprime-related losses. They may force lenders to post more reserves against losses after governments worldwide announced $3 trillion in financial-industry rescue packages since last month, according to Barclays Capital.

``We'll see the same problems we've seen in subprime,'' said Alistair Milne, a professor in banking and finance at Cass Business School in London and a former U.K. Treasury economist. ``Banks will take substantial markdowns.''

The collapse of Lehman Brothers, Washington Mutual Inc. and the three banks in Iceland prompted Susquehanna Bancshares Inc., a Lititz, Pennsylvania-based lender, to lower the value of $20 million in so-called synthetic CDOs by almost 88 percent last week.

KBC Groep NV, Belgium's biggest financial-services firm, which had 377.4 billion in assets as of June 30, wrote down 1.6 billion euros ($2.1 billion) after downgrades on company- and asset-backed debt. Brussels-based KBC had 9 billion euros in CDOs as of Oct. 15, primarily linked to corporate debt, according to an investor presentation.

10 Cents

Some synthetic CDOs, tied to credit-default swaps on corporate bonds, are trading at less than 10 cents on the dollar, according to Sivan Mahadevan, a derivatives strategist at Morgan Stanley in New York.

CDOs parcel fixed-income assets such as bonds or loans and slice them into new securities of varying risk, providing higher returns than other investments of the same rating.

The synthetic variety pools credit-default swaps, which are derivatives based on bonds and loans and used to protect against or speculate on defaults. Should a borrower fail to meet debt agreements, the contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent. An increase in the agreement's cost indicates a deteriorating perception of credit quality.

About $254 billion of CDOs tied to mortgages for borrowers with poor credit histories have defaulted, according to Wachovia Corp. Tracking defaults on those linked to corporate bonds will be difficult because the market is largely private, said Mahadevan.

Derivatives are contracts whose value is derived from assets including stocks, bonds, currencies and commodities, or from events such as the weather or changes in interest rates.

`Severe' Recession

Downgrades of corporate CDOs will force investors to boost capital, according to an Oct. 17 report from Barclays Capital analysts led by Puneet Sharma in London.

Buyers of deals graded AA by Standard & Poor's and Aa2 by Moody's Investors Service, the third-highest rankings, may have to increase cushions against losses to cover the full amount of the investment, up from 1.2 percent now, Sharma said. His estimate is based on the world economy entering a ``severe'' recession.

Demand for synthetic CDOs pushed the cost of default protection to record lows in 2007, driving down company borrowing expenses. Sales surged to $503 billion in 2006, from $84 billion five years earlier, according to Morgan Stanley.

High Return

Bankers loaded the securities with bonds and swaps offering the highest return for a given credit ranking, indicating additional risk. An AA rated European issue offered an average yield of 50 basis points over money-market rates when sold in 2006, according to UniCredit SpA analysts in Munich. Similarly rated corporate bonds paid 9 basis points. A basis point is 0.01 of a percentage point.

``The maths ended up driving the way CDO portfolios were put together,'' said Nigel Sillis, a fixed-income and currency analyst at Baring Asset Management Ltd. in London.

The banks that structured the securities and investors both failed to do ``fundamental credit analysis,'' said Janet Tavakoli, president of Tavakoli Structured Finance in Chicago. ``They were using correlation models, they were using spread models, but they weren't doing analysis on the underlying corporations.''

Fitch downgraded 422 classes of CDOs on Oct. 13 after seven financial companies defaulted or were bailed out since September. The company didn't disclose the total number of classes it rated.

The downgrades force payment of the credit-default swaps packaged in the debt, causing losses for investors or eroding capital.

``The same kind of shudders that went through the asset- backed CDO market will probably go through the corporate CDO market,'' said Sillis. ``We'll see a pickup in default rates.''

Lehman, WaMu

Barclays Capital estimates that 70 percent of synthetic CDOs sold swaps on Lehman. Swaps on Kaupthing Bank hf, Landsbanki Islands hf and Glitnir Banki hf were included in 376 CDOs rated by S&P. The company ranks almost 3,000.

About 1,500 also sold protection on Washington Mutual, the bankrupt holding company of the biggest U.S. bank to fail, according to S&P. More than 1,200 made bets on both Fannie Mae and Freddie Mac, the New York-based rating company said.

The collapse of Lehman, WaMu and the Icelandic banks, as well as the U.S. government's seizure of the mortgage agencies, will have a ``substantial'' impact on corporate CDO ratings, S&P said in a report Oct. 16.

The government in Reykjavik seized Kaupthing Bank, the country's largest lender, earlier this month. Assets and liabilities from Landsbanki Islands and Glitnir Banki were transferred to state-owned entities, triggering default swaps.

`Marking Down'

Nonpayment on speculative-grade corporate bonds may rise to 7.9 percent worldwide in a year, from 2.8 percent at the end of the third quarter, as the credit crisis deepens, Moody's said Oct. 8. Those in the U.S. may rise to 7.6 percent, said S&P.

``As there are credit events, you'll have losses in portfolios and marking down of other assets,'' said Claude Brown, a partner at law firm Clifford Chance LLP in London.

Investors may sell the CDOs back to banks, which will unwind protection they wrote to hedge swap transactions, Barclays said. The chain of events will push up the price of default protection and company borrowing, according to Barclays.

Doubling Cost

Banks unwinding hedges helped double the cost since April of default insurance on the lowest-ranking equity portion of the benchmark Markit CDX North America Investment Grade Index, to 75 percent upfront and 5 percent a year. That equates to $7.5 million in advance plus $500,000 annually on $10 million of debt for five years.

For European investment-grade company debt, as shown by the Markit iTraxx Europe index of credit-default swaps, the price for protecting against nonpayment may climb 55 basis points to a record 200 next year, Barclays forecasts.

Some investors are choosing to buy protection and determine their losses now, according to Edmund Parker, head of derivatives at law firm Mayer Brown LLP in London.

National Australia Bank, the country's biggest lender by assets, paid A$100 million ($67 million) this year to hedge the risk of loss on six company-linked CDOs totaling A$1.6 billion. It will pay a further A$60 million annually for the next five years, according to company filings.

`Drawn a Line'

``The upside is that you've now drawn a line on those assets and you know you're not going to lose more than your hedging costs,'' Parker said. ``Unless, of course, your counterparty goes under.''

Companies most frequently referenced in synthetic CDOs include Philadelphia-based Radian Group Inc., the third-largest U.S. mortgage insurer, whose stock fell 68 percent in New York trading this year. Another is CIT Group Inc., an unprofitable commercial lender in New York that dropped 83 percent. The company faces about $2.4 billion in debt repayments by the end of 2008, according to data compiled by Bloomberg.

``We feel very strongly that we have adequate claims-paying capabilities for both our financial-guarantee business and our mortgage-insurer business,'' said Radian spokesman Richard Gillespie.

CIT spokesman Curtis Ritter declined to comment, pointing to the company's statement last week that it will meet funding needs for the next 12 months.

Forecasts for ratings downgrades are ``going to force a lot of activity'' in unwinding CDOs, said Rohan Douglas, former director of global credit derivatives research at Citigroup Inc. He now heads Quantifi Inc., a provider of valuation models for the debt. ``Buy-and-hold investors suddenly find themselves in a situation where they will have to sell these assets.''


_________________
Jeff Marshalek

 2008/10/22 10:15Profile





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