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POTENTIALLY HUGE: 5 Major US banks FACE MASSIVE DEFAULT on credit default swaps this week?

 
Anonymous Coward
User ID: 706260
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01/31/2012 12:54 AM
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POTENTIALLY HUGE: 5 Major US banks FACE MASSIVE DEFAULT on credit default swaps this week?
This could be huge, if true.

The 5 US largest banks have 97% of credit default swaps out there. As Euro defaults kick in, parties become contractually obligated to make huge payouts to the relevant derivative partners. But there is not enough money on planet earth to do so.

Everybody loses.


Watch the actions of an initernational body called the ISDA;in charge of determining when a "credit event" occurs.

[youtube [link to www.youtube.com]
Anonymous Coward (OP)
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01/31/2012 12:55 AM
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Re: POTENTIALLY HUGE: 5 Major US banks FACE MASSIVE DEFAULT on credit default swaps this week?
Anonymous Coward (OP)
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Japan
01/31/2012 12:55 AM
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Re: POTENTIALLY HUGE: 5 Major US banks FACE MASSIVE DEFAULT on credit default swaps this week?
See also:
[link to www.jsmineset.com]
Anonymous Coward
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01/31/2012 12:57 AM
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Re: POTENTIALLY HUGE: 5 Major US banks FACE MASSIVE DEFAULT on credit default swaps this week?
bump For Econ Doom
Anonymous Coward (OP)
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01/31/2012 01:06 AM
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Re: POTENTIALLY HUGE: 5 Major US banks FACE MASSIVE DEFAULT on credit default swaps this week?
There are, as many of you know, ongoing "haircuts" for debtors in the Euro markets. Say you've loaned Greece money by buying a bond. You expect to get a certain amount back (more than you put in, obviously). But with the recent Eurodoom, debtohlders have to take "haircuts" -- 30% for example.

Now, when this happens, a certain type of insurance is supposed to kick in for some investors. A CDS (type of derivative) is one example. Say you are a US investor ten years ago, and you wanted to invest in Greek bonds but you are worried (understandably - look what happened) about the risk. You might buy a CDS, which is similar to an insurance contract. It says you will be paid such-and-such amount if Greece defaults.

It's not a bad idea in theory, but what happened is the elite financial world started to gamble on CDS even for instruments they don't own. It would be like if I took out insurance that would pay me huge amounts if you have an auto accident. Then I get you drunk and convince you to drive.

Since there is nowhere near enough money to make good on all thes promises (for both rational investors and wall street megabanks that have glommed on to this stuff like crack), bondholders are not going to be compensated for their losses (money they expected and may even have booked in accounts), and the mega banks aren't going to get what they expect either, so they have much, much, MUCH less money than they expect.

There is a potential for total systemic collapse. "The Big One."
Anonymous Coward (OP)
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01/31/2012 01:11 AM
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Re: POTENTIALLY HUGE: 5 Major US banks FACE MASSIVE DEFAULT on credit default swaps this week?
I don't usually attention-whore for pins but I think this time it's worth looking like an ass:

Please suggest a pin everybody, this is important information for the whole community.
Anonymous Coward (OP)
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Japan
01/31/2012 01:27 AM
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Re: POTENTIALLY HUGE: 5 Major US banks FACE MASSIVE DEFAULT on credit default swaps this week?
Let me clairfy this a little bit. The specific nature of the doom.

One specific aspect of the problem is that this body, the ISDA, is in charge of determining when major defaults take place. By all rational accounts, when investors in European instruments are only going to be paid back 30 cents on the dollar, that is a massive default, and the ISDA should do so, which would trigger CDS contracts, and various people would get paid insurance. However, the ISDA is run by the big banks. They are obviously not going to want a ruling which would force them to pay out enormous sums (money they don't have and can't pay). So the ISDA is likely to declare that this is NOT a major default, and there is no need for the CDS contracts to kick in. Thus the little guy (i.e., you, your pension investment fund, and other funds you may hold) will NOT get paid his CDS insurance money and will have to suck it up, only getting 30 cents back for every dollar they put in.

Obviously this is going to make a lot of people poorer and a lot of expected pension money, savings, etc. are going to evaporate - investments of both individuals and institutions. On a larger scale, since the massive CDS holdings of the banks will be revealed to be worthless and not willing/able to pay out when they clearly should, the credibility of this instrument will become zero, it will become worthless, and a lot of money on the books of elite financial institutions in the form of CDSs will evaporate.
Anonymous Coward
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01/31/2012 01:28 AM
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Re: POTENTIALLY HUGE: 5 Major US banks FACE MASSIVE DEFAULT on credit default swaps this week?
I just have one word

I

C

E

L

A

N

D
Anonymous Coward (OP)
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Japan
01/31/2012 01:32 AM
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Re: POTENTIALLY HUGE: 5 Major US banks FACE MASSIVE DEFAULT on credit default swaps this week?
I just have one word

I

C

E

L

A

N

D
 Quoting: Anonymous Coward 9887956


ohyeah
Anonymous Coward
User ID: 9704425
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01/31/2012 01:34 AM
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Re: POTENTIALLY HUGE: 5 Major US banks FACE MASSIVE DEFAULT on credit default swaps this week?
I don't usually attention-whore for pins but I think this time it's worth looking like an ass:

Please suggest a pin everybody, this is important information for the whole community.
 Quoting: Anonymous Coward 706260


You don't see any BS flags flying do you. Thats because everybody here already knows what you're saying is true....

....and those who aren't on boards like this are in general butt ignorant about how fucked up all this shit is. I think they are busy watching Fear Factor or something.

I noticed back in 2000 that people were starting to buy their own f'n debt. "Oh lookie I'm rich! Why I owe myself millions!" It don't get any stupider than that.
Anonymous Coward
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01/31/2012 01:41 AM
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Re: POTENTIALLY HUGE: 5 Major US banks FACE MASSIVE DEFAULT on credit default swaps this week?
Just saw the movie Rollover (1981)

This film shows how it could come down 22 years ago...and it is!!!!
pin pin
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Australia
01/31/2012 01:41 AM
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Re: POTENTIALLY HUGE: 5 Major US banks FACE MASSIVE DEFAULT on credit default swaps this week?
Nicely put. Thanks for the info.
Anonymous Coward (OP)
User ID: 706260
Japan
01/31/2012 01:46 AM
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Re: POTENTIALLY HUGE: 5 Major US banks FACE MASSIVE DEFAULT on credit default swaps this week?
I don't usually attention-whore for pins but I think this time it's worth looking like an ass:

Please suggest a pin everybody, this is important information for the whole community.
 Quoting: Anonymous Coward 706260


You don't see any BS flags flying do you. Thats because everybody here already knows what you're saying is true....

....and those who aren't on boards like this are in general butt ignorant about how fucked up all this shit is. I think they are busy watching Fear Factor or something.

I noticed back in 2000 that people were starting to buy their own f'n debt. "Oh lookie I'm rich! Why I owe myself millions!" It don't get any stupider than that.
 Quoting: Anonymous Coward 9704425


Yes true, isn't its? This has been expected for some time. Even Warren Buffett explicitly warned about the potential for exactly this scenario ten years ago.

It is true that the theory and logic itself is nothing new. What is noteworthy this time is that they are finally not going to be able to hide it anymore. People are expecting such-and-such amount next week, say, and they are going to get a check for only 30% as much.

I expect they will let the boomers with pensions take it in the neck first. Worked since 1965 at United Widget and expecting your cushy 50-k-year-for-life? Sorry. How does $15 K sound? What's left of the "investing public." They will be trimming the fat from the upper-middle-clasess now, the Elite Finance Beast is very very large and very very hungry must be fed. It has already destroyed the middle class and now its time for the upper-middle-class to take it hard. All those doctors and lawers and country-club men, legions of loyal officeworkers and high-end factory workers; successful small business owners and investors and small-scale entrepreneurs. Hard workers and smug bastards alike.
Anonymous Coward
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01/31/2012 01:46 AM
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Re: POTENTIALLY HUGE: 5 Major US banks FACE MASSIVE DEFAULT on credit default swaps this week?
And....so it ends.
Anonymous Coward
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01/31/2012 01:57 AM
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Re: POTENTIALLY HUGE: 5 Major US banks FACE MASSIVE DEFAULT on credit default swaps this week?
So is this it possibly?
Mr. Toppit

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01/31/2012 02:08 AM

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Re: POTENTIALLY HUGE: 5 Major US banks FACE MASSIVE DEFAULT on credit default swaps this week?
hiding
TeamReaper

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01/31/2012 02:16 AM
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Re: POTENTIALLY HUGE: 5 Major US banks FACE MASSIVE DEFAULT on credit default swaps this week?
ISDA annua; meeting this yr:

April 27-May 2 in ... Chicago!

[link to www2.isda.org]
In every operation, whether planning it or executing it, you can never count on luck; but you have to accept it, and recognize it when its there.
-Major ******, U-2 Pilot/Instructor/Flight Commander
Anonymous Coward
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01/31/2012 02:41 AM
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Re: POTENTIALLY HUGE: 5 Major US banks FACE MASSIVE DEFAULT on credit default swaps this week?
Yes, this could be it. I know....that is the topic most posted on GLP. But, this is the real deal. TPTB have been kicking the can down the road since New Century Mortgage filed a BK back in the spring of 2007. 5 years and trillions of dollars of bailouts later and now we are at the tipping point. If the ISDA declares the massive haircut in the Greek bonds not a default then the 600 trillion dollar shadow banking system is over because all of the credit default swaps will not protect against or provide insurance against a credit default. It is like when your car you paid cash for is totaled after you drive it off of the lot and the insurance company tells you it was only worth 30% of what you paid for it and they will not replace it. If the ISDA says that the Greek bonds are in default then the 5 largest banks in the US will have to pony up and cover the default causing an unwind never seen before because they sold the insurance. Either way there is a liquidity crisis of grand proportions coming for the largest institutions everywhere in the world. If the insurance doesn't pay for the losses on the bonds then confidence in the 600 trillion shadow banking/insurance system is over. Large institutions will put a hold on all funds in their possession and dollars will stop flowing. It is like when the music stops in musical chairs. Everyone scrambles for a chair and there are not enough chairs. All money will move into tangible assets. Hyperinflation will occur when printed money from the FED given to pay for the CDS losses flows out of the CDS market and into everything real.
Anonymous Coward
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01/31/2012 03:46 AM
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Re: POTENTIALLY HUGE: 5 Major US banks FACE MASSIVE DEFAULT on credit default swaps this week?
uhoh
Éireann

User ID: 9904940
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01/31/2012 06:24 AM

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Re: POTENTIALLY HUGE: 5 Major US banks FACE MASSIVE DEFAULT on credit default swaps this week?
Holy Shit!! This is serious!

Thank you for the post and the heads up, OP. Much obliged!!
Éireann~

Eisteacht le gra! ~ArunaLuna (Translation from Gaelic: "Listen to Love!")

"And I sincerely believe, with you, that banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale." - Thomas Jefferson, from a Letter to John Taylor written in 1816

"Unfortunately, it is in the nature of man to tinker - even with immutable truth. Thus, we must be ever vigilant... - James Munford

It is a sad fate for a man to die too well known to everybody else, and still unknown to himself. - Francis Bacon

"People demand freedom of speech as a compensation for the freedom of thought which they seldom use." - Soren Kierkegaard

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Anonymous Coward
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01/31/2012 06:25 AM
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Re: POTENTIALLY HUGE: 5 Major US banks FACE MASSIVE DEFAULT on credit default swaps this week?
They will fail when China has commited itself with huge sums of money to save us.
Anonymous Coward
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01/31/2012 06:28 AM
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Re: POTENTIALLY HUGE: 5 Major US banks FACE MASSIVE DEFAULT on credit default swaps this week?
So then, this is how it finally begins.

verysad

.
Judethz
Israel is Eternal

User ID: 5159851
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01/31/2012 06:31 AM

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Re: POTENTIALLY HUGE: 5 Major US banks FACE MASSIVE DEFAULT on credit default swaps this week?
Just saw the movie Rollover (1981)

This film shows how it could come down 22 years ago...and it is!!!!
 Quoting: Anonymous Coward 4584794



6

kitty There is a new movie The International coming out on Feb 13th, that looks from the trailer like it might be a good one.

I'm sure the date is just a coincidence. LOL
Anonymous Coward
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01/31/2012 06:31 AM
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Re: POTENTIALLY HUGE: 5 Major US banks FACE MASSIVE DEFAULT on credit default swaps this week?
Most people on here who are in tune and knowledgeable know this was coming.

So it is not a big surprise to some of us.


Just make sure you take out all your cash or don't store a huge amount in any single bank.
Anonymous Coward
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01/31/2012 06:33 AM
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Re: POTENTIALLY HUGE: 5 Major US banks FACE MASSIVE DEFAULT on credit default swaps this week?
Anyone remember the main argument against the privatization of social security?
Anonymous Coward
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01/31/2012 06:36 AM
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Re: POTENTIALLY HUGE: 5 Major US banks FACE MASSIVE DEFAULT on credit default swaps this week?
ISDA is not gonna declare a default this week. There are a few cards left in the deck....so they will continue to play the "extend and pretend" game. We might still have a few months left before the rug out from under us.
Anonymous Coward
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Hong Kong
01/31/2012 06:36 AM
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Re: POTENTIALLY HUGE: 5 Major US banks FACE MASSIVE DEFAULT on credit default swaps this week?
This would be your proverbial straw that breaks the camels back....

I am not sure about most doom, but the CDS mountain is so fucking big that it is really difficult even to imagine.

They would need to reset everything, there would be no other choice. It cannot be swept under the rug.
Anonymous Coward
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Australia
01/31/2012 06:37 AM
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Re: POTENTIALLY HUGE: 5 Major US banks FACE MASSIVE DEFAULT on credit default swaps this week?
So then, this is how it finally begins.

verysad

.
 Quoting: Anonymous Coward 1257580


awwaa why be sad tho?
Anonymous Coward
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01/31/2012 06:41 AM
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Re: POTENTIALLY HUGE: 5 Major US banks FACE MASSIVE DEFAULT on credit default swaps this week?
Exxon - Laying people off.
Best Buy - Closing stores.
Proctor and Gamble - Laying people off.


Realizing those three players are sinking quickly should open a few peoples eyes..
Anonymous Coward
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01/31/2012 06:46 AM
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Re: POTENTIALLY HUGE: 5 Major US banks FACE MASSIVE DEFAULT on credit default swaps this week?
NEW YORK (CNNMoney) -- U.S. stocks are poised for a higher open Tuesday, after European Union leaders agreed Monday to strengthen a financial firewall and sign a fiscal pact.






[link to money.cnn.com]



Nothing is gonna happen...YET! Can is being kicked further down the road
Anonymous Coward
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01/31/2012 06:46 AM
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Re: POTENTIALLY HUGE: 5 Major US banks FACE MASSIVE DEFAULT on credit default swaps this week?
Exxon - Laying people off.
Best Buy - Closing stores.
Proctor and Gamble - Laying people off.


Realizing those three players are sinking quickly should open a few peoples eyes..
 Quoting: Anonymous Coward 7263410


Even the Financial institutions are laying people off.

Don't forget Nokia and Yahoo.


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