Best of the Week
Most Popular
1.Canada Real Estate Bubble - Harry_Dent
2.UK House Prices ‘On Brink’ Of Massive 40% Collapse - GoldCore
3.Best Cash ISA for Soaring Inflation, Kent Reliance Illustrates the Great ISA Rip Off - Nadeem_Walayat
4.Understanding true money, Pound Sterling must make another historic low, Euro and Gold outlook! - Marc_Horn
5.5 Maps That Explain The Modern Middle East - GEORGE FRIEDMAN
6.Gold Back With A Vengeance As Bitcoin Bubble Bursts - OilPrice_Com
7.Gold Summer Doldrums - Zeal_LLC
8.Crude Oil Trade & Nasdaq QQQ Update - Plunger
9.Gold And Silver – Why No Rally? Lies, Lies, And More Lies - Michael_Noonan
10.UK Election 2017 Disaster, Fake BrExit Chaos, Forecasting Lessons for Next Time - Nadeem_Walayat
Last 7 days
UK House Prices Momentum Crash Warns of 2017 Bear Market - Video - 22nd Jul 17
Crude Oil, Gold, ETFs & more: Pro-grade Market Forecasts - 22nd Jul 17
Warning: The Fed Is Preparing to Crash the Financial System Again - 21st Jul 17
Gold / Silver Shorts Extreme - 21st Jul 17
GBP/USD Bearish Factors - 21st Jul 17
Gold Hedges Against Currency Devaluation and Cost Of Fuel, Food, Beer and Housing - 21st Jul 17
Is It Worth Investing in Palladium? - 21st Jul 17
UK House Prices Momentum Crash Threatens Mini Bear Market 2017 - 21st Jul 17
The Fed May Show Trump No Love - 20th Jul 17
The 3 Best Asset Classes To Brace Your Portfolio For The Next Financial Crisis - 20th Jul 17
Gold Stocks and Bonds - Preparing for THE Bottom - 20th Jul 17
Millennials Can Punt On Bitcoin, Own Safe Haven Gold For Long Term - 20th Jul 17
Trump Has Found A Loophole To Rewrite Trade Agreements Without Anyone’s Permission - 20th Jul 17
Basic Materials and Commodities Analysis and Trend Forecasts - 20th Jul 17
Bitcoin PullBack Is Over (For Now): Cryptocurrencies Gain Nearly A 50% In Last 48 Hours - 19th Jul 17
AAPL's 6% June slide - When Prices Are Falling, TWO Numbers Matter Most - 19th Jul 17
Discover Why A Major American Revolution Is Brewing - 19th Jul 17
iGaming – Stock Prices - 19th Jul 17
The Socionomic Theory of Finance By Robert Prechter - Book Review - 18th Jul 17
Ethereum Versus Bitcoin – Which Cryptocurrency Will Win The War? - 18th Jul 17
Accepting a Society of Government Tyranny - 18th Jul 17
Gold Cheaper Than Buying Greek Villas in 2012 - 18th Jul 17
Why & How to Hedge the Growing Risks of Holding Stocks - 18th Jul 17
Relocation: Everything You Need to do for a Smooth Transition Abroad - 17th Jul 17
A Former Lehman Brothers Trader: It’s Time To Buy Brick And Mortar Retailers - 17th Jul 17
Bank Of England Warns “Bigger Systemic Risk” Now Than 2008 - 17th Jul 17
Bitcoin Price “Deja Vu” Corrective Sequence - 17th Jul 17
Charting New Low in Speculation in Gold and Silver Markets - 17th Jul 17
Bitcoin Crash - Is This The End of Cryptocurrencies? - 17th Jul 17
The Fed's Inflation Nightmare Scenario - 17th Jul 17
Billionaire Investors Backing A Marijuana Boom In 2017 - 17th Jul 17
Perfect Storm - This Fourth Turning has Over a Decade of Continuous Storms to Come - 17th Jul 17
Gold and Silver Biggest Opportunity Since Late 2015, Last Chance at These Prices - 17th Jul 17
Stock Market More to Go - 17th Jul 17
Emerging Markets & Basic Materials Stocks Breaking Out Together - 16th Jul 17
Stock Market SPX Uptrending Again After Microscopic Correction - 15th Jul 17
Global Currency Reserve At Risk - 14th Jul 17
Picking Great Gold Stocks - 14th Jul 17
BBC Tree Expert's Verdict on Sheffield Amey / Labour City Council Tree Felling's - 14th Jul 17
SPX Cycles, Fed Funds and Gold - 14th Jul 17
Should Platinum Be More Expensive Than Gold? - 14th Jul 17
What's Next for US Dollar, Stocks, Bonds and Gold? - 13th Jul 17
India Gold Imports Surge To 5 Year High – 220 Tons In May Alone - 13th Jul 17
Gold and Silver: Your Stomach Is Probably Wrenching Right Now - 13th Jul 17
Gold Industry Is In A Deep State Of Dysfunction, Delusion And Denial - 13th Jul 17

Market Oracle FREE Newsletter

Crude Oil, Gold, ETFs & more: Pro-grade Market Forecasts

Bailout Secret- To Prevent $68 Trillion Derivatives Collapse Chain Reaction

Stock-Markets / Credit Crisis 2008 Sep 27, 2008 - 12:00 PM GMT

By: Andrew_Butter

Stock-Markets Best Financial Markets Analysis ArticlePaulson doesn't give a toss about the balance sheets. It's what's OFF them that's frightening him to death. When I read Shah Gilani's excellent analysis How to End the Credit Crisis at No Cost to US Taxpayers which was much better than the analysis that I wrote a few days previously How to save the US Taxpayer $700 Billion and the Failure of "Mark to Market" the penny finally dropped.


I'm just a simple moderately dumb real estate analyst, I had always assumed this was all about house prices and RMBS's. Now I realize I was duped, that's just a side-show. But I don't think I'm the only one.

Why did Paulson jump in to save some, and not others? Now I got it, it's all about how much CDS's they were exposed to.

I believed Mr. Paulson when he said that the $700 billion was to clean up balance sheets. Why shouldn't I? That's what he said clear as crystal, I wrote it down.

What's on the balance sheets is the RMBS's, but why now and why $700 billion? I couldn't understand it.

But it's nothing to do with the balance sheets.

I wouldn't be surprised if on average those RMBS are worth 80 to 90 cents on the dollar if they are valued properly (i.e. not Market to Market). I mean OK that's lot of money, but we all lost 20% on deals in our time, you just dust yourself off and get on trucking.

But this crisis is not about accounting rules, I couldn't understand how they were all being so dumb saying “Oh woe is me…Mark to Market all these banks are insolvent, and it's all because the market is stalled”. No I was stupid, I under-estimated the intelligence of those guys, they know exactly that they can value those assets using income capitalization, and nothing much has changed for the past three months. How could I have been so stupid to think they were SOoo stupid?

So why now?

It's what's not on the balance sheets that matters. Because as Shah Gilani explained, chances are the bets that were placed via CDS's dramatically geared the potential losses, in just the same way they dramatically geared profits when house prices were rising.

I always thought that it was illegal to take out insurance on your next-door neighbor's house in case it burnt down. What CDS's allowed the banks to do was to write a hundred policies, and now one house in fifty is in danger of burning down, and the guys that wrote a hundred policies on each house are in danger of defaulting. And the way the system is structured that could set of a domino meltdown of CDS's,

The reason it's $700 billion is that Mr. Paulson knows that he can't afford any more RMBS's to fail.

Not because some poor people might lose their homes, and oh wasn't Georgie such a sweetie-pie, “you won't be able to send your kids to college and the “farmers” (why the farmers they are only 2% of the population), “won't be able to plant their crops – could this be the end of the American Dream, just agree $700 billion, it's not much, I spent that much on my faith inspired crusade to protect all the Americans in Iraq, and find those weapons which we are still looking for and I PROMISE we will find them, and protect our oil supplies (pity about the price of oil but my saviour works in mysterious ways)”.

That's just "collateral damage".

It's because if they do, the $68 Trillion chain reaction could start.

What does this mean?

•  The $700 billion WILL be approved, there is no question about that.

•  The Fed will keep interest rates far below the rate of inflation, to stimulate an increase in house prices.

•  House prices will rise.

•  The US Government will effectively guarantee all RBMS's against default.

•  So, no more defaults on RMBS's.

•  The dollar will fall

•  Disaster will have been avoided.

What you do with your money depends on if you think he will pull it off or not.

And Bye Bye Miss American Pie.

By Andrew Butter

Andrew Butter is managing partner of ABMC, an investment advisory firm, based in Dubai ( hbutter@eim.ae ), that he setup in 1999, and is has been involved advising on large scale real estate investments, mainly in Dubai.

Andrew Butter Archive

© 2005-2017 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Robert Brown
27 Sep 08, 16:20
Derivatives, $68 Trillion+.

Please consider UNIFIEDMARKETS.


joe six pack
28 Sep 08, 19:55
houses prices will rise LOL in 4-5 years? fine not this year or next

good points made

house prices will rise , ya but when not in the next couple year's mate!


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife