Best of the Week
Most Popular
1. Crude Oil and Water: How Climate Change is Threatening our Two Most Precious Commodities - Richard_Mills
2.The Potential $54 Trillion Cost Of The Fed's Planned Interest Rate Increases - Dan_Amerman
3.Best Cash ISA Savings for Rising UK Interest Rates and High Inflation - March 2018 - Nadeem_Walayat
4.Fed Interest Hikes, US Dollar, and Gold - Zeal_LLC
5.What Happens Next after February’s Stock Market Selloff - Troy_Bombardia
6.The 'Beast from the East' UK Extreme Snow Weather - Sheffield Day 2 - N_Walayat
7.Currencies Will Be ‘Flushed Down the Toilet’ Triggering a ‘Mad Rush into Gold’ - MoneyMetals
8.Significant Decline In Stocks On The Cards! -Enda_Glynn
9.Land Rover Discovery Sport Extreme Driving "Beast from the East" Snow Weather Test - N_Walayat
10.SILVER Large Specualtors Net Short Position 15 Year Anniversary - Clive_Maund
Last 7 days
Bitcoin Price Trend Forecast, Paypal FUD Fake Cryptocurrency Warning - 17th Mar 18
Strong Earnings Growth is Bullish for Stocks - 17th Mar 18
The War on the Post Office - 17th Mar 18
GDX Gold Mining Stocks Fundamentals - 16th Mar 18
Nationalism, Not the Russians, got Trump Elected - 16th Mar 18
Has Bitcoin Bought It? - 16th Mar 18
Crude Oil Price – Who Wants the Triangle? - 16th Mar 18
PayPal Cease Trading Crypto Currency Bitcoin Warning Email Sophisticated Fake Scam? - 16th Mar 18
EUR/USD – Something Old, Something New and… Something Blue - 16th Mar 18
DasCoin: A 5-Minute Guide to How It Works - 15th Mar 18
Stock Market Downward Pressure Mounting - 15th Mar 18
The Stock Market Trend is Your Friend ’til the Very End - 15th Mar 18
6 Easy Ways to Get What Women Want, for Less! - 15th Mar 18
This Isn’t Your Grandfather’s (1960s) Inflation Scare - 15th Mar 18
Eye Opening Stock Market Index, Volatility, Charts and Predictions - 15th Mar 18
Gold Cup At Cheltenham – Gold Is For Winners, Not For Gamblers - 15th Mar 18
Upcoming Turnaround in Gold - 14th Mar 18
Will the Stock Market Make Another Correction this Year? - 14th Mar 18
4 Ways To Writing An Interesting Education Research Paper - 14th Mar 18
China Toward Sustainable Economic Growth - 14th Mar 18
Stock Market Direction Is No Longer Important - 14th Mar 18
Trade Tariffs Defeat Globalists and Return Prosperity - 14th Mar 18
Stock Market Crash is Underway and Cannot be Stopped! - 14th Mar 18
Are Energy Sector Stocks Bottoming? - 14th Mar 18
Nasdaq Stocks Soars to New Record High After Strong Job Reports - 14th Mar 18
Bitcoin BTCUSD Elliott Wave View Calling for Rally toward $15,000 - 13th Mar 18
Hungary’s Gold Repatriation Adds To Growing Protest Against US Dollar Hegemony - 13th Mar 18
Record Low Volatility in Precious Metals and What it Means - 13th Mar 18
Tips for Writing and Assembling the Classification Essay - 13th Mar 18
Gerald Celente "If Rates go up too High, the Economy goes Down, End of Story" - 13th Mar 18
Stock Market Selloff Showed Gold Can Reduce Portfolio Risk  - 13th Mar 18
Silver Does it Again! Severe Consequences - 12th Mar 18
Has the Stock Market Rally Run Out of Steam? - 12th Mar 18
S&P 500 at 2,800 Again, Stock Market Breakout or Fakeout? - 12th Mar 18
The No.1 Energy Stock To Buy Right Now - 12th Mar 18
What Happens Next When Stock Market Investor Sentiment is Neutral - 12th Mar 18
Economic Pressures To Driving Gold and Silver Prices Higher Long-Term - 12th Mar 18
Labour Sheffield City Councils Secret Plan to Fell 50% of Street Trees Exposed! - 12th Mar 18
Stock Market Uptrend Resuming? - 11th Mar 18
Bond Market Interest Rate Yields Are Rising Again… Stocks Are on Thin Ice - 11th Mar 18
Death of Europe's Greenest City, Police State Sheffield Labour Council to Fell 50% of Street Trees - 11th Mar 18
Do All Bull Stocks Markets Need to Have a Bearish Divergence? - 11th Mar 18
An Inflation Indicator to Watch, Part 3 - 11th Mar 18
Online Stock Trading Tips - Tips about Online Trading & Day Trading - 11th Mar 18
NDX makes a new high. What does that mean? - 10th Mar 18
Blue Chip Companies on Track for $800 billion Buyback Record in 2018 - 10th Mar 18
Cheap Gold Stocks Basing - 10th Mar 18
An Introduction to Online Forex Trading - 10th Mar 18

Market Oracle FREE Newsletter

Urgent Stock Market Message

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 ( ), that he setup in 1999, and is has been involved advising on large scale real estate investments, mainly in Dubai.

Andrew Butter Archive

© 2005-2018 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


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

6 Critical Money Making Rules