Stories tagged with "consolidated debt obligation"

The Resurgence of Risk – A Primer on the Developing Credit Crunch

Posted by Stoneleigh on August 14, 2007 - 9:15am in The Oil Drum: Canada
Topic: Economics/Finance
Tags: cds, consolidated debt obligation, credit crunch, debt, deflation, derivatives, fractional reserve banking, hedge funds, liquidity, margin call, money supply, risk [list all tags]

We have been living in inflationary times, for as long as most of us can remember. The money supply keeps expanding and prices increase over time as a result. Central bankers have many tools at their disposal which they can use to tweak the economy – they can raise or lower interest rates, can control reserve requirements for fractional reserve banking and can inject liquidity into the banking system, among other things – and we have become used to thinking that they can prevent the kind of 'economic accidents' that previous episodes of excess have led to in the past. Especially in recent years – since the apparently successful containment of the dot com aftermath - we have acted as if risk were a thing of the past. Sliced, diced and spread around Wall Street and the rest of the global financial system, risk has seemed tamed, contained and controlled, until last week that is.

For years, industry insiders and so-called experts have proclaimed the virtues of slicing, dicing, and repackaging risk. They waxed on about how borrowers and savers, and society as a whole, could only benefit from such machinations. They suggested any sort of exposure could be disbursed and dissipated to the point where it essentially disappeared. Some even claimed that the crises of the past would no longer exist.

Yet amid the hype and assurances, few supporters spoke of the dark side of wanton and widespread risk-shifting. They didn’t seem — or want — to acknowledge that by combining complicated risks in unfamiliar and unnatural ways, the end result could be an uncontrollable monstrosity—one that eventually turned on its masters.
Nor did they heed the notion that by scattering risk into every nook and cranny of the global financial system, the vast web of overlapping linkages virtually guaranteed that serious problems in one sector, market, or country would trigger far-reaching shockwaves.

All of a sudden, markets are reeling around the world, deals are unraveling, the mainstream press is talking about a credit crunch and the world’s central bankers are injecting unprecedented amounts of liquidity to calm the markets. Risk has made a comeback, and in that environment the evident concern of the central bankers does not seem very reassuring.

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The Round-Up: July 17th 2007

Posted by Stoneleigh on July 16, 2007 - 4:52pm in The Oil Drum: Canada
Topic: Miscellaneous
Tags: climate change, consolidated debt obligation, debt, deep integration, derivatives, drilling, hedge funds, lng, mark to market, mark to model, nau, sovereignty, spp, subprime [list all tags]

North American integration is making the news again on both sides of the border, and on the other side of the Atlantic. Meanwhile, another large Canadian company - Alcan - becomes the subject of a takeover some describe as a symptom of Canadian economic suicide. The natural gas drilling crash affects Baker Hughes, the Chinese feel unwelcome in the Alberta oil patch and concerns are raised over the safety of LNG terminals in Québec.

In the US the subprime credit market problems are beginning to snowball, while the folly of relying on sophisticated risk analysis models based on the 'data' from 'liar's loans' becomes apparent. Wall Street's ability to value assets is called into question, the lawyers begin to get in on the act and the US tries to sell mortgaged-backed securities to China.


How cosy do we want to be with the Americans?

Prime Minister Stephen Harper will be meeting in Montebello, Que., with U.S. President George W. Bush and Mexican President Felipe Calderón on Aug. 20 and 21.

These meetings seem to be kept deliberately low-profile. Do we, as Canadians, really want to continue down the road toward deep integration with the United States with regard to our resources?

In March 2005, Paul Martin, Vicente Fox and Bush met in Waco, Tex., to ratify the Security and Prosperity Partnership of North America (SPP). The SPP takes NAFTA's goal of continental economic integration much further by including security and foreign policy issues, and by speeding up the process of regulatory harmonization integral to the first Canada-U.S. Free Trade Agreement.

All this has been done quietly, resulting in a lack of public awareness or input. It should also be noted that all three North American governments seem to be moving quickly toward a continental resource pact, a North American security perimeter, and common agricultural and other polices related to our health and environment. To date, the public has been neither informed or consulted.

We should ask our members of parliament their position on these very important meetings, and when public input will be initiated.

This is our country. Let's keep it strong and free.

Elizabeth Eidt, Stratford

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The Round-Up: July 6th 2007

Posted by Stoneleigh on July 6, 2007 - 1:01am in The Oil Drum: Canada
Topic: Miscellaneous
Tags: algae, arctic, batteries, bear stearns, cds, china, climate change, consolidated debt obligation, electricity, hedge funds, natural gas drilling, oil sands, peak oil, pollution, soils, subprime mortgages [list all tags]

Today's headlines lead with coverage of the on-going crisis in the debt markets, and an explanation of the financial engineering underlying much of the global liquidity bubble. Debt ratings have not been adjusted to reflect current market conditions, meaning that 'asset' valuations are over-stated. No institution wants to force asset sales for fear of revealing just how much real valuations differ from nominal ones, but eventually such a sale will occur - with the potential to cause an abrupt repricing of a wide range of 'assets' (many of which will actualy be revealed to be essentially worthless). Leverage will magnify the losses, leading to a very serious financial crisis. One estimate (below) puts the potential losses, once assets are eventually marked to market, at 20 times the sum involved in the LTCM crisis in 1998 - so far, and getting worse by the day.

The Round-Up is also convering the Canadian energy scene, as well as environmental and international news, in that order. Oil companies leaving Venezuela and aiming for the oil sands are finding that all is not clear sailing, while China is entering the oil sands for the first time. Nunavut seeks control over future oil and gas revenues, Newfoundland and Labrador wants to bypass Quebec in selling electricity to the US, and the slow down in natural gas drilling is hurting frontier communities in Alberta and BC.

Credit crunch will 'shred investment portfolios to ribbons'

The near collapse of two Bear Stearns hedge funds has lifted the rock on our 21st century mutant capitalism, exposing the bugs beneath to a rare shock of naked light.

When creditors led by Merrill Lynch forced a fire-sale of assets, they inadvertently revealed that up to $2 trillion of debt linked to the crumbling US sub-prime and "Alt A" property market was falsely priced on books.

Even A-rated securities fetched just 85pc of face value. B-grades fell off a cliff. The banks halted the sale before "price discovery" set off a wider chain-reaction.

"It was a cover-up," says Charles Dumas, global strategist at Lombard Street Research. He believes the banks alone have $750bn in exposure. They may have to call in loans....

....Wobbles are turning to fear. Just $3bn of the $20bn junk bonds planned for issue last week were actually sold. Lenders are refusing "covenant-lite" deals for leveraged buy-outs, especially those with "toggles" that allow debtors to pay bills with fresh bonds. Carlyle, Arcelor, MISC, and US Food Services are all shelving plans to raise money. This is how a credit crunch starts.

"This is the big one: all investment portfolios will be shredded to ribbons," said Albert Edwards, from Dresdner Kleinwort.

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The Round-Up: July 3rd 2007

Posted by Stoneleigh on July 3, 2007 - 3:40am in The Oil Drum: Canada
Topic: Miscellaneous
Tags: atlantica, biofuel, bond rating, climate change, consolidated debt obligation, credit crunch, equalization, leveraged buyout, lng, private equity, resource royalties, smart metering, subprime loans, uranium [list all tags]

Dried-up Arctic ponds evidence of global warming, study says

A University of Alberta scientist has uncovered dramatic evidence of climate change in the Arctic, where ponds that have been part of the landscape for more than 6,000 years are drying up as global warming has nearly doubled the length of the brief northern summer.

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The Round-Up: June 12th 2007

Posted by Stoneleigh on June 11, 2007 - 6:49pm in The Oil Drum: Canada
Topic: Miscellaneous
Tags: biofuel, carbon tax, climate change, consolidated debt obligation, deep integration, drought, equalization, ethanol, housing bubble, mackenzie valley pipeline, outsourcing, resource revenues, spp, tilma [list all tags]

N.S. premier urges revolt against federal budget

The 2005 Atlantic Accord, a deal signed by the then-Liberal government between the governments of Nova Scotia and Newfoundland and Labrador, protects those two provinces from having their offshore oil and gas royalties clawed back under the federal equalization plan.

However, to accept an enriched equalization deal, they have to abandon the accord.

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The Round-Up: June 5th 2007

Posted by Stoneleigh on June 4, 2007 - 10:44am in The Oil Drum: Canada
Topic: Miscellaneous
Tags: china, climate change, consolidated debt obligation, credit, currency, kyoto, liquidity, nafta, nuclear waste, oil sands, spp, thomas homer-dixon [list all tags]

NAFTA Kicked Up A Notch

The North American Free Trade Agreement is the world's most advanced example of the U.S.-led free trade model. It's not just about economics any more. The expansion of NAFTA into the Security and Prosperity Partnership reveals the road ahead for other nations entering into free trade agreements. It is not a road most nations -- or the U.S. public -- would take if they knew where it led.

The first problem is that very few people know about this next step of "deep integration." In March 2005, Presidents George Bush, Vicente Fox and Prime Minister Paul Martin in Waco, Texas launched the Security and Prosperity Partnership with a splash. Although it had few visible results, the Waco meeting of the "Three Amigos" set into motion an underground process that spawned its own working groups, rules, recommendations, and agreements -- all below the radar of the legislatures and the public in the three nations. These rules and trinational programs have profound effect on the environment, the daily lives of citizens, and the future of all three countries.

The SPP not only further greases the wheels of corporate cooperation and potentially increases U.S. access to Mexican oil. Its security component represents a new and ominous form of integration, all in the name of counter-terrorism.

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