If you can’t see a market or a stock or a bond you think is going to profit from the misery elsewhere and you begin to fear the contagion is everywhere what do you do?
You quarantine – You go to cash. If bonds were OK you would go to them. But they aren’t OK. And we can’t all have treasuries because if we did, then no one would be able to get back out of them without a big loss. So cash it is.
And it turns out, that is exactly what is happneing. Redemeption rates (the rate at which investors in funds sell their blocks of shares back to the fund, for cash and GET OUT) are through the roof. In every kind of fund there is, in every market. Money Market Funds, Exchange Traded Funds, Mutual Funds – you name it they are all watching redemptions explode. How long till we start to see serious numbers of funds having to lock the doors?
Could get intersting if Monday brings no respite.
The Vote in the Germann parliament is YES for the bail out and – you could hear a cricket fart it was greeted with such indiferent silence.
What good news monster can they stich together from the old body parts they have lying around?
Update—
We are getting margin calls and demands for more collateral. Signs that the rivets are gonna pop sooner rather than later.
“Get me engine room! Scotty! Scotty! We need more power!”
You know the rest.
http://dealbook.blogs.nytimes.com/2010/05/21/calculating-a-i-g-s-big-european-exposure/?ref=business
Mr Eirik,
Thanks of the link. Interesting article.
If Scotty can't find the reset button then perhaps something extraterrestrial can; though, the greatest peril will probably be of our own making.
Would anyone dare to predict how the World will look in 20 years time, both the good and the bad scenario?
possible good(ish) scenario : http://www.sing365.com/music/lyric.nsf/Nothing-But-Flowers-lyrics-Talking-Heads/630217B28F2ED0BF482568B0002F87FA
very bad case scenario :
http://www.youtube.com/watch#!v=iQo0BQM3OlQ&feature=related
The strange thing about the AIG story from NY Times is AIG's assumption that the CDS contracts would become "obsolete" when capital requirements for European banks changed, since the contracts were agreed to only to "help banks comply" with regulations.
The help given was actually insuring those debts from default.
Seems odd that AIG would be so gullible that they believed the banks would terminate the contracts at a time when this protection is more needed than ever – considered as insurance.
The assumptions of AIG imply that the contracts were not from there side entered into as "bona fide" insurance, but more like make-believe contracts for the finance regulation authorities in Europe. It'a a bit similar to Goldman Sachs "aid" to Greece to hide its debts before entering the Euro.
Well, now the situation has changed, and the banks really need that insurance. And the AIG is stuck with it – unless future bail-out money comes with a provision: For US institutions alone.