Headline, March24, 2014



Adam Wilson snorts  then  nods his head vigorously as he expounds. "When I buy and sell shares on the dealing floor I'm governed by something called mark-to-market," he explains.

"That means that, at least once a day, my position   -the amount of money I have got set aside   -is measured against the actual market value of the equities  I'm buying and selling:

As a result, I always know what the actual value of the shares I'm dealing in would be if I had to sell them  then and there. With these debt machines, the only price that mattered was the one people would pay.

I've seen my bank bundle up mortgages,  sell the vehicle,  buy it back, sell it on, but it back and sell it on again, making money on every deal. It was insane."

But there was another factor at work. "After 9/11   -which was potentially cataclysmic event for the world markets   -interest rates were held too low for too long," explains Jeff Randall, presenter for Sky and Daily Telegraph columnist.

"Money became cheap. So there's all this money looking around for somewhere to go and it starts pushing out further and further, starting with high-grade investments, moving to middle level and in the heading out to  NINJA  mortgages    -No Income, No Job, or assets:

Using all these myriad ways of bundling them into triple-A  rated vehicles and concealing the risk involved. So what we had were vehicles developed at the highest levels by investment banks for corporations spreading out beyond the world they were created in."

Chris believes banks shouldn't have even started playing in the debt market themselves.  "Take a mortgage. It pays out interest over  25 years. That's good business for a long-term investor like, say, a pension fund.

They know they will get a steady flow of cash. For a  bank, particularly an investment bank, it's really  bad business. It's a small income over a long period of time. The trouble is that from  2001  investment banks and

Hedge funds were buying these vehicles as a trading asset,   something that would rise in value on the market and they could sell on. So they were inventing the value of these things themselves and they were ignoring something incredibly fundamental."

BECAUSE SPVs hold a fatal flaw. At the beginning of the century, the debt machines being sold to pension funds included some sort of security against defaults-

If you estimate that on average 5 per cent of mortgages default you add six more mortgages for every  100  in the bundle. "But the rate of defaulting is hard to judge as an average by looking back over the last five years," Chris explains.

"What you find is that there are years of zero defaults, then there's an economic slump and you suddenly get a huge spike and you suddenly get a huge spike in the number of defaults.

Banks looked back over five years, saw mortgage defaults were zero, so stopped adding any serious margins.

The US government was encouraging a housing boom and pushing banks to lend to riskier customers. The banks started bundling up the risk and spreading it through the financial system.

Suddenly, in one year they had so many defaults their margin of protection wasn't anywhere near wide enough. As a result, to the market those vehicles are suddenly worth  zero. So whatever the bank paid for them and however they have them down on their balance sheet:

I've seen vehicles with  "" 1bn  or  2bn ""  worth of assets bundled up   -when the sub-prime mortgages started defaulting you take them to the market and they are worth  zero."

Hence the sudden scramble to   write off billions of dollars   worth of assets   around the world:

And the sudden desire by the banks for cash............................!!!

The lending system of the last ten........Yes!   10  years,  had vanished, and those who had played the market by borrowing themselves,  such as Lehmans or Northern Rock:

^ -Found they had nothing to fall back on-  ^............

The honour of the Post continues as we go into =>   Blind Panic.

With respectful dedication to all the  Smart Investors  of the World. See Ya all on !WOW!   -the World Students Society Computers-Internet-Wireless:

"' Winning. Wonder. World "'

Good Night & God Bless!

SAM Daily Times - the Voice of the Voiceless


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