Comments on: Credit markets iced over. Put your head between your knees. http://sovereignspeculator.com/2008/09/26/credit-markets-iced-over-put-your-head-between-your-knees/ Thoughts on the markets and the decline of the west Sun, 14 Mar 2010 07:10:41 +0000 http://wordpress.org/?v=2.6 By: Can I Have Another Piece of Chocolate Cake? | MAS o Menos http://sovereignspeculator.com/2008/09/26/credit-markets-iced-over-put-your-head-between-your-knees/#comment-290 Can I Have Another Piece of Chocolate Cake? | MAS o Menos Sun, 28 Sep 2008 17:42:20 +0000 http://sovereignspeculator.com/?p=1439#comment-290 [...] Sovereign Speculator sums up the state of the market brilliantly in the post Credit markets iced over. Put your head between your knees. If the fundamentals were not so horrible and stock prices not so high (with earnings falling off a [...] [...] Sovereign Speculator sums up the state of the market brilliantly in the post Credit markets iced over. Put your head between your knees. If the fundamentals were not so horrible and stock prices not so high (with earnings falling off a [...]

]]> By: Mike http://sovereignspeculator.com/2008/09/26/credit-markets-iced-over-put-your-head-between-your-knees/#comment-282 Mike Sun, 28 Sep 2008 00:09:58 +0000 http://sovereignspeculator.com/?p=1439#comment-282 Here is the OCC document I am reading: http://www.optionsclearing.com/about/ann_rep/ann_rep_pdf/annual_rep_07.pdf Here is the OCC document I am reading:

http://www.optionsclearing.com/about/ann_rep/ann_rep_pdf/annual_rep_07.pdf

]]> By: Mike http://sovereignspeculator.com/2008/09/26/credit-markets-iced-over-put-your-head-between-your-knees/#comment-281 Mike Sat, 27 Sep 2008 23:49:59 +0000 http://sovereignspeculator.com/?p=1439#comment-281 I am reading up on the Options Clearing Corporation, looking for clues as to what it would take to bankrupt the clearing house. A wipe-out of customer margin, yes, and those customers' inability to make their margin calls, and then a wipe-out of their brokers' reserves. But what about the reserves of the OCC itself? The system handled the 1987 crash (22% in 1 day), but the banking system was not on the ropes at the time so firms were able to cough up the dough to cover clients' bankruptcies. Everyone talks about the need for a clearing house for OTC derivatives, but with a situation like this, you have to consider the house going broke. As for T-bills, I assume the Fed will always step in and buy them if nobody else will, so the Treasury will be able to fund the US government (unfortunately). An outright honest ("sorry, we can't pay") default is unlikely, IMHO. Inflation has always been the outcome when a government's debt is in its own currency. I am reading up on the Options Clearing Corporation, looking for clues as to what it would take to bankrupt the clearing house. A wipe-out of customer margin, yes, and those customers’ inability to make their margin calls, and then a wipe-out of their brokers’ reserves. But what about the reserves of the OCC itself? The system handled the 1987 crash (22% in 1 day), but the banking system was not on the ropes at the time so firms were able to cough up the dough to cover clients’ bankruptcies.

Everyone talks about the need for a clearing house for OTC derivatives, but with a situation like this, you have to consider the house going broke.

As for T-bills, I assume the Fed will always step in and buy them if nobody else will, so the Treasury will be able to fund the US government (unfortunately). An outright honest (”sorry, we can’t pay”) default is unlikely, IMHO. Inflation has always been the outcome when a government’s debt is in its own currency.

]]> By: Bjorn http://sovereignspeculator.com/2008/09/26/credit-markets-iced-over-put-your-head-between-your-knees/#comment-280 Bjorn Sat, 27 Sep 2008 20:14:48 +0000 http://sovereignspeculator.com/?p=1439#comment-280 Only weeks ago, shorting seemed like a good idea. Now, due to systemic/counter-party risks, it seems too crazy to contemplate. When do T-Bills suffer the same fate? Is government default 2 years away, or is it racing towards us faster than anyone might have imagined? I don't even like posing this question. Only weeks ago, shorting seemed like a good idea. Now, due to systemic/counter-party risks, it seems too crazy to contemplate. When do T-Bills suffer the same fate? Is government default 2 years away, or is it racing towards us faster than anyone might have imagined? I don’t even like posing this question.

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