The Derivatives Disaster Is Upon Us
I don't know the full name of the guy that wrote this, but I believe every word of it because I see it happening right now. I saw it today over on Lemetropole Cafe.
Today, Warren Buffet disclosed bids he made to Ambac, and MBIA. These bids were solely for the muni bond insurance, not credit default swaps, not CDO's, nothing to do with mortgages. He wants the profitable crown jewels. He doesn't want the toxic waste that will ultimately bankrupt these companies, not to mention the entire "fiat" system. Wall Street applauded the deal because they may not have to sell Billions $ of munis because they are no longer AAA rated. Buffet is not a stupid man. He is getting in line to scoop up this portion of the business when the insurers get/go downgraded or bankrupt. Both stocks were beaten like redheaded stepchildren in today's market. In some cases, uninsured bonds are trading higher in price than insured bonds. The bottom line here is; a recession is going to blow out the federal deficit, state and municipal deficits, over-leveraged corporations, homeowners, and consumers. Even if Mr. Buffet succeeds in getting the "muni bonds contract" it's all a joke anyway. Either these bonds can stand on their own or they cannot. No company, Central bank, or combination of the two can stop what is coming down the tracks. We are talking TRILLIONS! There are $750 Trillion of derivatives outstanding. 3/4 of a QUADRILLION DOLLARS! A Quadrillion. I can't believe we are using the "quadrillion" number. This monster just got too big.So...do you have/own some real money...i.e gold & silver? If not, you'd better call me and I'll go over with you some of the ways to position yourself for this environment.
We currently are experiencing 2 different markets in mortgages. Jumbo rates are about a point higher than conventional rates. Advertised rates are different from available rates. Many applications are turned down for poor credit, others because the appraisals don't stand up, re-fi's for too little or negative equity. We have 2 different sets of interest rates. One being the government declared rates, the other being market rates. Guess which rate is more important? That's right, the EFFECTIVE rates used in the real world. Real world rates have not come down anywhere near as much as "Fed" rates. Also there is a total lack of liquidity where it is needed. If you need money, you can't get it. If you don't need it, it is plentiful.
I wrote back in June and July about the prospective credit crunch. I also wrote that "if you don't know what derivatives are, you will within 6-12 months". Well, derivatives have bankrupted the system. No ifs, ands, or buts. The situation is systemic. I do not profess to know the exact outcome, but I do know the world will look and feel completely different a year from now. The last six months we have seen denial, we have heard it was "contained", we heard "ok, now that the banks and brokers have taken writedowns the decks have been cleared". That was after the first round of writedowns, we heard it again after the second round. We are now in the third round of writedowns, and I submit the surface has not even been scratched. Nothing is being marked to market yet in the credit markets. All it would take is to have JUST ONE sector marked to market and we will witness panic. We have credit default swaps, CDO's, SIV's, interest rate derivatives, ARM corporates and municipals. And on and on. If just one sector were truly marked to market, the banking system will not survive 10 days. Possibly not 10 hours, meaning they won't open the next day. That is how serious this is. This will end in a panic that will put 1929 to shame. I say this because the system will change dramatically, whereas after 1929 it was all about getting back to the way it was before the crash. This time we cannot go back to the past, the currencies must change. They must be backed by something. I am not smart enough to know exactly what the aftermath will look like. I am smart enough to know that precious metals will serve as the foundation to money in some way shape or form. They have for some 5000 years. The opportunity to become a "charter" member of the next banking system is now. Either have wealth in real money or lose your wealth in today's' paper currencies! Regards, Bill H.