Nicholas Geti wrote: > OMyGosh. How can anyone buy into instruments like that? They are > incomprehensible to me. And now it looks like the pros couldn't even figure > it out. > >
Here is more on how the big banks over extended/over leveraged using Credit Default Swaps. http://www.youtube.com/watch?v=a1lVOO9Y080 Regards, LelandJ > ----- Original Message ----- > From: "Leland F. Jackson, CPA" <[email protected]> > To: "ProFox Email List" <[email protected]> > Sent: Wednesday, March 11, 2009 7:50 PM > Subject: Re: [OT] Billions to Dubai > > > >> This probably has to do with Cedit Default Swaps, (eg CDS(s)). The >> primary lenders, like Citigroup, make short term loans to secondary >> lenders like Savings and Loans, (eg Mortgage Companies). The secondary >> lenders use the short term loans from the primary lenders to create long >> term mortgages. The secondary lenders make money on the interest spread >> between low interest rates paid for short term borrowing form the >> primary lender and the high interest earned on long term mortages they >> write, (eg Real Estate Investment Trusts or REIT). >> >> Usually the terms of the loans from the primary lender required the >> secondary lender, (eg Mortgage Companies), to maintain collateral >> levels based on a margins of the short term loan values. As the values >> of houses started falling with a corresponding decrease in the value of >> the mortgages in the hand of the secondary lenders, the primary lenders, >> (eg Banks like Citigroup and AIG), started making margin calls on the >> secondary lenders asking them to put up the money needed to meet the >> collateral margins as per the loan agreements. Many secondary lenders >> were caught with their pants down, and did not have the liquidity needed >> to meet the collateral margin requirements to the primary lenders, >> which put many secondary lenders out of business, (eg TMA or Thornburg >> Mortgage as an example). >> >> Most of the secondary lenders also purchased Credit Default Swaps, (eg >> CDS), from the primary lenders. A CDS transfers, or swaps, the risk of >> a mortgage default from the secondary lender to the primary lender, and >> the secondary lender pays a fee to the primary lender for assuming this >> risk. >> >> So, as home owners began defaulting on their mortgages, the primary >> lender were required to pay of the default mortgages in the hands of the >> secondary lenders under the CDS contracts, and the secondary lenders >> transferred, or swapped, the toxic mortgages, which were in default, to >> the primary lender. Thus, the primary lenders ended up holding the bag >> and taking the hits. >> >> It's likely the payments to Dubia were to settle CDS obligations. >> >> Regards, >> >> LelandJ >> >> Nicholas Geti wrote: >> >>> Just heard on CNBC this morning that Congress is starting hearings today >>> about why Citigroup and other banks sent $4B of the first round of TARP >>> funds to Dubai. It was supposed to help Americans. >>> >>> >>> --- StripMime Report -- processed MIME parts --- >>> multipart/alternative >>> text/plain (text body -- kept) >>> text/html >>> --- >>> >>> [excessive quoting removed by server] _______________________________________________ Post Messages to: [email protected] Subscription Maintenance: http://leafe.com/mailman/listinfo/profox OT-free version of this list: http://leafe.com/mailman/listinfo/profoxtech Searchable Archive: http://leafe.com/archives/search/profox This message: http://leafe.com/archives/byMID/profox/[email protected] ** All postings, unless explicitly stated otherwise, are the opinions of the author, and do not constitute legal or medical advice. This statement is added to the messages for those lawyers who are too stupid to see the obvious.
