The Handwriting is around the Wall, or, The poker game is over… time to play dominoes

[braddelfi]

I continue to believe that the typical - hard working - raising a family - trying to make ends satisfy American is not being properly educated with the mainstream press in regards to the dramatic financial occasions taking place around the world which are directly impacting our everyday life. The press reviews only a fraction of what's going on with the economy, and moreover often fails to tie together all the disparate information regarding the monetary and financial crossroads upon us now. That's why I write these content now and then. To try and set some things into perspective. If you already know the drill, consider sharing this essay with someone who doesn't.

 

 

 

Everyone knows that one thing is wrong together with the economy. And most everyone knows it's not just the American economy; it's Europe, and other locations as well. Europe has center stage at this time. The ongoing problems there accelerated fairly recently when it appeared Greece could not make payments on the personal loans it received off their countries. What may not be clear from the headlines though is that a substantial shift in this continuing saga has recently occurred, and it's a game title changer. It's something you must understand. If we can dig down even one layer beneath the headlines much is illuminated. To make this point let's pick on just one recent headline:

 

 

 

November 9, 2011 CNN online tale:

 

 

 

Italian bonds blinking warning signs

 

 

 

The story represents how the interest rates for money being lent to Italy have suddenly skyrocketed. Yes. Interest paid on Italian bonds has increased sharply. But why? Put simply, investors are starting to doubt whether Italy can pay back its loans. OK. But why now? And exactly what does it mean for your needs personally if you're not lending money to Italy?

 

 

 

Plenty, that's what. The aforementioned significant transform that took place really occurred over in Greece just a few several weeks ago. Namely, the offer that was cut enabling Greece to standard on 50Per cent of its sovereign personal debt. Sovereign debt is money that Greece as a county owes to others. Greece was actually forgiven 50 % its debt! Picture. The country gets to normal on half its debt, yet this deal is not simply being called a default. Believe me, it's a default. Still, meeting Greece half way on settling the huge problem from the sovereign debt pay back may at first appear to be a reasonable action. But allowing Greece to default on a good portion of its financial debt in fact represents a tremendous sea-alter in the way things have been handled up to now. Formerly, anything that was deemed too big to fall short, albeit a financial school or an entire country, was, quite simply, unacceptable to fail. This sort of entities always get bailed out. At taxpayer expense. Greece has actually been getting mini-bailouts for a while now just so it could pay interest on its loans. If they don't get their money back, the land is indeed too big to fail because of how many lending institutions might in turn fail. It's been feared a sovereign debt default by any nation may trigger a domino effect, lest other indebted nations get the same idea.

 

 

 

Considering that since the crisis of 2008 virtually every troubled too-large-to-fail institution has become bailed out to date (private or community), people started to assume that the bonds from such entities have been as good as gold. Because the interest rates on connections from Greece and Italy pay a far higher rate of interest than US bonds, some believed that this became the place to put versions money for both protection as well as a high price of return. Former New Jersey Governor, former Senator, former head of Expenditure bank Goldman Sachs, and former link trader Jon Corzine had such a idea. Mr. Corzine was recently head of any never-heard-of-by-many people brokerage firm referred to as MF Global. Corzine believed so strongly that Greece would not be allowed to standard that he thwarted the will of those close to him and wager the whole farm on Greek bonds.

 

 

 

Jon misplaced the farm, since most of us now know. MF Global has become in bankruptcy, and its particular customers -who did NOT sign up for Greek bonds- are waiting in line for their money back. Keep in mind that.

 

 

 

MF Global not simply invested in Greek bonds with its own funds, it also borrowed money to buy even more bonds. In borrowing, the organization was applying influence to purchase more ties than it could afford on its own. You may remember that overuse of leverage is what induced the 2008 financial crisis. When one is utilizing leverage, small falls in the value of the property (in this case sovereign connections) create proportionally larger losses to the bond holder. When it was announced that Greece was to get a 50% get-out-of-debt- free card value of Greek bonds rapidly lost value. In no time the value of MF Global's portfolio of Greek bonds were worth less than the amount the firm had loaned to purchase them. Considering that the loan used to purchase some of the bonds got lost equity, MF Global was requested by is creditors to come up with additional cash to make up the big difference (they got a margin call). MF Global apparently satisfied the margin cell phone calls at first. Repeatedly. Till finally the firm had exhausted all its capital (and perhaps the capital of its clients) and could no longer service its debt. Stop of story.

 

 

 

This overuse of leverage was supposed to happen to be curtailed after the 2008 meltdown. That is what should be underscored here. Evidently it hasn't been. And MF Worldwide does not appear to be a loose canon. Leveraging is still in prevalent use. In order to improve their own profits, leveraging is still used by companies you trust along with your money. Remember that.

 

 

 

Rates of interest on troubled sovereign debt such as France is rising since lenders are scared such countries will probably be excused from their debt… or won't get bailed out again. Much of this sovereign debt has been purchased on leverage -making a default unthinkable- and now there is a scramble away from these bonds due to the fact no one wants an ‘MF Global experience'. A crucial point to make is that insurance policies have been taken out on Greek bonds specifically in order to avoid an ‘MF World-wide experience'. These insurance policies have a fancy name; Credit Default Swap, far better known as a CDS. The thought was that even when Greece did standard on its outstanding debts the insurance policies would kick in and pay back the bond stands. But, the insurance did not kick in. Instead the rules had been changed! The rules were interpreted to say that half a standard is not a standard. Why were the principles changed? Because for the very same reason that Jon Corzine thought Ancient greek bonds were risk-free, the people who sold the insurance policy policies (the CDSs) thought they would never need to pay off. It is extremely likely the rules were changed because considerably more institutions than MF Global would have gone down if a payout had been required. Should they had played according to the rules, it would quickly have been 2008 on steroids. So, the CDS bluff has been referred to as and the players failed to ante up. The name of the video game has therefore altered.

 

 

 

People in positions of power are shifting lots of rules, because the going gets tough. Remember that. This is another reason why the fascination paid on Italian debt is growing and why trust in the entire technique is eroding. There are other motives of course, like all the political turmoil in Italy and Greece. But be sure to placed the horse before the cart here; the climax of political turmoil taking place in European countries, and soon America, is because of the growing uncertainty about financing sovereign debt… not the other way around. If the political situation had been allowed to engage in out earlier we may not be here now.

[cocopop3011]

Hello braddelfi - Does your post actually have any relation to gambling at all?