Hmmm..... so if insurance companies invest the funds received from premiums..... into stocks, bonds and real estate......... why are they any more secure or safer than banks or any other financial institution? Yes, I realize there are 'funds' set up to cover shortfalls and failures.... and there is re-insurance.... but this is no different than the banks that have to be bailed out by the FDIC or the FED.
Sure seems to me that depending on the 'investments' these insurance companies have made, can be putting them at risk also. Especially more so if they happen to get hit with a lot of catastrophic claims all at once.
I have to admit I know next to nothing about insurance companies, so am starting to do some web searches. Mainly, I am interested in what they do with the premium money they collect. I'm sure it is invested in paper of some sort. Anyone have first hand knowledge about the industry, on how they invest? From one small web site:
"What are premiums? In exchange for insurance protection, policyholders make periodic payments called "premiums" to their insurance provider. Paying these premiums enables the policyholder to receive a cash payout or service in case of need. Completing the loop, the insurance company invests the premiums it collects in stocks, bonds, and real estate. The proceeds from these investments serve as an important source of revenue for the insurance company. The difference between the money paid out to cover losses and the returns on their investments is how insurance companies make their money."
Tincup, for every dollar put into a policy an Insurance company must have at least $4 to cover that one dollar! Insurance companies have existed in this country since the 1800's...Now there is an estimated Population of 301,139,950 people in the United State which I would estimate that 2/3 of them hold some kind of Insurance policy. Over the years there have been many insurance polices written that have never payed out....where is this money? Is it in the large POT which I have spoken about? I would imagine some of it is in that pot! That pot must contain $4 for every $1 an insurance company writes a policy for...Say you have a Million Dollar Life Insurance policy written on your life in case of your death your family would have money to keep going....The Insurance company must have $4 Million to cover that one $1 Million dollar policy! You say well that sure is a lot of money to cover just one Million $ policy...well it was the way Insurance laws are written and the Laws since they were written have never changed. Ever since the Inception of the Insurance Industry, they have been putting money into this pot....How many times have they drawn upon this pot since the 1800's...A few Hurricanes here and there and few floods but nothing catastrophic(Except they did foot the bill for WWII)...nothing that would really break the pot...now since the 1800's this pot has been compounding interest upon interest as well as being added to....Remember, lf a policy is purchased and never ever payed out anything to the owner of that policy that money spent on that policy goes into the pot...at least some of it does...as I do not know how much per policy is required to go into the pot, but the insuring Insurance Company has to make money too so they take their piece of the pie and the rest goes into the pot....Now I can not tell you how many policies have been written since the 1800's but I can tell you it is in the Millions if not Billions of Policies...Lets say that 50%(just and example) of those policies have never been payed out where is that money...Well I would suspect it is in the Pot compounding interest upon interest since the 1800's...now that is a lot of money...Now remember an Issuing Insurance company will only insure 1/10 of their policy they are writing for you...another 9 insurance companies will cover your policy...they all take their % and the rest goes into the pot with the premiums you pay them each month on that $1 Million dollar policy...Does any of this make sense to you?
Insurance companies I would guess do not have mortgages on the properties they own...these Properties are taken into possession through Bankruptcy and such...much like you will see today as the banking mess unravels...They buy peoples assets and make them liquid again...people surrender their real estate or what ever they have as assets in order to pay off their debts....Yes the insurance companies pay pennies on the dollar for these properties, but then again what else is there to do...either lose it all or get a little bit back...Are Insurance companies in the Banking Business, you bet they are! Are Insurance companies in the Real Estate Business, you bet they are! Do Insurance companies Banks and Real Estate companies operate under the same Laws as say ReMax, I would not think so. they are governed under the Insurance Laws and not the laws written for banks and other real estate agencies, they also have an advantage they can insure themselves against loss without the cost of say Joe's Real Estate Agency! I don't know how much they have in that pot, but I would say it is many many trillions of dollars if not more!
Lets see, I have Health Insurance, I have car Insurance, I have my homeowners Insurance...this is what I have....now many people have Life Insurance, they have Insurance for Businesses if self employed...Some people are down right Insurance Poor...and none of these polices come cheap...I have 3 that cost me over $2000 per year and mine is low because of my age and because I have never had a car accident...but you take 200 Million people and multiply by $2000 per year and what do you have? What you have is 400 Billion dollars a year spent on Insurance and this is the bare minimum...it is just incredible!
Reuters SemGroup's $3.2 billion failure shocks backers Friday July 25, 12:04 pm ET By Robert Campbell
NEW YORK (Reuters) - The dramatic collapse of energy trader SemGroup LP shocked the privately held firm's backers who until last week had little idea of the extent of the oil trading losses that sank it, sources said this week.
As late as June a banker at Bank of America (NYSE:BAC - News), one of SemGroup's main lenders, described the fast-growing company as one of his best clients, two sources said this week.
The Tulsa, Oklahoma-based company filed for bankruptcy on Tuesday after suffering $3.2 billion in losses on energy futures and derivatives trades that SemGroup says were designed to protect its physical oil trading business.
Shareholders including private equity giants Ritchie Capital Management, Riverstone Holdings and the Carlyle Group are expected to be wiped out.
What? An oil/energy related company going bankrupt? How can that be.... according to the mainstream news media, etc.... they are making record profits with the high prices of energy!!
A sign of the times, just what shape the whole economic situation is in. What company, what sector will be next?
<< <i>What? An oil/energy related company going bankrupt? How can that be.... according to the mainstream news media, etc.... they are making record profits with the high prices of energy!! >>
Live by the bubble, die by the bubble. It's not much different than those who bought tech stocks on margin in March 2000.
The main difference is that now everyone that goes bankrupt by making risky decisions expects a taxpayer-financed bailout. Socialize the risk, privatize the reward. I wish my IRAs and 401K worked like that.
I bet they had an insurance policy in there some where....only ones who will be hurt are the lenders and the investors...otherwise they will just restructure and be back in business.
"The main difference is that now everyone that goes bankrupt by making risky decisions expects a taxpayer-financed bailout. Socialize the risk, privatize the reward. I wish my IRAs and 401K worked like that."
ziggy29, that is one thing I find very disturbing about how things are going. It seems these entities 'realize' that they are 'too big' to allow to fail..... they seen to now know that they can do risky things, no problem.... they will be bailed out by government or the tax payers because too much is at stake. So they take big gambles to make big profits, and can expect to be bailed out if the gamble does not work.
Individuals should be going to prison for that. And that would be my solution.... bail out the entity, but with the stipulations that they totally repay the taxpayers, and some head would be headed to prison.
If you're talking about "earned" prison time you'd have to start with Greenspan, Paulson, Bernanke, the SEC chief, and probably a pile of senators and congressman, esp. some of those who have a seat on the Senate Banking Committee.
I bet they had an insurance policy in there some where....only ones who will be hurt are the lenders and the investors...otherwise they will just restructure and be back in business.
I doubt it. The "insurance policy" with derivatives is often just another derivative with someone else, and so on and so on. At some point the daisy chain ends with some entity that cannot possibly pay up. Considering that there are $65 TRILLION in credit default swaps out there, companies were very busy buying and selling them. When you jump to the total derivatives amount at $1 QUAD, I don't think there is enough insurance in the world to cover a fraction of that.
$ TRILLIONS in essentially unsecured derivatives (energy included) rest with pension and hedge funds, 401K's, municipalities, state funds, etc. And just about anywhere you look in today's financial world, you'll find them. Problem is, the "investors" are spread across America and represent even the common man. Insurance is not going to cover the derivatives fiasco. The insurance companies no doubt have a stake in them as well through their banking entities, investments, etc.
If the requirement for insurance companies to hold a ratio of assets to policies of 4 to 1 is still sound, I would expect that some of those assets include wildly overpriced derivatives...just a hunch. If the banks were having a field day on that leverage, do you think the insurance companies didn't partake? With AAA rated and higher yielding SIV's and other alphabet derivative soup offerings available, I can't see how insurance companies didn't slop up some share of that rather than resign themselves to lower earning vehicles. Insurance companies no doubt own bonds of municipalities so what happens when the town or city goes bankrupt due to their holding near-worthless SIV's and other derivatives?
I bet they had an insurance policy in there some where....only ones who will be hurt are the lenders and the investors
In the case of Fannie/Freddie their "insurance" policies were derivatives... many now worthless. In this case the "lenders and investors" are being bailed out, so that the American taxpayer can take all the heat. The Chinese govt can afford their share of the loss. But it would appear that Uncle Sam would rather dump it back on the US taxpayer than tick off China who holds hundreds of billions in US Treasuries. Like the FED, Fannie and Freddie are owned by private investors. It's odd that we are bailing them out after they made hundreds of Billions in profits.
This is the risk with individual stocks and mutual funds heavy on financials. When I made some adjustments on my 457 a couple of weeks ago I made sure my funds were made up of solid, old funds with the same managers.
When it is all said and done, Yes the Insurance companies are involved...it is a must that they be involved...I think it is the only way to get rid of or destroy the derivatives that are out there....But in the end who winds up with all the real assets...There are insurance policies to insure the insurance policy if you know what I mean....There are Insurance policies which insure for financial failure and upon that failure your assets will be purchased by said policy and you will be liquidated...once that is done the derivatives all disappear...In the long run will this hurt our financial presence around the world when they find out they have lost all their money due to a financial meltdown...Yeah we will not be loaned to for a very long time...but do we need to worry, only time will tell! If we are self sufficient there should be no worries...but the only thing right now that is really worry some is this oil problem...
Our Financail system is built to fail! Or better words, designed to fail!
The oil problem is relatively small compared to what the OTC derivatives issue can do (and is doing) to the economy. If the banks weren't so focused on credit and derivatives, they could have more easily manipulated the oil market. We worked our way out of high oil prices in the 1970's and I suspect we'll do the same going forward....only if we tackle the D's beast. Inflation adjusted oil pricing has not yet reached 1977-1980 levels. Back then, oil prices ultimately reacted to the amount of money out there just as it is doing today. It's no secret that the oil price really started taking off last August as Bernanke opened the monetary spigot wide open (FED=source of inflation). I know that the cost of everyday items and services affected by petroleum costs are right in our face while derivatives are well-hidden and hardly discussed. But the breadth of the derivatives problem is beyond anyone's imagination. Just what does $400 TRILL in otc derivatives or $1.1 QUAD in total derivatives really mean? This is not the case of a winner and loser simply exchanging figures on a balance sheet. In many cases the loser cannot pay the winner....and never could. Both lose.
If a simple energy/oil trader is going down on big D. losses, what does that predict for other companies with heavy otc/off balance sheet derivative's loading? What if the loser cannot pay them off? Or they cannot pay the winner? The last time we had a recession, OTC derivatives hardly even existed and played no effective role. This time it is different.
Next Friday the BLS publishes the June employment change figures. For starters, the BDM estimates 177,000 new jobs to be added in June. This appears illogical considering the state of the current economy where unemployment jumped 1/2% last month. Economists are already tossing out estimates of -75,000 to -90,000 new jobs for June. If the BD Model is out to lunch, that means a net negative 250,000 jobs.
In June: Hospitality and Leisure are adding 86,000 jobs, Financial services 8,000, Construction 29,000, Professional and business services 22,000. I don't know about anyone else, but I'd expect these numbers to fall in all areas. New college students might have added some jobs in late June, but those typically come in July and later. The BD Model still thinks the economy is growing. That's what it was built to do in 2001-2002, to make the numbers look better as a recession was looming. It's still doing it today.
"The main difference is that now everyone that goes bankrupt by making risky decisions expects a taxpayer-financed bailout. Socialize the risk, privatize the reward. I wish my IRAs and 401K worked like that."
Ziggy,
What a grand idea.
Her is my letter to the Fed for tomorrow:
Dears Sirs, I have very patiently, and carefully, been trying to build up my savings for retirement. I have been paying very close attention to all of the “FACTUAL” numbers you have been publishing for many years.
I have put a substantial amount of funds in high quality stocks as well as in C.D.’s in your member banks. Even though the government takes at least 25% of my earnings each year, my savings has managed to grow some.
Unfortunately because your published inflation numbers were INCORRECT my bank, as well as the companies that I invested in have not been paying me nearly enough in interest and dividends to keep up with the rising costs of everything. I therefore request a bail out by the Fed to get me back to even.
GOLDSAINT, I like your idea. Too bad these entities aren't elected, so that we could have at least a tiny chance of getting them to listen, like we can with a congressman (well, sometimes in an election year anyways).
Unfortunately we are the bottom dwellers on their heirarchy ladder, and only exist in their eyes to provide the funds so they can play their games and also to bail them out...
Well, We the people were suppose to be the government and the government was suppose to work for the people by our elected officials that we have elected into office..but somehow all of this got turned around...Big Government has become Big Business...do they really care about the people of this nation, NO, only what they can suck out of us...Did our forefathers care about the People, Yes, they did, they put into place the FDIC so they would no longer be left penniless and destitute in the streets,...but Our Modern Day Politicians have changed all the rules our Forefathers had put into place so History would not repeat itself and to save us from another Depression. They have given away all of our Technology and taught the world to feed themselves..They have educated India they have educated the world you might say, as they all come here and go to school, Eat your food use your medical system for free and Live on Welfare for at least 5 years while getting a free education...while our kids have to struggle even to go to school...You call to get your computer fixed and you talk to bum FK'D Egypt...The teachers for years have spoken broken English...where is this all headed, just where they want it to be...YOUR UNDER THEIR CONTROL...what are you going to do about it! Nothing of course, since there has not been a war here since the Civil War!
Don't worry about those derivatives "D" as they will disappear! Smile and Be Happy, that is the way Washington wants you to be!
Derivatives DO disappear if the 2 parties involved merge. In the case of JPM and BSC, the rumor was that JPM was the counter-party to a large number of Bear's derivative hedges. In this case they do go "poof" amd both parties are made whole with respect to those individual derivatives. Bank Of America supposedly took on Countrywide for the same reason....beneficial derivatives washing.
Do you really feel that we the people are the only people they don't care about! What do you think the world is going to think about the US when they find out all their Invested money has just disappeared...Where did all that money go...someone has to have it..but WHO! Why is it that the US could buy products from China but why would China not buy from us...Hell whats the dollar worth these days! Why could people buy homes that could not afford to buy them...Why did the Regulators not do their job and Regulate, you know their superiors had to know! What happened to all the Laws and by Laws our forefathers put in place...You know by todays Law I should not even be questioning this because Washington does not want me to!
Smile and Be Happy That is the way Washington wants you to be!
<< <i>Derivatives DO disappear if the 2 parties involved merge. In the case of JPM and BSC, the rumor was that JPM was the counter-party to a large number of Bear's derivative hedges. In this case they do go "poof" amd both parties are made whole with respect to those individual derivatives. Bank Of America supposedly took on Countrywide for the same reason....beneficial derivatives washing.
roadrunner >>
Are you sure they would just disappear, and each is made whole? I would have thought JPM would have had the counter-party derivatives listed on their books as an asset. If so, when the merger takes place, those 'assets' would disappear, and their total net worth would be lowered by that amount. But there again.... I just plain don't understand these paper games...
And everyone will be made whole.....from CBS Market-watch.....
Mutual of Omaha Bank's acquisition of all deposits was the "least costly" resolution for the Deposit Insurance Fund compared to all alternatives because the expected losses to uninsured depositors were fully covered by the premium paid for the banks' franchises, the FDIC said in a statement.
All depositors, including those with deposits in excess of the FDIC's insurance limits, will automatically become depositors of Mutual of Omaha Bank for the full amount of their deposits, the FDIC said.
Over the weekend, customers of the banks can access their money by writing checks or using ATM or debit cards. Checks drawn on the banks will be processed normally. Loan customers should continue to make loan payments as usual.
These sorts of transactions happen all the time. These banks are TINY. You need to only be concerned of the biggies.
JPM and C are biggies. I would placeWM and WB as wanna-be's
JPM pretty much has "implicit" FED backing. And the Saudis would rescue C. But if the FED and/or Saudis dont come to their rescue, then we are probably beyond the worry stage.
What? An oil/energy related company going bankrupt? How can that be.... according to the mainstream news media, etc.... they are making record profits with the high prices of energy!!
I've had some contact with the SemGroup companies for the past several years, and while this is unexpected, it does tend to explain some of their behaviors. They seemed to be building their new facilities at the lowest possible price, while furiously trying to get bigger in a hurry.
They were in the midst of an acquisition and expansion play - is the best way that I can describe it. They were buying facilities and building lots of new tanks, with new piping and new equipment - at a fairly fast clip. Obviously, their growth was being fueled by credit, and was a leveraged play on oil.
My guess is that the credit crunch and drop in crude oil prices has completely shut down their ability to pay any of their creditors. A seemingly highly-leveraged operation with a sale of the company as the end game. I would be surprised if that is not the case.
My observation is that they were operating on a shoestring, and probably hoping for a buyout or a public offering once the thing had reached critical mass. They were not minor players, nor were they a major oil company.
This is an interesting development. If oil prices and demand both drop, I doubt that the market will feel their absence. If oil prices and demand both pick back up, the oil supply market could tighten up until their facilities are sold off to other companies and put back into service.
Q: Are You Printing Money? Bernanke: Not Literally
RoadRunner, they might have been derivatives but the Insurance Companies will wind up with the properties! So they have lost nothing! It is the Banks and the Investors who have lost not the insurance company!
If the banks have enough assets then they will not go out of business the insurance companies will own their assest but they will remain in business...Now if they do not have enough assets to cover their losses then FDIC will take them over and be looking for a buyer!
Just Like the Bank of Nevada...Mutual of Omaha bought them.
<< <i>Which way you betting cohodk? Dollar rally or crash? >>
I havent placed a trade just yet as I wait for confirmation. Waiting will cost you some money as you wont buy at a bottom but it can save you from anticipating a trade that may not occur. Better to trade on fact rather than hope.
I am watcing to see if FXY can hold 92 and FXE 155. Bands are tight on the USD so a breakout of this last 5 months trading range is likely to be broken. Perhaps the action in OIL is telling more?
Edited to add......Right now momentum is still down for the dollar and up for the EURO and YEN.
<< <i>No way the dollar will rally, not with all the banks going belly up! >>
The dollar will rally long before the banking crisis is over. Thats just the way it works.
Also it is easy to see the negatives in our economy and not so much overseas as you dont have German, British, Spanish, Italian, French, Russian media outlets inundating you with bad news.
I have no basis in saying this, but I think that oil is a sideshow and that the inflation damage is already done. Unless they stop creating dollars, I can't see any reversal in the trend, and I sure haven't heard anyone in Congress (besides Ron Paul) say anything about cutting back. I'm not a market timer, but then again - I don't need to be.
Q: Are You Printing Money? Bernanke: Not Literally
I am anticipating the market to crash...and it will...when it does it will set the stage for a new beginning! When it is time for the big Banks to morph into each other...SH..t will hit the fan...When all the foreign investors learn of thier great loses, I just wonder how long it will take the market to recover....We have not seen times like these! But then again who needs the rest of the world...we got it all right here...and I am a Proud American!!!!!!! But I do want the Constitution my Forefathers wrote rectified!!!!
When all the foreign investors learn of thier great loses
Foreign investors are getting their A$$ handed to them in their own countries. China stocks are down over 50% this year, India down 33%, Brazil down 23%, all of Europe down 20-30%. Russia down over 15% in the last week---I hope you all got my reference to Russia about 2 weeks ago, Japan down 25%, Australia and New Zealand down 29%.
They are happy to be holding US equities that are only down 20%. And they had better hope the dollar does not strengthen.
Remember, the dollar can strengthen even if conditions in the USA suck, just as long as overseas economies suck more. And overseas equity markets are saying things aint so good across the ponds.
I don't believe ours has caught up yet! But it will...Only thing keeping it up are the lies coming out of Washington! Add to that the Banking Crisis and Housing Crisis and Joblessness it is pretty much a given that the market will come down...Yeh many of us have had our AZZZes handed to us too, and more to follow!
<< <i>I don't believe ours has caught up yet! But it will...Only thing keeping it up are the lies coming out of Washington! Add to that the Banking Crisis and Housing Crisis and Joblessness it is pretty much a given that the market will come down...Yeh many of us have had our AZZZes handed to us too, and more to follow! >>
There are many ways to take advantage of a declining equity market. Find them and make some loot!!!
Comments
has ta korects myz spellens.
John Curlis, can I calls youz John Boy!
Sure seems to me that depending on the 'investments' these insurance companies have made, can be putting them at risk also. Especially more so if they happen to get hit with a lot of catastrophic claims all at once.
I have to admit I know next to nothing about insurance companies, so am starting to do some web searches. Mainly, I am interested in what they do with the premium money they collect. I'm sure it is invested in paper of some sort. Anyone have first hand knowledge about the industry, on how they invest? From one small web site:
"What are premiums?
In exchange for insurance protection, policyholders make periodic payments called "premiums" to their insurance provider. Paying these premiums enables the policyholder to receive a cash payout or service in case of need. Completing the loop, the insurance company invests the premiums it collects in stocks, bonds, and real estate. The proceeds from these investments serve as an important source of revenue for the insurance company. The difference between the money paid out to cover losses and the returns on their investments is how insurance companies make their money."
301,139,950 people in the United State which I would estimate that 2/3 of them hold some kind of Insurance policy. Over the years there have been many insurance polices written that have never payed out....where is this money?
Is it in the large POT which I have spoken about? I would imagine some of it is in that pot! That pot must contain $4 for every $1 an insurance company writes a policy for...Say you have a Million Dollar Life Insurance policy written on your life in case of your death your family would have money to keep going....The Insurance company must have $4 Million to cover that one $1 Million dollar policy! You say well that sure is a lot of money to cover just one Million $ policy...well it was the way Insurance laws are written and the Laws since they were written have never changed. Ever since the Inception of the Insurance Industry, they have been putting money into this pot....How many times have they drawn upon this pot since the 1800's...A few Hurricanes here and there and few floods but nothing catastrophic(Except they did foot the bill for WWII)...nothing that would really break the pot...now since the 1800's this pot has been compounding interest upon interest as well as being added to....Remember, lf a policy is purchased and never ever payed out anything to the owner of that policy that money spent on that policy goes into the pot...at least some of it does...as I do not know how much per policy is required to go into the pot, but the insuring Insurance Company has to make money too so they take their piece of the pie and the rest goes into the pot....Now I can not tell you how many policies have been written since the 1800's but I can tell you it is in the Millions if not Billions of Policies...Lets say that 50%(just and example) of those policies have never been payed out where is that money...Well I would suspect it is in the Pot compounding interest upon interest since the 1800's...now that is a lot of money...Now remember an Issuing Insurance company will only insure 1/10 of their policy they are writing for you...another 9 insurance companies will cover your policy...they all take their % and the rest goes into the pot with the premiums you pay them each month on that $1 Million dollar policy...Does any of this make sense to you?
Reuters
SemGroup's $3.2 billion failure shocks backers
Friday July 25, 12:04 pm ET
By Robert Campbell
NEW YORK (Reuters) - The dramatic collapse of energy trader SemGroup LP shocked the privately held firm's backers who until last week had little idea of the extent of the oil trading losses that sank it, sources said this week.
As late as June a banker at Bank of America (NYSE:BAC - News), one of SemGroup's main lenders, described the fast-growing company as one of his best clients, two sources said this week.
The Tulsa, Oklahoma-based company filed for bankruptcy on Tuesday after suffering $3.2 billion in losses on energy futures and derivatives trades that SemGroup says were designed to protect its physical oil trading business.
Shareholders including private equity giants Ritchie Capital Management, Riverstone Holdings and the Carlyle Group are expected to be wiped out.
A sign of the times, just what shape the whole economic situation is in. What company, what sector will be next?
No worry. Bernake's Magic Money Machine© will cure all that ails you.
<< <i>What? An oil/energy related company going bankrupt? How can that be.... according to the mainstream news media, etc.... they are making record profits with the high prices of energy!! >>
Live by the bubble, die by the bubble. It's not much different than those who bought tech stocks on margin in March 2000.
The main difference is that now everyone that goes bankrupt by making risky decisions expects a taxpayer-financed bailout. Socialize the risk, privatize the reward. I wish my IRAs and 401K worked like that.
ziggy29, that is one thing I find very disturbing about how things are going. It seems these entities 'realize' that they are 'too big' to allow to fail..... they seen to now know that they can do risky things, no problem.... they will be bailed out by government or the tax payers because too much is at stake. So they take big gambles to make big profits, and can expect to be bailed out if the gamble does not work.
Individuals should be going to prison for that. And that would be my solution.... bail out the entity, but with the stipulations that they totally repay the taxpayers, and some head would be headed to prison.
I bet they had an insurance policy in there some where....only ones who will be hurt are the lenders and the investors...otherwise they will just restructure and be back in business.
I doubt it. The "insurance policy" with derivatives is often just another derivative with someone else, and so on and so on. At some point the daisy chain ends with some entity that cannot possibly pay up. Considering that there are $65 TRILLION in credit default swaps out there, companies were very busy buying and selling them. When you jump to the total derivatives amount at $1 QUAD, I don't think there is enough insurance in the world to cover a fraction of that.
$ TRILLIONS in essentially unsecured derivatives (energy included) rest with pension and hedge funds, 401K's, municipalities, state funds, etc. And just about anywhere you look in today's financial world, you'll find them. Problem is, the "investors" are spread across America and represent even the common man. Insurance is not going to cover the derivatives fiasco. The insurance companies no doubt have a stake in them as well through their banking entities, investments, etc.
If the requirement for insurance companies to hold a ratio of assets to policies of 4 to 1 is still sound, I would expect that some of those assets include wildly overpriced derivatives...just a hunch. If the banks were having a field day on that leverage, do you think the insurance companies didn't partake? With AAA rated and higher yielding SIV's and other alphabet derivative soup offerings available, I can't see how insurance companies didn't slop up some share of that rather than resign themselves to lower earning vehicles. Insurance companies no doubt own bonds of municipalities so what happens when the town or city goes bankrupt due to their holding near-worthless SIV's and other derivatives?
I bet they had an insurance policy in there some where....only ones who will be hurt are the lenders and the investors
In the case of Fannie/Freddie their "insurance" policies were derivatives... many now worthless. In this case the "lenders and investors" are being bailed out, so that the American taxpayer can take all the heat. The Chinese govt can afford their share of the loss. But it would appear that Uncle Sam would rather dump it back on the US taxpayer than tick off China who holds hundreds of billions in US Treasuries. Like the FED, Fannie and Freddie are owned by private investors. It's odd that we are bailing them out after they made hundreds of Billions in profits.
roadrunner
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If we are self sufficient there should be no worries...but the only thing right now that is really worry some is this oil problem...
Our Financail system is built to fail! Or better words, designed to fail!
If a simple energy/oil trader is going down on big D. losses, what does that predict for other companies with heavy otc/off balance sheet derivative's loading? What if the loser cannot pay them off? Or they cannot pay the winner? The last time we had a recession, OTC derivatives hardly even existed and played no effective role. This time it is different.
Revisiting the BLS Birth Death employment model
Next Friday the BLS publishes the June employment change figures. For starters, the BDM estimates 177,000 new jobs to be added in June. This appears illogical considering the state of the current economy where unemployment jumped 1/2% last month. Economists are already tossing out estimates of -75,000 to -90,000 new jobs for June. If the BD Model is out to lunch, that means a net negative 250,000 jobs.
In June: Hospitality and Leisure are adding 86,000 jobs, Financial services 8,000, Construction 29,000, Professional and business services 22,000. I don't know about anyone else, but I'd expect these numbers to fall in all areas. New college students might have added some jobs in late June, but those typically come in July and later. The BD Model still thinks the economy is growing. That's what it was built to do in 2001-2002, to make the numbers look better as a recession was looming. It's still doing it today.
roadrunner
Ziggy,
What a grand idea.
Her is my letter to the Fed for tomorrow:
Dears Sirs,
I have very patiently, and carefully, been trying to build up my savings for retirement.
I have been paying very close attention to all of the “FACTUAL” numbers you have been publishing for many years.
I have put a substantial amount of funds in high quality stocks as well as in C.D.’s in your member banks.
Even though the government takes at least 25% of my earnings each year, my savings has managed to grow some.
Unfortunately because your published inflation numbers were INCORRECT my bank, as well as the companies that I invested in have not been paying me nearly enough in interest and dividends to keep up with the rising costs of everything. I therefore request a bail out by the Fed to get me back to even.
Unfortunately we are the bottom dwellers on their heirarchy ladder, and only exist in their eyes to provide the funds so they can play their games and also to bail them out...
<< <i>OIl Drop may be tied to SemGroup >>
old news folks....also the banks that failed were right at the 'top" of the pdf file i have....yet no one was interested...you guys go on, later
Don't worry about those derivatives "D" as they will disappear!
Smile and Be Happy, that is the way Washington wants you to be!
roadrunner
Smile and Be Happy That is the way Washington wants you to be!
<< <i>Derivatives DO disappear if the 2 parties involved merge. In the case of JPM and BSC, the rumor was that JPM was the counter-party to a large number of Bear's derivative hedges. In this case they do go "poof" amd both parties are made whole with respect to those individual derivatives. Bank Of America supposedly took on Countrywide for the same reason....beneficial derivatives washing.
roadrunner >>
Are you sure they would just disappear, and each is made whole? I would have thought JPM would have had the counter-party derivatives listed on their books as an asset. If so, when the merger takes place, those 'assets' would disappear, and their total net worth would be lowered by that amount. But there again.... I just plain don't understand these paper games...
Nixonomics?
Knowledge is the enemy of fear
<< <i>Another Weekend, two more regional Banks taken over by the Fed >>
And everyone will be made whole.....from CBS Market-watch.....
Mutual of Omaha Bank's acquisition of all deposits was the "least costly" resolution for the Deposit Insurance Fund compared to all alternatives because the expected losses to uninsured depositors were fully covered by the premium paid for the banks' franchises, the FDIC said in a statement.
All depositors, including those with deposits in excess of the FDIC's insurance limits, will automatically become depositors of Mutual of Omaha Bank for the full amount of their deposits, the FDIC said.
Over the weekend, customers of the banks can access their money by writing checks or using ATM or debit cards. Checks drawn on the banks will be processed normally. Loan customers should continue to make loan payments as usual.
These sorts of transactions happen all the time. These banks are TINY. You need to only be concerned of the biggies.
Knowledge is the enemy of fear
JPMorgan, Wachovia, Citigroup, WalMu, etc?
roadrunner
JPM pretty much has "implicit" FED backing. And the Saudis would rescue C. But if the FED and/or Saudis dont come to their rescue, then we are probably beyond the worry stage.
Knowledge is the enemy of fear
I've had some contact with the SemGroup companies for the past several years, and while this is unexpected, it does tend to explain some of their behaviors. They seemed to be building their new facilities at the lowest possible price, while furiously trying to get bigger in a hurry.
They were in the midst of an acquisition and expansion play - is the best way that I can describe it. They were buying facilities and building lots of new tanks, with new piping and new equipment - at a fairly fast clip. Obviously, their growth was being fueled by credit, and was a leveraged play on oil.
My guess is that the credit crunch and drop in crude oil prices has completely shut down their ability to pay any of their creditors. A seemingly highly-leveraged operation with a sale of the company as the end game. I would be surprised if that is not the case.
My observation is that they were operating on a shoestring, and probably hoping for a buyout or a public offering once the thing had reached critical mass. They were not minor players, nor were they a major oil company.
This is an interesting development. If oil prices and demand both drop, I doubt that the market will feel their absence. If oil prices and demand both pick back up, the oil supply market could tighten up until their facilities are sold off to other companies and put back into service.
I knew it would happen.
Knowledge is the enemy of fear
I knew it would happen.
If the banks have enough assets then they will not go out of business the insurance companies will own their assest but they will remain in business...Now if they do not have enough assets to cover their losses then FDIC will take them over and be looking for a buyer!
Just Like the Bank of Nevada...Mutual of Omaha bought them.
<< <i>cohodk, are you implying that C might be going under? >>
I am not implying that at all.
Knowledge is the enemy of fear
siliconvalleycoins.com
It is going to take a while, I would say!
<< <i>Which way you betting cohodk? Dollar rally or crash? >>
I havent placed a trade just yet as I wait for confirmation. Waiting will cost you some money as you wont buy at a bottom but it can save you from anticipating a trade that may not occur. Better to trade on fact rather than hope.
I am watcing to see if FXY can hold 92 and FXE 155. Bands are tight on the USD so a breakout of this last 5 months trading range is likely to be broken. Perhaps the action in OIL is telling more?
Edited to add......Right now momentum is still down for the dollar and up for the EURO and YEN.
Knowledge is the enemy of fear
<< <i>No way the dollar will rally, not with all the banks going belly up! >>
The dollar will rally long before the banking crisis is over. Thats just the way it works.
Also it is easy to see the negatives in our economy and not so much overseas as you dont have German, British, Spanish, Italian, French, Russian media outlets inundating you with bad news.
Knowledge is the enemy of fear
I knew it would happen.
Foreign investors are getting their A$$ handed to them in their own countries. China stocks are down over 50% this year, India down 33%, Brazil down 23%, all of Europe down 20-30%. Russia down over 15% in the last week---I hope you all got my reference to Russia about 2 weeks ago, Japan down 25%, Australia and New Zealand down 29%.
They are happy to be holding US equities that are only down 20%. And they had better hope the dollar does not strengthen.
Remember, the dollar can strengthen even if conditions in the USA suck, just as long as overseas economies suck more. And overseas equity markets are saying things aint so good across the ponds.
Knowledge is the enemy of fear
<< <i>I don't believe ours has caught up yet! But it will...Only thing keeping it up are the lies coming out of Washington! Add to that the Banking Crisis and Housing Crisis and Joblessness it is pretty much a given that the market will come down...Yeh many of us have had our AZZZes handed to us too, and more to follow! >>
There are many ways to take advantage of a declining equity market. Find them and make some loot!!!
Knowledge is the enemy of fear