Dear CIGAs,
Today four Fed spokesmen indicated coming increases in the Discount Rate.
God help the dollar now if the discount rate is NOT raised.
God help us all if the Discount Rate is raised.
Simply stated, there is NO way for a continuous increase in the Discount Rate because of the message it sends to housing and then to all structured products.
This is oral intervention of the dollar.
I owned Sinclair Global Clearing. I know more about clearing and its risk than anyone writing on this subject today.
When I read something like the item below, I am horrified at what is written, but more so what you are accepting. I am getting many calls from intelligent people who are accepting the article as truthful and trustworthy.
I am becoming ill spending every day interpreting the lies, misstatements and simple ignorance.
I prefer positivity.
Being immersed in this sea of amoral fabrication is getting to me as it would to anyone who has the experience to clearly understand the reality of risk and markets.
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In order to have a market in anything there must be absolute standards.
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No standards, no markets.
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Standards are as in gold fineness, weight, set and permanent maturity dates, first notice dates, terms of delivery, terms of storage, terms of etc.
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The absolute majority of OTC derivatives behind us are negotiated specific performance contracts.
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The problems in valuation of these instruments that are still mark to model strain one?s imagination. How they will be valued every day so winners pay in and losers pay out will have to be miraculous.
- The biggest question, the criterion of all criterion, is who is going to finance this clearing house fantasy, accepting the risk of default derivatives that have just had their issuers downgraded and who?s shares are nothing but shreds of what they used to be.
Clearly the members cannot guarantee the trillions of dollar in guarantees that all the credit default derivatives represent. The to-be members of the fantasy clearing house are already at the Fed begging bowl window because of the need for capital.
The only entity that can handle the risk of this fantasy clearing house is the US Federal Reserve as they can print the capital required, making this a Begging Bowl Clearing Account, not a clearing house.
You could, going forward with newly designed vehicles, create a clearing house, but that is not what is discussed here. The article's basis is that you can take all the present outstanding credit default swaps and clear them with a clearing house, taking the risk of default itself.
That is not possible.
Clearing House
What does it Mean?
An agency or separate corporation of a futures exchange responsible for settling trading accounts, clearing trades, collecting and maintaining margin monies, regulating delivery and reporting trading data. Clearing houses act as third parties to all futures and options contracts - as a buyer to every clearing member seller and a seller to every clearing member buyer.
Each futures exchange has its own clearing house. All members of an exchange are required to clear their trades through the clearing house at the end of each trading session and to deposit with the clearing house a sum of money (based on clearing house margin requirements) sufficient to cover the member's debit balance. For example, if a member broker reports to the clearing house at the end of the day total purchase of 100,000 bushels of May wheat and total sales of 50,000 bushels of May wheat, he would be net long 50,000 bushels of May wheat. Assuming that this is the broker's only position in futures and that the clearing house margin is six cents per bushel, this would mean the broker would be required to have $3,000 on deposit with the clearing house. Because all members are required to clear their trades through the clearing house and must maintain sufficient funds to cover their debit balances, the clearing house is responsible to all members for the fulfillment of the contracts.
More?
Fed, Banks Agree to Default-Swap Changes to Cut Risk (Update3)
By Shannon D. Harrington and Oliver Biggadike
June 10 (Bloomberg) -- Regulators and banks agreed to changes aimed at easing the risk of a collapse in the $62 trillion market for credit-default swaps.
Morgan Stanley, Deutsche Bank AG and Goldman Sachs Group Inc. are among the 17 banks creating a system to move trades through a clearing house that would absorb a failure by one of the market-makers, the Federal Reserve Bank of New York said yesterday in a statement following a meeting with the firms.
This will reduce ``the systemic risk when a large counterparty fails,'' Tim Brunne, a Munich-based credit strategist at UniCredit SpA, said in an interview today. ``A large portion of the market would be trading against the central counterparty, and that would be a good thing.''
Investor concern that the market may fail was fueled in March when Bear Stearns Cos., then the fifth-biggest U.S. securities firm, faced a cash squeeze. The central bank agreed to back an emergency sale of Bear to JPMorgan Chase & Co. in part because of the systemic losses that would have resulted if the firm had filed for bankruptcy, New York Fed President Timothy Geithner said in a speech to the Economic Club of New York yesterday.
A central counterparty, more automated trading and settlement and other fixes ``will help improve the system's ability to manage the consequence of failure by a major institution, and we expect to make meaningful progress over the next six months,'' Geithner said.
More?
