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These featured articles-
- The End of the Credit Default Swap by: ek hornbeck
- The Day Due Process Died by TheMomCat
- Be Prepared by: ek hornbeck
This is an Open Thread
Mar 08 2012
Our regular featured content-
These featured articles-
This is an Open Thread
Mar 08 2012
This is something that’s a little bit different from the usual Thursday Open Thoughts, in that I’m going to write about
what kind of events and what kind of an ending I would’ve put into a movie, or even a story if I’d been the one who’d written the story or the script for it. Some people would think that my story would be a boring, shallow movie or book, but what do they really know? Nothing, as far as I’m concerned, except that they sense that I have a different style of posting, communicating and conversing, take that and run with it.
To deviate momentarily from what I’m going to write for this week’s Thursday’s Open Thoughts, these make for some of the most, if not the most hateful people that have ever walked Planet Earth, imho. Some of these people are mental health councilors and social workers, actors and actresses, or just ordinary, everyday run of the mill individuals, both on and/or offline. To be honest, and I’ve even told some of these people what I’ve thought, it wouldn’t bother me if they were to get “:theirs”, as some people put it. Hopefully, maybe someday, they will. Some people that I’ve known in real life who are like that have “gotten theirs”. Whether they’ve shaped up as a result, in some cases, really remains to be seen, but the fact that they’ve led miserable lives since should be suffice.
Anyway, back to the subject at hand, it’s fun to pontificate about the kind of story and/or ending that one would want in a movie, or even a book, but this week’s Thursday’s Open Thoughts will be about a specific movie. Here goes:
Mar 08 2012
Featuring an all-star cast including George Clooney, Brad Pitt, Martin Sheen, Jamie Lee Curtis, Jane Lynch, Kevin Bacon and others, “8” is a play written by Academy Award winning screenwriter Dustin Lance Black and directed by acclaimed actor and director Rob Reiner. It is a powerful account of the case filed by the American Federation for Equal Rights (AFER ) in the U.S. District Court in 2010 to overturn Proposition 8, a constitutional amendment that eliminated the rights of same-sex couples to marry in the state of California. Framed around the trial’s historic closing arguments in June 2010, 8 provides an intimate look what unfolded when the issue of same-sex marriage was on trial.
This was a live production of the reading of Dustin Lance Black’s “8″, a play based on the transcripts from the hearings before Judge Vaughn Walker on the constitutionality of California’s Proposition 8 which banned state sanctioned same sex marriage. I join Teddy Partridge in his congrats to Judge Walker for having Brad Pitt play his roll. George Clooney and Martin Sheen play Daivd Boies and Ted Olson, the lawyers who argued the case for the American Foundation for Equal Rights. Also, Kevin Bacon plays Charles J. Cooper, the lead attorney for supporters of Proposition 8, and Jane Lynch is Maggie Gallagher, co-founder of the National Organization for Marriage. The actual play is about 90 minutes.
In February, a three judge panel of the 9th Circuit upheld Judge Walker’s decision. The supporters of Proposition 8 asked the Ninth Circuit to grant them an en banc rehearing of the 2 to 1 decision.
Mar 08 2012
Credit Default Swaps (CDS) Are Insurance Products, Not Tradeable Assets
Author: Barry Ritholtz, EconoMonitor
March 2nd, 2012
The CFMA radically deregulated derivatives. The law changed the Commodity Exchange Act of 1936 (CEA) to exempt derivatives transactions from regulations as either “futures” (under the CEA) or “securities” under federal securities laws. Further, the CFMA specifically exempted Credit Defaults Swaps and other derivative products from regulation by any State Insurance Board or Regulators.
This rule change exempting CDS from insurance oversight led to a very specific economic behavioral change: Companies that wrote insurance had to explicitly reserve for expected losses and eventual payout in a conservative manner. Companies that wrote Credit Defaults Swaps did not.
Hence, AIG was able to underwrite over THREE TRILLION DOLLARS worth of derivatives, reserving precisely zero dollars agianst potential claims. This was enormously lucrative, except for that whole crashing & burning into insolvency thingie.
How Greece’s default could kill the sovereign CDS market
By Felix Salmon, Reuters
February 29, 2012
The way that CDS auctions are meant to work is that once a borrower defaults on its debt, that defaulted debt continues to be traded in the market, and its value then determines the amount that credit default swaps need to pay out. But in this case, Greece’s defaulted debt might well not continue to be traded in the market. In which case, when traders need to find a cheapest-to-deliver bond to bid on in the CDS auction, they’re going to have to use one of the new bonds, rather than one of the old ones.
In other words, Greece’s CDS really aren’t protecting holders of Greek bonds at all – or if they do, it’s more a matter of luck than of law. When they get paid out on their CDS holdings, people owning protection against a Greek default won’t get paid according to how much money they lost on their old bonds. Instead, they’ll get paid according to the nominal price of the new bonds.
What this means is that the CDS architecture is broken, and can’t cope with collective action clauses. And as a result, according to the hedge fund manager who tipped me off to the whole problem, “this Greece CDS imbroglio might be the final blow for sovereign CDS as a product.”
Greece Readies Record Debt Swap With 60% Commitments
By Maria Petrakis and Fabio Benedetti-Valentini, Bloomberg News
Mar 8, 2012 6:59 AM ET
While Greece would prefer a voluntary deal, the government has said it will use collective action clauses to force holders of Greek-law bonds into the swap if the so-called private sector involvement falls short and it gets sufficient approval from investors to change the bonds’ terms.
“I think that the markets are aware of the risk that a majority for voluntary restructuring is not available, and so I think the surprise won’t be too big if tonight when they realize the collective action clauses will have to be applied,” Bofinger said.
“I do fully expect to be part of the collective action clause,” Patrick Armstrong, managing partner at Armstrong Investment Managers in London, said yesterday in a Bloomberg Television interview. He won’t voluntarily join in the swap because of the “minuscule” chance his bond maturing March 20 will be redeemed at face value.
Compelling holdouts to take part will likely trigger insurance contracts on the debt known as credit default swaps.
“I can’t see any scenario where people are forced to participate against their will and they aren’t triggered,” Armstrong said.
How all CDS are at risk of not paying out
By Felix Salmon, Reuters
March 5, 2012
At heart, the problem is what happens when an issuer swaps out all of its bonds for some new bonds. There’s no reason at all why the new bonds should trade at a massive discount to par – indeed, issuers often like it when their new bonds trade at or near 100 cents on the dollar. But if the CDS auction happens after the bond exchange, and if all of the old bonds are exchanged, then holders of the new bonds are forced to tender new bonds into the exchange, even if they’re trading at 100 cents on the dollar. Which means that holders of old bonds could suffer a huge haircut in the value of their bonds, but still get no payout from their CDS.
This has been an issue in the past. When Anglo Irish Bank restructured its bonds, it amended the old bonds to include a call option which allowed the bank to buy back every €1,000 of bonds for €0.01. That was an effective way of wiping out the value of the old bonds – but it also risked serious damage to the CDS market, since in a CDS auction, the value of a bond is calculated as the price of the bond considered as a percentage of the outstanding principal – and the outstanding principal is considered to be not the face value of the bond but rather the amount of the call option. If Anglo Irish had done the exchange quickly, before a CDS auction was possible, then bondholders would have had to tender bonds with a call option at €0.01 – which would mean that they couldn’t claim any payout on their CDS at all.
In the end, Anglo Irish took pity on the CDS holders, and staggered its restructuring so that there was enough time for ISDA to conduct an auction before the bonds got changed out of all recognition. But hoping that the issuer will act in a friendly manner is not exactly an optimum strategy – especially since, by definition, the issuer will be in the process of going bust.
This doesn’t just seem unsatisfactory at first blush; it is unsatisfactory. And there is no second blush. Essentially, CDS holders are reduced to hoping that the issuer will be nice, and structure the exchange in such a way as to let them get paid out. But there’s no particular reason why the issuer should do that, especially seeing as how the CDS holders were the people who were effectively shorting the issuer as it tumbled into bankruptcy.
If you own protection on a credit, then, you’re very much in a world of caveat emptor. You can trade in and out of CDS and make a good living; these things are, first and foremost, trading vehicles. That’s why they’re more liquid than bonds. But if you have a strategy which involves actually getting paid out on your CDS in the event of default, then you should definitely worry that the payout might not happen, even if the event of default is clear and declared. What’s more, there’s really no good way to hedge that risk.
Mar 08 2012
This week, I’m writing about something totally different; Hitchhiking and its risks. Chances are that many people will see me as too moral, a dominatrix, too rigid, too conservative, and not willing to open up to new adventures, or to trying new things. Hitchhiking was quite popular in the 1960’s and the 1970’s, and, if I said that I never hitchhiked on occasion myself, as a much younger adult back in the early to mid-1970’s, I’d be lying, because I did. I still recall at least a couple of things that my grandfather told me, regarding hitchhiking; one good, one rather awful; during the 1950’s and early 1960’s, my grandparents used to not only pick up hitchhikers, but to also take them to breakfast, for coffee, or whatever. However, in the mid to late 1960’s, the situation started to get bad, so my grandparents discontinued that practice altogether.
The other story my grandfather told me was a horror story; A guy he knew picked up a hitchhiker, who sat in the back seat of his car. No sooner had the driver looked in his rear-view mirror, then he noticed that the hitchhiker that he’d picked up had a sledge-hammer, and was about to hit him over the head with it. The driver quickly put his hand on his head for protection, the driver’s hand taking the blow from the sledge-hammer, and being permanently deformed. Had it been me, I would’ve undoubtedly chosen to do the same thing; opt for a broken hand over a broken head or worse.
Sure, most people are perfectly normal and honest, but there’s really no telling; particularly nowadays, who may pick you up while you’re hitchhiking, or who the hitchhiker you pick up may be, or what s/he may be up to. My mom always used to argue that while hitchhikers did sometimes harm or try to harm the driver who’d picked them up, it was mostly people who were picked up who ended up in the most danger. Having done some research on the matter, I tend to think that, especially nowadays, that the risks that both hitchhikers and drivers who pick up hitchhikers, are pretty equal, imho.
Mar 08 2012
This is your morning Open Thread. Pour your favorite beverage and review the past and comment on the future.
Find the past “On This Day in History” here.
March 8 is the 67th day of the year (68th in leap years) in the Gregorian calendar. There are 298 days remaining until the end of the year.
International Women’s Day (IWD), originally called International Working Women’s Day is marked on the 8th of March every year. It is a major day of global celebration of women. In different regions the focus of the celebrations ranges from general celebration of respect, appreciation and love towards women to a celebration for women’s economic, political and social achievements.
Started as a Socialist political event, the holiday blended in the culture of many countries, primarily Eastern Europe, Russia, and the former Soviet bloc. In many regions, the day lost its political flavour, and became simply an occasion for men to express their love for women in a way somewhat similar to a mixture of Mother’s Day and St Valentine’s Day. In other regions, however, the original political and human rights theme designated by the United Nations runs strong, and political and social awareness of the struggles of women worldwide are brought out and examined in a hopeful manner.
The first IWD was observed on 19 March 1911 in Germany following a declaration by the Socialist Party of America. The idea of having an international women’s day was first put forward at the turn of the 20th century amid rapid world industrialization and economic expansion that led to protests over working conditions.
In 1910, Second International held the first international women’s conference in Copenhagen (in the labour-movement building located at Jagtvej 69, which until recently housed Ungdomshuset). An ‘International Women’s Day’ was established. It was suggested by the important German Socialist Clara Zetkin, although no date was specified. The following year, 1911, IWD was marked by over a million people in Austria, Denmark, Germany and Switzerland, on March 19. In the West, International Women’s Day was first observed as a popular event after 1977 when the united Nations General Assembly invited member states to proclaim March 8 as the UN Day for Women’s Rights and International Peace.
Demonstrations marking International Women’s Day in Russia proved to be the first stage of the Russian Revolution of 1917.
Following the October Revolution, the Bolshevik Alexandra Kollontai persuaded Lenin to make it an official holiday in the Soviet Union, and it was established, but was a working day until 1965. On May 8, 1965 by the decree of the USSR Presidium of the Supreme Soviet International Women’s Day was declared a non working day in the USSR “in commemoration of the outstanding merits of Soviet women in communistic construction, in the defense of their Fatherland during the Great Patriotic War, in their heroism and selflessness at the front and in the rear, and also marking the great contribution of women to strengthening friendship between peoples, and the struggle for peace. But still, women’s day must be celebrated as are other holidays.”
The UN theme for International Women’s Day 2012 is Empower Women – End Hunger and Poverty. In many countries, International Women’s Day is an occasion to honor and praise women for their accomplishments. In 2012, Oxfam America is inviting people to celebrate inspiring women in their lives by sending a free International Women’s Day e-Card or honoring a woman whose efforts make a difference in the fight against hunger and poverty with Oxfam’s International Women’s Day award.
On the occasion of International Women’s Day 2012, the ICRC is calling for more action to help the mothers and wives of people who have gone missing during armed conflict. The vast majority of people who go missing in connection with conflict are men. As well as the anguish of not knowing what has happened to the missing person, many of these women face economic and practical difficulties. The ICRC underlines the duty of parties to a conflict to search for the missing and provide information for the families.
Mar 08 2012
Back in the olden days, my ex-wife and her family and I tagged along on a film safari at Pyramid Lake, in Nevada. Hot water, cliffs, rock formations (pyramidal), and desolation on an “Indian” (Pauite) reservation. Maybe the film safari tagged along with us. I honestly don’t remember.
My then-bro-in – law was/is a fantastic idea RISD/ Milan guy, industrial designer. Think, “Beautiful Life” with snowboards, Japanese board games made from salmon-colored Portland cement, Christmas package string-wrappings as to be a gift in and of themselves. Fucker was talented, as were my X and her parental units. We were all having fun.
Anyway, the point of the safari was to shoot film and process it by day, then watch the film that night, tickety-tickety-tickety, onscreen, under the Nevada stars.
Love-boat and I spent the day paddling around the geo-thermally bubbling Pyramid. I had the best job in the world, and I wonder sometimes, atheistically, why God assigns us these enormously pleasing tasks.
What did I do to deserve ‘this? That’s mostly the point, here: you didn’t do anything. It just wuz. So much is out of one’s control, let’s not talk about it, any further.
Tents were set-up, both for people and film. There were barrels of chemicals (transported out afterwards), although, the developing tent was white!. How did they develop film in a white tent in broad daylight? What happened there? My father-in-law was super-talented at stills, no one would deny his Hasselblad, but his darkroom was blind-dark. I remain foggy on such issues.
Food was eaten. Drinks were drunk. Completely a-narrative, yes, even scratchy, landscape films, cliffs, weeds, and dappling waters, were watched, under black starry skies. It was a hit.
And the Oscar goes to…
Mar 08 2012
Those of you that read this regular series know that I am from Hackett, Arkansas, just a mile or so from the Oklahoma border, and just about 10 miles south of the Arkansas River. It was a rural sort of place that did not particularly appreciate education, and just zoom onto my previous posts to understand a bit about it.
Writing this series is a continuous learning experience. Last time I posted some email traffic that I had had with descendents of Ben Boggs, and they took me to task, properly, for not portraying him as they knew him. Amongst other things, he held the Purple Heart. I honor him for serving our Nation in time of war.
This weekend I received a long email from his daughter, Jenny, whom I knew well with even more information. Here is what she sent me, her words exactly copied and pasted in blockquote, and my responses to her words in plain text.
Ben taught his children manners. There is no doubt about it. I could not have come up with a better topic for tonight than to give the side of the story that I never realized.