Monday, October 27, 2008

Credit Default Swaps Again Approach Danger Zone

Big money boys' credit default swaps neared the danger zone, yet again. The week of September 15, Wall Street investment bank debt became virtually uninsurable. Hank Paulson and Ben Bernake blew the crisis whistle. President Bush's economic team came up with a $700 billion bailout, which Congress passed. Since then, the federal government promised over $3 trillion in interventions.

What happened last week? Reuters reported the following prices for a year's coverage on $10 million of corporate debt:

Morgan Stanley $420,000
Goldman Sachs $280,000
Merrill Lynch $215,000

On Monday, September 15th Morgan's CDS traded at $450,000. It doubled within days, causing Hank to yell "fire." In 2007 coverage ran $100,000.

This morning Mark Haynes noted banks aren't lending, but using taxpayer billions to buy other banks. Last week's CDS prices indicate the big money boys still don't trust each other to make good on their debts.

Where's ex-White House economic adviser Al Hubbard? He guaranteed a good outcome from the bailout bill. Apparently his counsel on the financial sector is as flawed as his health care analysis.