[rogerhb]

$this->bbcode_second_pass_quote('strider3700', 'T')his doesn't just hurt refco. Bennett paid back the 430 million he had borrowed for his other company. He did this by taking out a loan with a bank in europe. for collateral he used his refco stock. Now that the stock is worth basically nothing

http://today.reuters.com/investing/fina ... DATE-2.XML

[airstrip1]

For every loser there is a winner. Some one has made out like bandits here. I wonder who has walked off with all the money.

[DantesPeak]

$this->bbcode_second_pass_quote('rogerhb', '')$this->bbcode_second_pass_quote('strider3700', 'T')his doesn't just hurt refco. Bennett paid back the 430 million he had borrowed for his other company. He did this by taking out a loan with a bank in europe. for collateral he used his refco stock. Now that the stock is worth basically nothing

http://today.reuters.com/investing/fina ... DATE-2.XML

[stu]

$this->bbcode_second_pass_quote('airstrip1', 'F')or every loser there is a winner. Some one has made out like bandits here. I wonder who has walked off with all the money.

[Free]

$this->bbcode_second_pass_quote('strider3700', 'T')his doesn't just hurt refco. Bennett paid back the 430 million he had borrowed for his other company. He did this by taking out a loan with a bank in europe. for collateral he used his refco stock. Now that the stock is worth basically nothing

http://today.reuters.com/investing/fina ... DATE-2.XML

[GrizzAdams]

Is a new disaster hiding in Refco's hedge funds?

The Observer

[MrBill]

$this->bbcode_second_pass_quote('', 'I')t is this area that has been found wanting in the latest crop of hedge fund disasters: Refco's chief executive is accused of hiding $430 million he owed to the company; Bayou Capital and Wood River Partners, which both stopped trading in recent months, have been accused of hiding losses and faking returns to investors.

[CARVER]

What would happen when we get a bank failure, one that sits on a significant amount of US Treasuries. Would everything be sold off, so that you suddenly get a flood of US Treasuries on the market? (For example a Japanese bank, sitting on US Treasuries, that needs to pay the claims in yen).

With speculation so huge these days, it seems unlikely a central bank can withstand it, because their foreign currency reserves, that they can use to intervene in the foreign exchange market (prop up the currency by buying it), are relatively small to the amount that is circulating in speculation.

Another question would be: is this likely to happen?

[MrBill]

I seem to remember BAWAG being in financial trouble in the 90's, but I cannot remember exactly what the issue was? Also, who are the OeBG who are the owners of BAWAG? Thanks.

[MrBill]

Think about it, US treasuries are an asset, it is unlikely that a bank that holds a great deal of liquid assets such as US treasuries is going to get into serious trouble, unless it has borrowed excessively to buy those treasuries and the market has gone down. In this case, they would need to liquidate the position which would temporarily add to supply as you mentioned.

However, in an $8 trillion market with $400-500 billion added yearly, it is unlikely that any bank would have more than $100 million in US treasuries at any one time? The largest of banks, say market makers, might hold up to $500 million (just guesses here, not hard numbers), but that is unlikely an outright position. Likely they would be either short the treasury future against a portion of that or perhaps also short corporate bonds or other interest rate contracts, so that the net long position would be much smaller.

Banks these days do not take such big one way bets anymore. Too many like Salomon's and Banker's Trust have been laid low by getting their bets wrong. Also, Greenspan has been signalling higher rates now for such a long-time that only a serious contrarian would have been a leveraged buyer of US treasuries. Well, never say never, but this is not a likely event. The market absorbed Argentina's $200 billion default, so the chance of $100 million more or less coming onto the market would be digested pretty smoothly.

[CARVER]

$this->bbcode_second_pass_quote('MrBill', 'A')lso, Greenspan has been signalling higher rates now for such a long-time ...

[GrizzAdams]

$250 trillion in bad world IOU's on a 40 trillion global GDP. I guess somebody could say that this problem is 6 times bigger than the Earth. This appears to be a financial wave of bad IOU's coming back to haunt everybody, and the economy is becoming very volatile. While the past 10 years have been economical bliss, with the housing boom, and consumer boom created by cheap money. Also the amount of money that the US collects on foreign investments, has been up until recently, greater than the amount of money that foreigners collect on US investments. So I have to ask, does this qualify as a nail in the coffin? Will America be reduced down to a single TV station that plays nothing but old Ronald Reagan speeches?

The Truth About Markets

[MrBill]

The Fed sets interest rates at their FOMC meeting. They set the discount rate at which banks can borrow from the Federal Reserve. The Fed acts as the lender of last resort. Banks in turn use that rate as their benchmark. They try to attract primary funds by paying interest of current accounts and certificates of deposit.

If they lend that money out to earn interest they have to either earn a higher rate of interest or take interest rate gap risk. That is their liabilities are short term, but they lend longer term. To protect against default if too many liabilities come due the Fed requires each bank to hold minimum reserves at the Fed and to buy Federal deposit insurance in case of default by any one bank or banks.

The Finance department issues debt in the form of US treasuries of various maturities from two to 30-years. These bonds are constantly being issued and retired on maturity, so there are a stream of bonds from maturity of less than one year to up to 30-years. The treasury can only decide what coupon each bond should have. Its semi-annual coupon payment. After its issue, it trades in the secondary market according to supply & demand. If demand goes up, yields fall. If demand falls, then yields have to rise to attract investors.

The Fed can further influence liquidity by doing repos and reverse repos which takes money out of circulation or adds it depending on their view of money supply. And they can also affect money supply by requiring banks to deposit more or less with them as mimimum reserves.

The Fed also has responsibility for oversight over banks to make sure they abide by minimum captial adequacy ratios. Under Basel II accords each bank can only take X amount of risk for each asset class. The more risky the asset class the more capital they have to set aside to cover potential losses.

No one forces anyone to take out bank loans at higher interest rates. Interest rates are simply the cost of money based on future interest rate expectations. If you borrow at 10% and earn a 30% return on your investment you can pay the borrowed money back with a profit. Conversely, if you borrow short term at 4% and invest in 30-year government bonds yielding 4.5% you may lose money if interest rates continue to climb and the value of 30-year bonds falls in price. The concepts are quite simple. the dynamics quickly get complicated.

[MrBill]

$this->bbcode_second_pass_quote('', 'I')nterest rates are simply the cost of money based on future interest rate expectations.

[stu]

(threads merged)

[Free]

$this->bbcode_second_pass_quote('MrBill', 'I') seem to remember BAWAG being in financial trouble in the 90's, but I cannot remember exactly what the issue was? Also, who are the OeBG who are the owners of BAWAG? Thanks.

[MrBill]

It was definatley BAWAG but I cannot remember the issue. It doesn't matter. I used to work for Bank Austria Creditanstalt. No need to tell me about the politics of these mergers

[OilsNotWell]

A very interesting article on how Refco's problem might be related to naked shorting of stocks, and what it means..

$this->bbcode_second_pass_quote('', 'T')he $10.5 Billion REFCO Smoking Gun

By Bob O'Brien
Oct. 23, 2005

The listing for the assets and liabilities of REFCO was just made available, and guess what just happens to be hiding in the liabilities column?

A $10.5 billion liability, at TODAY's mark to market valuation, called "Securities sold, not yet purchased."

$10,590,379,000 - to be precise.

Securities that have been sold. But haven't been bought. And they haven't been borrowed, either - see item 3 below.

Welcome to the wonderful world of naked short selling.

...
These guys were being sanctioned for being involved in a prior naked short selling scheme, and were known as the go to guys for questionable types desiring greater "flexibility" in their trading. They lied to their auditors, the SEC and the public about their financial condition. Their CEO has been cuffed. I think there's reason to believe that this liability is the smoking gun the industry has been dreading.

What we do know is that the wild eyed conspiracy theories that I have been accused of spinning now look tame. One company appears to have at least $8 billion in FTD's. That is no longer a speculation or a conspiracy theory. It is a fact. As in immutable, manifest, and clear.

You heard about this here first. Many months ago. In March, when I was speculating about a catastrophically large level of fails in the system, being covered up by the brokers and the SEC. When I was writing about special purpose entities being used to hide the size of the problem.

And here we are.

The whole BK filing can be viewed here.

I'm not going to go into the $1.25 billion of their claimed assets that are intangibles and "goodwill." Or the offsetting assets which collateralize the FTD's (cash, which is what you'd expect with FTD's). It doesn't really matter. If I'm right. the first time some of those shares are bought in the $8-$10 billion will likely jump to $20 billion, and several large hedge funds will likely vaporize as their cash requirements eclipse their assets.

This is the systemic risk issue I've been warning about.

And this is just REFCO. One company. Only one.
...

This is going to be the biggest crisis to hit Wall Street in our generation. Mark my words. Cat's out of the bag now. And the SEC and Wall Street have some explaining to do. And some stock to buy, seems like.

..
http://www.faulkingtruth.com/Articles/I ... /1041.html

[MrBill]

$this->bbcode_second_pass_quote('OilsNotWell', 'A') very interesting article on how Refco's problem are related to naked shorting of stocks, and what it means..

$this->bbcode_second_pass_quote('', 'T')he $10.5 Billion REFCO Smoking Gun

By Bob O'Brien
Oct. 23, 2005

The listing for the assets and liabilities of REFCO was just made available, and guess what just happens to be hiding in the liabilities column?

A $10.5 billion liability, at TODAY's mark to market valuation, called "Securities sold, not yet purchased."

$10,590,379,000 - to be precise.

Securities that have been sold. But haven't been bought. And they haven't been borrowed, either - see item 3 below.

Welcome to the wonderful world of naked short selling.

...
These guys were being sanctioned for being involved in a prior naked short selling scheme, and were known as the go to guys for questionable types desiring greater "flexibility" in their trading. They lied to their auditors, the SEC and the public about their financial condition. Their CEO has been cuffed. I think there's reason to believe that this liability is the smoking gun the industry has been dreading.

What we do know is that the wild eyed conspiracy theories that I have been accused of spinning now look tame. One company appears to have at least $8 billion in FTD's. That is no longer a speculation or a conspiracy theory. It is a fact. As in immutable, manifest, and clear.

You heard about this here first. Many months ago. In March, when I was speculating about a catastrophically large level of fails in the system, being covered up by the brokers and the SEC. When I was writing about special purpose entities being used to hide the size of the problem.

And here we are.

The whole BK filing can be viewed here.

I'm not going to go into the $1.25 billion of their claimed assets that are intangibles and "goodwill." Or the offsetting assets which collateralize the FTD's (cash, which is what you'd expect with FTD's). It doesn't really matter. If I'm right. the first time some of those shares are bought in the $8-$10 billion will likely jump to $20 billion, and several large hedge funds will likely vaporize as their cash requirements eclipse their assets.

This is the systemic risk issue I've been warning about.

And this is just REFCO. One company. Only one.
...

This is going to be the biggest crisis to hit Wall Street in our generation. Mark my words. Cat's out of the bag now. And the SEC and Wall Street have some explaining to do. And some stock to buy, seems like.

..
http://www.faulkingtruth.com/Articles/I ... /1041.html

[OilsNotWell]

$this->bbcode_second_pass_quote('', 'B')eing quite close to the Refco story, I find this number not believable. I would like to see the link and not to www.faulkingtruth.com, but to the filing where it says Refco has a $10.5 billion dollar position period? The bankruptcy of Refco Inc. involves numerous legal entities, but I do not know any that would have this type of liability on their books.