Credit Derivatives Market Shrinks 12%, First Decline

[slipslidingaway]

http://www.bloomberg.com/apps/news?pid=20601087&sid=aYdE4_qKZF94&refer=home

By Shannon D. Harrington

Sept. 25 (Bloomberg) -- "Credit-default swap dealers reduced outstanding contracts for the first time amid efforts to cut risk by cleaning up the derivatives market.

The volume of trades in the worldwide market fell to $54.6 trillion from $62 trillion in the first half, the International Swaps and Derivatives Association said in a statement yesterday. It was the first decline since New York-based ISDA started surveying traders seven years ago.

Credit-default swaps grew 100-fold since 2001 as insurance companies, hedge funds and investors used the derivatives to protect against bond losses and speculate on companies' abilities to pay their debt. Traders are unwinding trades and protecting against losses after credit markets froze amid the worst U.S. housing crisis since the Great Depression. Regulators are starting to call for more oversight of the unregulated market following the bankruptcy of Lehman Brothers Holdings Inc...

...Other derivatives markets grew, ISDA said in its statement yesterday. The notional amount of derivatives used to hedge against changes in interest rates increased 22 percent during the first half of 2008 to $464.7 trillion. Contracts linked to equities grew by 19 percent to $11.9 trillion."

[Warpy]

1. I won't believe in this economy

until working people are able to live without debt and hedge fund managers are dumpster diving.

[slipslidingaway]

2. Then we have a long way to go. As painful as it might be I think we

need to shed light on the derivatives monster.

[avaistheone1]

3. We have got a long painful learning curve ahead of us.

[slipslidingaway]

4. Yes. When you have time, what do you think the implications

would be of adding this debt to the Federal balance sheet.

If I'm reading this article correctly the COST of funding the additional debt would increase... sounds reasonable to me.

Would that not put more adjustable rate mortgages at risk in the future??? Not to mention any other personal financing.



Previously posted here..

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=389&topic_id=4053996&mesg_id=4053996

Direct link...

Fun With Funding
http://contraryinvestor.com/mo.htm

"...We hope that by now you can see why we believe the forward US funding issue is so important. We believe the question mark is huge as to who will be willing to meet these funding needs during a period of greater US non-government sector balance sheet contraction. Will the US continue to be able to procure low nominal cost funding as its already very large balance sheet (liability) expands ever further by necessity in the coming period? The US faces a series of obstacles that were absent in the similar cycle reconciliation experience of Japan. And THE primary obstacle and question mark is cost of funds. We're not preaching end of the world here. In fact, we're really not even questioning the ability of the US to procure continued foreign funding. THE critical issue looking ahead is COST OF FUNDING. At the outset we asked the question, will the US face a funding problem at some point, given that the US is beholden to foreign financing? It's the cost of funding that will be key to forward outcomes both in the real US economy and financial markets.


In the past we have suggested that perhaps THE most important chart we can think of is the long term chart of the 30 year US Treasury bond. What we have described above simply puts an exclamation point behind this thought. The following is nothing but an update of the non-logarithmic 30 year UST. To suggest the red rising bottoms trend line is important is a multi-decade understatement. Will the whole forward funding question ultimately be the straw that breaks the proverbial camel's back for the US bond market? Or in this case the back of the rising bottoms trend line?..."


Treasury Market and Mortgage Rates...chart at link 1977-2007

http://mortgage-x.com/general/treasury.asp

[slipslidingaway]

5. My bad, I meant to address my reply #4 to you. TIA n/t