Zeev's Turnips Patch-No Politics (ZEEV)

[basserdan]

>>>but why the move isnt to protect the underlying asset valuation, rather than the legal contracts in place is beyond me. and that answer is what needs to be known. and i need to know what these assets that we are protecting are<<<


Questions! nothing but questions....

From tonight's GATA's LeMetropole Cafe:

Something that has been troubling me is that while there is little doubt certain institutions have taken massive losses from their derivatives book, and others are carrying huge unrealised losses that threaten to put them into bankruptcy, we do not hear much from the other side of the trade. If there is a currency swap that has hung a billion dollar loss on one bank, should there not be a counterparty to that trade which stands to gain a billion dollars? If the TARP program is underwriting billions in dollars of losses to a handful of friendly banks to keep them solvent as a fraction of the derivative losses are settled, then some of that money should be finding its way into other funds, banks, or institutions that are on the winning side. The entire house of cards should amount to nearly a zero-sum game. For every losing trade there should be an offsetting winner. So where is all that money going?

When WaMu failed the government kicked in billions of dollars to fund some of the bad paper that was lurking in the weeds. Okay, so that overhang was monetized and some players somewhere must have done pretty well on the other side of those bets. Surely not every bank and the entire financial system of the western world can be underwater holding just losing positions. Shouldn't some firms be reporting huge windfall gains as they are paid out from the bailout money that is flowing in to settle some of the outstanding derivative mess? I do not recall hearing of a single large bank that is doing well.

AIG has been a bottomless pit as more and more bailout money is poured in. I would imagine some of those funds are used to pay off on mortgage insurance. Okay, but all we hear about is how the defaulted mortgages are dragging other firms down. Where are the winners that are getting paid off from AIG, as underwritten by the TARP and other bailout packages?

I could list many other examples. I do not play with these investment products and have never speculated in some of the more exotic derivative instruments, so forgive me if my questions appear somewhat unsophisticated. I fully understand that if some firms completely collapse, then the winning side of many bets will never be paid, and the losses on 'insurance' instruments that do not get paid off could drive otherwise healthy companies down the drain too. But from all the hundreds of billions of dollars that are sloshing around with minimal reporting and accounting standards, surely some of that money should have found its way into settlement of some of these structured products. Or am I overly naive and perhaps the reason we are not getting detailed accounting is because all of that money is disappearing into black holes and shady deals. Can things really be that bad out there?

Why is it that the common explanation for the selloff in gold last year was that firms were dumping real assets to pay off other losers. So only the firms that owned gold had any liability on other positions and a desire to settle them? What about the guys that were trapped on the short side and should they not have been buying gold to cover and close positions too? It seems there is always a large outstanding short against gold, all the way up from $300 during this bull market.

Sure we get some nasty downside moves and countertrend cycles but I have to believe those who have been committed to shorts are getting slaughtered all the way up. Yet the big downside corrections always seem to come from offside traders and funds that are long. Where the hell does the money go when firms go bust that are net short gold? Does it all get swept under the carpet, or added on to the big garbage can of outstanding out-of-the money toxic crap that JPM is on the hook for? What am I missing here?

My questions are not rhetorical. I would very much like to hear from people who can shed light on this issue. Is it all just due to the fact that gold bearish news is reported and bullish items are covered up? Perhaps I am looking at all of this from the kindergarten level and completely missing the nature of the trade? Not every derivative is some wild speculation that has gone terribly wrong. There are grain futures, oil and gas hedges, metals hedging that is all part of the normal business activity for many players and surely amounts to hundreds of billions of dollars, most of which is settled with little fanfare and reported on the books of legitimate companies with items representing gains or losses. It seems to be the financial products that are going sour and generating huge unfunded liabilities for the stupid bastards that command huge salaries to get into this mess. Or is there something very wrong with what we are being told and what the true status of the derivative market looks like? Maybe nobody knows the answers to my questions, but I have to believe that things are not adding up. There are too many moving parts, unknown unknowns and such.

Day after day, my reasons to own gold and silver become more obvious. I read so much commentary in the mainstream media that is critical of the 'goldbugs' on the assumption that we are somehow rooting for the end of the world. What world do these people live in? I can still barely comprehend just what the hell a trillion dollars represents. The fuzzy reporting and shadow system into which all of this money is disappearing is the scariest thing I have ever witnessed, and yet people want to carry on like its the goldbugs that are somehow out of touch with reality. I have to wonder, just what kind of financial disaster - what degree of rampant corruption and fraud - will be necessary to convince the skeptics that things are off the rails? And yet the majority of commentary that I read (and I read altogether too much of it) would suggest that things are just fine, the stock market is cheap, gold is overbought and a mania, and that the latest bailout package will succeed when all else before it was a monumental failure. Sheesh! I do not question my decision to own bullion - the real stuff and not that bogus ETF variety. In fact the only question I have is whether I own enough of it. Probably not...

http://www.lemetropolecafe.com/james_joyce_table.cfm?pid=7623