AbitibiBowater, Inc. (fka ABWTQ)

[Pitt77]

Interesting article.Credit-default swaps traders

Credit-default swaps traders set a value of 3.25 cents on the dollar for bonds of an AbitibiBowater Inc. unit to settle derivatives linked to the newsprint maker that’s now in bankruptcy protection.

Three cents on the dollar???? Wow. HAHAHA. Well, will we pay up on this stupid deal that should never have seen the light of day in the first place? This is the burning question. Since this entire system is totally crummy, it should never had been allowed. The vast sums of corruption money that flowed like a sewer in to all the major governments on earth, to allow this system to be developed and not regulated, is many billions. But the Derivatives mess is hundreds of trillions of dollars in size!

The price means sellers of credit swaps guaranteeing as much as $1.1 billion against a default by the Abitibi- Consolidated unit would pay 96.75 cents on the dollar to settle the contracts. Eleven dealers, including JPMorgan Chase & Co., Barclays Plc and Morgan Stanley, bid in the auction, which was administered by Markit Group Ltd. and broker Creditex Group Inc.

I used to track the Markit site for this sort of information. Now, it is closed to outsiders. Like the M3 data, the guys who are messing up the systems get all the new information while we are locked outside the Cave and have to guess at what the hell is going on inside. So we listen to screams and wails.

A combination of rising defaults and shrinking recoveries that are set through the auctions mean credit-protection sellers since the collapse of Lehman Brothers Holdings Inc. in September have lost as much as 70 percentage points more than rating services estimate the debt is worth.

How can the Government do a stress test on banks if any of them hold any derivative deal contracts and counterparty deals? It is obvious, they are ALL screwed and royally screwed. There is no escape. Undoing this immense mess is like cleaning up after a motorcycle gang has destroyed a bar and then burned it down. Can’t be done.

“Clearly, if you’re a seller of credit-default swaps in an auction, you are getting your head handed to you,” Janet Tavakoli, president of Tavakoli Structured Finance Inc. in Chicago, said in an interview before today’s auction. The potential for losses because of low recoveries “was underestimated, particularly on highly leveraged companies,” she said.

‘Highly leveraged’ is code for ‘deep in gambling debts.’ People took a gamble that there would not be any defaults and the raging derivatives market that grew in leaps and bounds due to the proliferation of pirate island hedge funds getting free loans from the Japanese carry trade meant, no one would ever pay off, they all bid up and up and up!

Losses on these derivatives, which insure a net $2.6 trillion of debt, may mount as the recession that started in December 2007 causes defaults on high-yield bonds to reach 14.6 percent by the fourth quarter, from 4.1 percent at the end of 2008, according to Moody’s Investors Service.
http://emsnews2.wordpress.com/2009/04/19/derivatives-beast-ate-the-bank-tests/