The Iron Yuppie

My very smart friend has written up some answers to my questions, which I will repost here.

1) It did go up proportionally.  It probably was 98% of the bonds worth. (I’m guessing.  I don’t have the data)

2) Not naked but no one ever had the $1B dollars to pay up when the bond defaulted.  It was unregulated so there are no ‘capital reserves’.  People were ‘netted’ on the belief that someone had that $1B.  But no one ever did.  So they are all bankrupt.

1b).  So it didn’t matter if the CDS premium was 98% of the bond.  $1B needs to get paid out on the chain. The guy receiving the 98% premium loses 2%.  But two points.  Someone else is losing the rest of the 98% through the chain of netting.  And 2% is on the total bond value not the capital that guy had.  He’s levered.  He may have lost 20% or 200% and been wiped out.

I'll tell you what I told him, which is it doesn't seem possible that this many smart people could get caught in such a web. His response:

I’m sure most of them were aware.  But when you can be a multi-millionaire in one year isn’t it worth the bet? If I said tomorrow you can be worth $100M or lose your job, how many would take that offer? That’s why derivatives need to be regulated.  Asymmetric returns.

When people in the industry start saying things should be regulated, that's usually a sign that it's reached absolutely critical stage.

Looks like Politico is getting a lot of attention on Memeorandum with their story about GOP voters having issues with the momentum of the campaign.

I heard the clip of someone yelling terrorist ( ) and I guess it's pretty bad but who can really control people at a campaign event, anyway?

I guess they want McCain/Palin to go more in the direction of highlighting the Ayers connection ( ), but I can't believe that's really getting any play. I guess we'll see.

Dow Jones Falls to Zero in Six Weeks?

I don't know why anyone would make a statement like this except in jest. I read, based on the rest of his blog posting, that there's more to this guy than just this post, but it still seems pretty bad. Especially in that I found it through Steve Rubel, who didn't caveat the statement above with anything more than "unlikely." Twitter is like a giant game of telephone.

BTW, the failure of this logic is assuming that current trends will continue. My son, who is currently 14 months old is 29 inches tall and 24 lbs. If I start at his birth weight, and graph out his growth, he would by nearly a mile tall and 3.5 billion tons by the time he's thirty. This is not unlikely. This will not happen. Period.

D

It would appear there's one line that sets the night:
There's even a twitter group already! Thoughts?

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Ok, I sort of get how we got to where we are in the credit markets. But after listening to an absolutely riveting hour of financial discussion on This American Life, I'm left with two questions:

1. One of the failures of the markets was the ability to use CDSs as a financial instrument without owning the underlying asset. For example, Lehman issues a bond for $100 M. MS buys the bond. MS buys a CDS from AIG on the bond for 2% of the bond’s value. Goldman, in a speculation move, also buys a CDS on the bond for 2% of the value. Then Lehman starts looking shaky – six months ago or something. More people start to buy CDSs from AIG. Why didn’t the cost of the CDS go up proportionally with the risk. For example, if it’s 1 week prior to Lehman going bankrupt, and people are freaking out about them, why wouldn’t a CDS on their bond cost 98% of the bond’s worth? The podcast seemed to indicate that it was so many people taking out CDSs on bonds that they didn’t have any relation to, purely as speculation devices. But isn’t the market supposed to handle that?
2. Another thing talked about during the podcast was the idea of netting out to hedge risk. AIG sells a CDS on Lehman’s bond to MS for 2%. Then they buy a CDS on Lehman’s bond from Wacovia for 1.98%. Then Wacovia buys a CDS on Lehman’s bond from the IMF for 2.01%. Then Wacovia goes under. The assets are still there, and the hedges are still there, correct? Meaning, yes, AIG may now take a 0.01% loss rather than a 0.02% gain… but surely they wouldn’t be considered to have a naked position, would they?
   

Anyone want to enlighten me?

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[Update: Changed CDO to CDS as I was using the wrong acronym.]

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Sigh-- I know that pictures are basically lies now, but this new face-modification technology takes the cake. You don't even need a human any more to tell you what a human will find attractive! Better forget looking at MySpace profiles - you have just as much chance of finding a real live representative of a human being as you do at a replicant convention.

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Many people ask me what the heck I've been doing, since this blog seems to have gone a bit fallow, and I've left the company. Well, I've helped start up something new, what I will modestly call the greatest sound platform in history. But this is merely a day time job. My full time, night and day job is none other than to promote the use of the sound of this crow. I love it. I don't know why, but I do. My guess is that this crow, in crow-ese, is actually uttering hypnotic words that has weaved me deep into its warm embrace. Regardless, my mission is clear. If you're not listening to the crow, you're just not living.

Powerline is complaining today about the legacy that Jimmy Carter's presidency left us with respect to the Middle East and/or oil.

Seriously? There have been four presidents since then, and 20 years of Republicans in the White House. Further, the congress has also had significant periods of large majorities in favor of Republicans (certainly not always, but enough to matter). And you still blame a president 30 years out of office? It's like blaming Teddy Roosevelt for a situation related to the Panama canal. Sure he may have been to blame at some time, but it's time to own the problem yourself.

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I've had a theory for a long time that the bread you get before a meal is a perfect leading indicator to the quality of the restaurant. I have yet to be proven wrong by it. Sometimes I'm off by a little bit, but it's never been 100% off. I think it's just a great example of what it means when you've got a lot of the system working, but you haven't debugged the system completely.

Anyhow, last night we had dinner at a really nice restaurant: Gerard's. Food was very good, but the bread was TERRIBLE. I realized I'd really like to start writing this stuff down for future reference. Obviously, it's really subjective

Bread Rating: D-. Stale, hard, flavorless. Tasted like I was chewing on paste. Gross.
Food Rating: B+. I thought it was actually pretty good food, I had the filet. The steak was tasty, but not phenomenal. I was really looking for great taste and tender. The sides were mashed yams and were really sweet, almost overly so. There was way too much gravy. The dessert, which was a macaroon with coconut and pistachio was terrible as well... too dry and flavorless.

Net: The rating system holds... even at the nicest restaurant in Maui. Never lose sight of the small stuff, it'll always bring you down.

CinematicTitanic: Mystery Science Theatre 3000 rides again -- sheer hilarity! - Boing Boing

Just awesome! The last MST3K I saw live was about 10 years ago, and though I got some of the DVDs in the interim, I could not be more excited about this rebirth. And talk about a perfect medium for this... extremely passionate audiences willing to pay for content direct from the publisher is a perfect fit for CinematicTitanic (nee MST3K). Unfortunately, the licensing rights for 30 year old movies that are doing the studios exactly zero in business apparently is slowing the flow of this content to the web. You've got to be kidding me. Exactly what do these studios THINK is going to happen... a run on Joe Don Baker movies?

Bush: I would run as 'change' agent

You know how I know that The Onion is one of, if not THE, best social commentary of all time? Because what they say is so close to the truth that it often becomes real: Bush 2004 Campaign Pledges To Restore Honor And Dignity To White House

Here's my question. If Bush DID run as the change agent, exactly who is on the other side of the change equation?

I had a Commodore 64. Then a Commodore 128D. These were my first significant computers, where I learned Basic and played so many games I can barely even remember. And nearly everyone I knew had a Commodore as well (or an Apple II). To think of the opportunity wasted with Commodore simply boggles the mind.

A particularly good walk down memory lane is The History of the Amiga on Ars.Technica. Read it and weap.

As an aside, I'm constantly impressed with the reporting quality on Ars Technica. Their chip analysis, as an example, is some of the best anywhere. I wonder how they do it.

Last night's Hallow's Eve activities were just ok. But mostly because it was my 4th party or so in the past week. I hate it when holidays/celebrations fall mid-week. You never know when to celebrate. However, last night did mark the official debut of the following work:

Yeah, I guess that's an ok stencil from HomeStarRunner. Nice picture of Trogodor... maybe. Until I light that bad boy up.

Look. I'm not really the bragging type. But to call this anything but the GREATEST ARTISTIC WORK OF ALL TIME would lead me to seriously question your expertise in the arts.

How is it possible that there are still sites that do not let you use a space, punctuation and/or caps as part of your password. Are you joking? It's almost as if they took extra effort to filter that out and make your passwords weaker. 'Cause let me promise you something... Ascii character 32 (a space) is a perfectly valid character for a computron and is functionally equivalent to char 44 (a quote), 52 (the number 4) or 119 (the letter w). The only reason that wouldn't work as a password is if you're storing the passwords in the database as clear text, and really? Are you that dumb? Really?