Archive for the 'Economics' Category

Financial Crisis 101: Why CDS could never work

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Many still call or describe CDS (Credit Default Swaps) as a kind of insurance policy against credit risk to limit the risk of the lender. Well that might be so in their dreams or it has been used as a camouflage by the bankers to persuade the investors of the quality – or to mislead them on the lack of it – and suggest that there would be an underlying asset.

And that’s were all the problems start. To issue or construct a CDS there was never a requirement to actually being linked to, i.e. having provided or taken out the credit or having an contractual agreement with these two parties.

Everybody could issue CDS completely unregulated and unlimited. This is of course the reason for the incredible amounts being pushed around and it also provides the reason that – in rare cases CDS might have been an insurance against credit defaults – but in general these papers were only betting slips if certain events might occur most similar to betting on horses or dogs races.

If these instruments would have only been allowed to use for …

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Humor: Music videos about the Financial crisis

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Four music videos on the banking crisis based on some all time classics – from Elton John’s Candles in the Wind / Bankers in the Wind to Billy Joel’s We Didn’t Start the Fire / Wall Street Meltdown

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GM: A look into the abyss

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Today was a bad day at stock exchanges all around the world and it was potentially the worst day in stock market history for General Motors.

Already down about 80% from its trading range around USD 40 per share 12 months ago, the share price of the Detroit car maker today was shredded another 30% to around USD 4.7. The report from JD Powers published today that is expecting an “outright collapse” for the global auto industry in 2009 certainly did not help. And for that the writing was already on the wall when GM stopped production in some of its factories in Europe earlier this week (Today even BMW has announces a short production stop with one of his factories in the next weeks).

Let’s put these figures into perspective:

The last time GM was traded around USD 4.7 a share was in the 1950s when an average car sold for …

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Development Aid: The Investment Banks of the Humanitarian Sector

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We had some discussions during the last weeks and a few times we ended up with the same question:

Are there institutions / instruments in the Humanitarian / Non-Profit sector that could be compared to the mess in the banking sector specifically with the Investment banks - a species which in that habitat by today got almost extinct.

And yes we found them.

Created during the last decade on the back of the MDG, many have been installed with targets like deregulation of development funding (yes this did happen – aka budgetary aid aka the thin line along institutionalized corruption), avoidance of regulatory frameworks (e.g. via PPPs), avoidance of multi-national oversight across geo-political blocks (to go around the UN) or to just create the illusion of acting / transparency.

And these organizations share many properties with private sector Investment banks:

Fancy names – most of them answer to names like global, facility, fund, emergency plan. They are almost completely unregulated and their activities are at best opaque…

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AIG: Execs went on leisure retreat – Taxpayers to foot the 500K bill

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If you thought there might be some business ethics coming back to today’s executives in the banking business – think again. Looking at the biggest mess in worldwide finance ever created in mankind’s history and those guys still believe its business as usual. You hear stories of so-called executives that are leaving their sinking ships with severity / separation packages worth hundred of millions of dollars – at the same time their employees are left with nothing and many particularly the younger ones looking into a very gray future.

These are seemingly the signals sent out by the cover up plans hammered through these days by governments around the world – grab as much as you can today – we don’t know if we can sponsor your fat bonuses and pays with taxpayer subsidies in the near future. And don’t be shy – a hundred millions might not be as much tomorrow and you know – you did study economics and understand what happens as a result from these FED and other interventions with regards to inflation – don’t you?

Now one of the best indications what those people think has been provided during the House’s Oversight Committee hearing on AIG today. Just a week after the government agreed to bailout the tumbling AIG with USD 85 Billion of taxpayer money, the executives of AIG went on a leisure break spending almost USD 500K on manicures, massages, luxury dinners and hotel rooms…

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Humor: Reliable Investments

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It’s a great time to invest.
From the Saturday Night Live series of Commercial Parodies.

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