SVB is Now In the Hands of the FDIC

[Klaus]

Life insurers, come on down!

 

[Klaus]

 

[MG0h3]

Time to buy some puts!


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[Klaus]

Deutsche Banks, get in here!

 

[MG0h3]

Deutsche Banks, get in here!

Never dealt with CDs.

Is that saying that the interest rate they offer on CDs has doubled? Effort to get deposits?


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[Lambeau]

 

[Rb0891]

Never dealt with CDs.

Is that saying that the interest rate they offer on CDs has doubled? Effort to get deposits?


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I think those are credit default swaps - going out of business insurance…

 

[Klaus]

Never dealt with CDs.

Is that saying that the interest rate they offer on CDs has doubled? Effort to get deposits?


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CDS refers to a Credit Default Swap.

It is effectively an insurance contract on the bonds of an issuer.

The way it works is you pay a premium to the seller and then settle up for the difference.

You can also trade CDS like stocks.

If the reference entity (in this case Deutsche) is experiencing credit distress its CDS will widen out. That is what the graph is illustrating.

It is how you short bonds.

The CDS market is huge but it is for big boys only. You need an ISDA to trade which means you need a huge balance sheets so it is kimited to institutional jnvestors. Retail schmucks not allowed.

 

[MG0h3]

CDS refers to a Credit Default Swap.

It is effectively an insurance contract on the bonds of an issuer.

The way it works is you pay a premium to the seller and then settle up for the difference.

You can also trade CDS like stocks.

If the reference entity (in this case Deutsche) is experiencing credit distress its CDS will widen out. That is what the graph is illustrating.

It is how you short bonds.

The CDS market is huge but it is for big boys only. You need an ISDA to trade which means you need a huge balance sheets so it is kimited to institutional jnvestors. Retail schmucks not allowed.

So DB is paying 7% for their credit insurance basically?


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[MG0h3]

CDS refers to a Credit Default Swap.

It is effectively an insurance contract on the bonds of an issuer.

The way it works is you pay a premium to the seller and then settle up for the difference.

You can also trade CDS like stocks.

If the reference entity (in this case Deutsche) is experiencing credit distress its CDS will widen out. That is what the graph is illustrating.

It is how you short bonds.

The CDS market is huge but it is for big boys only. You need an ISDA to trade which means you need a huge balance sheets so it is kimited to institutional jnvestors. Retail schmucks not allowed.

So DB is paying 7% for their credit insurance basically?


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[MG0h3]

CDS refers to a Credit Default Swap.

It is effectively an insurance contract on the bonds of an issuer.

The way it works is you pay a premium to the seller and then settle up for the difference.

You can also trade CDS like stocks.

If the reference entity (in this case Deutsche) is experiencing credit distress its CDS will widen out. That is what the graph is illustrating.

It is how you short bonds.

The CDS market is huge but it is for big boys only. You need an ISDA to trade which means you need a huge balance sheets so it is kimited to institutional jnvestors. Retail schmucks not allowed.

So the graph is illustrating the rate DB is paying to whomever is covering their debt?

Analogy being a low income/high risk person getting terrible rates on auto/home/CC?


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[Klaus]

So the graph is illustrating the rate DB is paying to whomever is covering their debt?

Analogy being a low income/high risk person getting terrible rates on auto/home/CC?


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It's not DB that is paying. CDS allows others to take a position on the probability of default.

Anyone with an ISDA can buy or sell this risk. Long explanation, Google ISDA if you are interested.

Speculators might do this but counterparties might to.

Say you have lent a huge amount to DB and you are worried that they go BK before they pay you. You can buy CDS to hedge this risk.

Say you are a hedge fund and you think the price of German Bunds will blow out if the state has to save DB. You buy CDS to hedge this risk.

Say you think DB stock is cheap relative to the bonds. You sell CDS and use the income from that sale to purchase stock.

Say you think Credit Suisse bonds are rich relative to DB bonds. You sell CDS on DB and buy CDS on CS.

etc
etc
etc

The graph shows the cost of buying DB CDS. The cost is a function of the probability of default. The market now thinks the liklyhood of a DB default exceeds 2008.

 

[Klaus]

Separately, you can swap anything it is crazy.

I have negotiated pricing on Dutch mortality risk. The trade was if US life expectancy exceeds Dutch life expectancy the counterparts pays me. If vice versa I pay them.

This is actually a fairly vanilla swap believe it or not.

If you are a Dutch pension plan you havemassive risk to life expectancy with few options to diversify it.

They way you do it is you sell it to someone that has a similar risk.

In this sense you "swap" it.

I was standing in the middle of a US life insurer over exposed to life expectancy in the US and a Dutch pension over exposed to life expectancy in the Netherlands.

They "swap" and I keep a piece.

 

[Rb0891]

Separately, you can swap anything it is crazy.

I have negotiated pricing on Dutch mortality risk. The trade was if US life expectancy exceeds Dutch life expectancy the counterparts pays me. If vice versa I pay them.

This is actually a fairly vanilla swap believe it or not.

If you are a Dutch pension plan you havemassive risk to life expectancy with few options to diversify it.

They way you do it is you sell it to someone that has a similar risk.

In this sense you "swap" it.

I was standing in the middle of a US life insurer over exposed to life expectancy in the US and a Dutch pension over exposed to life expectancy in the Netherlands.

They "swap" and I keep a piece.

Lmao. This is crazy.

 

[Klaus]

Charles Schwab, come on down!

 

[Relaxed Chaos]

I'm confused as to where all of this chaos is heading. What are the cliffnotes to the future?

 

[Weather Man]

I'm confused as to where all of this chaos is heading. What are the cliffnotes to the future?

We hit the wall, and no one knows quite exactly where it is or what the final straw on the camels back will be, but it will suck.

 

[MG0h3]

GOV will bail them out one way or another just like they did in 2008.

I bet they do it sooner than they did in 08’ though


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[kazman]

By Govt. you mean us the taxpayers, correct?

 

[jvandy50]

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