Fri, May 23 2008
MONEY FOR NOTHING, TRICKS FOR FREE
Are they fucking kidding?! This is 8.5 times more than the entire gross product of the whole world combined! That means that even if the entire world turned over every single dollar they make for the next eight and a half years, we would barely cover the 'cost' of this made-up financial garbage!
Derivatives Market Grows to $596 Trillion on Hedging
May 22 (Bloomberg) -- The market for derivatives expanded at the fastest pace in at least a decade last year as the global credit crisis spurred trading in contracts used to hedge against losses, according to the Bank for International Settlements.
Derivatives, including those based on debt, currencies, commodities, stocks and interest rates, expanded 44 percent from the previous year to $596 trillion, the Basel, Switzerland-based bank said in a report today. The amount of credit-default swaps protecting investors against losses on bonds and loans more than doubled to cover a notional $58 trillion of debt.
``The credit crisis supported growth'' of the market, Naohiko Baba, an analyst at BIS who co-wrote the report, said in an interview. ``Fixed-income markets experienced big turmoil so had more hedging needs.''
Investors turned to derivatives to bet that the $383 billion of credit losses and writedowns at banks and securities firms since the start of 2007 would push the world economy into recession. The cost of protecting corporate debt against default jumped as much as 670 percent last year, according to the Markit ITraxx Europe Crossover index.
The increase in the cost of credit-default swaps quadrupled the amount of money investors have at stake in the contracts to $2 trillion from $470 billion, the BIS said. The amount at risk in the entire derivatives market is $15 trillion, according to the BIS, which was formed in 1930 to monitor financial markets and regulate banks.
Price Increase
Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. Derivatives are financial instruments derived from stocks, bonds, loans, currencies and commodities, or linked to specific events like changes in interest rates or the weather.
The data on the BIS report are based on contracts traded outside of exchanges in the over-the-counter market.
Interest-rate derivatives remained the largest part of the market, expanding 35 percent to $393 trillion outstanding last year, the report said.
Foreign exchange derivatives grew by 40 percent to $49 trillion as the credit crisis triggered the highest volatility in the seven most-traded currencies in almost eight years, based JPMorgan Chase & Co. data.
The amount of equity derivatives outstanding expanded 14 percent in 2007 to $8.5 trillion.
Commodity derivatives expanded by 26.5 percent as the price of gold and oil reached records. Contracts based on gold rose the most in the second half, by 40 percent to $595 billion. Crude oil rose to a record above $135 a barrel in New York yesterday after U.S. stockpiles unexpectedly dropped.
To contact the reporter on this story: Abigail Moses in London Amoses5@bloomberg.net
Last Updated: May 22, 2008 07:06 EDTFri, May 23 2008
THE SLO-MO AVALANCHE IN PROGRESS
Home price index posts largest drop in history
WASHINGTON, Associated Press - A home-price index considered to be the most comprehensive reading of the U.S. market posted the sharpest decline in its 17-year history, and analysts say housing has yet to bottom out.
Rapidly falling home prices in California, Florida and Nevada skewed the national results.
The Office of Federal Housing Enterprise Oversight said Thursday that home prices fell 3.1 percent in the first quarter compared with last year.
It was only the second quarter of price declines since the index started in 1991. The price index first declined on a year-over-year basis in the final quarter of 2007, when it dropped 0.45 percent.
Another widely followed reading, the Standard & Poor's/Case-Shiller index, has shown larger declines for major U.S. metropolitan areas. But analysts say the government index provides a more comprehensive reading of nationwide housing market.
[Ed. note: and leave us not forget how honest the goobermint numbers are!]
That's particularly true for midwestern states, where prices never skyrocketed and have been less affected by the real estate downturn.
"Most people don't live in a Miami condo," said Michael Englund, chief economist with Action Economics in Boulder, Colo.
Still, declines in the government index, which focuses on less expensive properties and includes fewer houses bought with risky home loans that have gone sour over the past year, show the depth of the housing market's troubles.
Prices fell in 43 states, with California and Nevada showing the biggest declines. Home prices dropped by more than 8 percent in those states.
The government index also fell 1.7 percent from the fourth quarter of 2007 to the first quarter of 2008, the largest quarterly price drop on record.
"The large overhang of real estate inventory awaiting sale continues to force price declines in many areas, but particularly in places that had seen very sharp appreciation," Patrick Lawler, the agency's chief economist, said in a prepared statement.
The government index is calculated by tracking mortgage loans of $417,000 or less that are bought or backed by the government-sponsored mortgage-finance companies Fannie Mae and Freddie Mac.
Wall Street analysts have tended to focus on the S&P index, an update of which is due next Tuesday, as a way to measure the value of securities backed by subprime mortgages and loans to borrowers in big metropolitan areas.
Earlier this month, economic forecasters surveyed by the Federal Reserve Bank of Philadelphia projected the government index would show a 5.4 percent annual decline in the fourth quarter of 2008. The survey projected the reading would not recover until early 2009.
Adam York, an economic analyst with Wachovia Corp., said Thursday's data was unsurprising. "It was pretty widely expected that we would see declines this quarter and for some time to come," he said.
The housing market is facing numerous troubles as buyers stay on the fence and rising mortgage defaults dump more homes on an already glutted market. In addition, many banks have raised their lending standards in response to the surge in mortgage defaults.
Freddie Mac reported Thursday that 30-year fixed-rate mortgages averaged 5.98 percent this week. That was down from 6.01 percent last week and the lowest level in five weeks.All news articles and images provided under the Fair Use Notice.