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Thursday, October 02, 2008

What's missing from the bailout

Restrictions on hedge funds, derivatives, and credit default swaps. Not sure about marked-to-market and short selling.

Big Eddie had an awesome caller Wednesday. She talked about credit default swaps, how the Fed bets that people will default on their mortgages, and if they don’t, the Fed doubles down. Then she chastised Ed for his previous guest, Sen. Kent Conrad, who said he had met with some experts and was privy to secret information about the crisis. And then she said that secret information is $63 trillion in credit swaps, and went on to say that the rich have done this to us in 1825, 1873, and 1929. Not sure how much of it is true but it sounded awesome.

Jim Sinclair mentions $1 quadrillion ($1,000,000,000,000,000) which is the biggest number I’ve seen so far:


I’m starting to consider that the problem may not be inflation. Money supply increases may be more than offset by credit contractions…


One caller to MPR Tuesday said that the $700 billion is only 1% of what we need, and that it would only last us a month. The host said she had somebody on the show that had said the same thing. The deflation article above talks about worldwide credit swaps topping $62 trillion. I’m not sure what those are, but with numbers that big, to me it sounded inflationary. But maybe not if the money vanishes because people can’t pay their debts.

To try to put things into perspective…

$1,144,000,000,000,000 = notional value of derivatives outstanding
$62,000,000,000,000 = worldwide credit swaps
$59,100,000,000,000 = US debt held by public including Medicare, Medicaid, Soc. Sec., etc.
$12,000,000,000,000 = size of US mortgage market
$10,000,000,000,000 = size of US economy
$9,700,000,000,000 = size of federal debt
$6,000,000,000,000 = size of US mortgage market owned or guaranteed by Fannie Mae and Freddie Mac
$5,600,000,000,000 = level 2 and 3 assets held by 8 largest holders this Spring
$700,000,000,000 = proposed bailout amount
$559,000,000,000 = cost of war
$410,000,000,000 = annual US budget deficit projected for 2008
$162,000,000,000 = annual US budget deficit 2007
$147,600,000,000 = cost of war per year, Iraq + Afghanistan
$12,300,000,000 = cost of war per month, Iraq + Afghanistan


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