Simon Johnson asks - Why CDS for Banks are still high ?

[sishya]

I did not notice this. When the Banks are saying they have started becoming profitable, Simon Says - Please stand up. Simon says - The Bond Holders are really spooked by the New authority asked by Geithner, to put to sleep any Instituitions when required and these Bond Holders may be fearing a haircut.

Please also see his link in WSJ regarding his Medicine for this.

Will The Real Geithner Plan Please Stand Up?


With all the material and moral support for U.S. mega-financial institutions currently on the table, why are bank holding company credit default swap (CDS) spreads at new highs? (For more on how and why you might want to think about CDS spreads, we have a basic guide.)

The most plausible explanation is that creditors - unlike equity investors - are spooked by the new resolution authority that is now sought by Treasury and the Fed. This would, after all, allow the government to manage something akin to (but potentially better than, from a social perspective) a bankruptcy process for our largest financial institutions.
These creditors are right to be worried; the authority, if granted, would almost certainly be pressed by events (and creditors’ self-fulfilling runs) into use.
But, if handled right, this authority can help solve the financial mess at minimal cost to the taxpayer (although there are no magic bullets or easy exits at this stage). The key - as always in any major crisis - is decisive action. Over on wsj.com this morning, Peter Boone and I outline one way forward.

[nero3]

Re: Simon Johnson asks - Why CDS for Banks are still high ?

It's certainly interesting. It's it a solvency or a liquidity issue, the administration treats it like a liquidity issue. I think it's a liquidity issue as long as they inflate enough, if they fail to do that, then it's solvency. However, I think to many have taken the solvency problem, in advance.

[Munger]

Re: Simon Johnson asks - Why CDS for Banks are still high ?

Does this mean I should pile into SKF?

This is a question I have been pondering for a few days. My guess is, from estimates I've seen from economists, that the Geithner plan has less than a 10% chance of working. The banks will need more capital - it is only a matter of time. SKF has been spiking - up to 200 and over, every time how little capital the banks have once again becomes apparent. After another round of bailouts, it drops back down to 100 or so. Is now the time to dip in and try to double up? Does anyone think the bank stocks are going to go up from here and not come back down?

I have been thinking that perhaps this Geithner plan was just meant to buy time. Perhaps Obama knows that the banks need to be nationalized but has been playing coy (I admit, I have almost lost hope on this, but it's still a possibility).

What do you think, pile into SKF? Too risky given the randomness of what the govt. could do?

[bpr]

Re: Simon Johnson asks - Why CDS for Banks are still high ?

Does this mean I should pile into SKF?

This is a question I have been pondering for a few days. My guess is, from estimates I've seen from economists, that the Geithner plan has less than a 10% chance of working. The banks will need more capital - it is only a matter of time. SKF has been spiking - up to 200 and over, every time how little capital the banks have once again becomes apparent. After another round of bailouts, it drops back down to 100 or so. Is now the time to dip in and try to double up? Does anyone think the bank stocks are going to go up from here and not come back down?

I have been thinking that perhaps this Geithner plan was just meant to buy time. Perhaps Obama knows that the banks need to be nationalized but has been playing coy (I admit, I have almost lost hope on this, but it's still a possibility).

What do you think, pile into SKF? Too risky given the randomness of what the govt. could do?

I got in and out over the past week after a 10% gain. I don't want to be in when quarterly results are announced, since the March spike and mark to market news will likely make them look better on paper than they really are.

Of course, I may be wrong, and earnings week might see the next big leg down. Still churning it over, though, 'cause SKF is attractive under 90.

[c1ue]

Re: Simon Johnson asks - Why CDS for Banks are still high ?

Now that Mark to Market is in, the long term trend of down is going to reassert itself.

I was trading UYG prior to this - I've now switched to trading SKF.

1st trade: in @ 110, then 92, out at 110.65
2nd trade: in @100.75, then 88 (?tomorrow morning), out at ?