The Trillion Dollar Meltdown: Easy Money, High Rollers, and the Great Credit Crash | 
 enlarge | Author: Charles R Morris
Creator: Nick Summers
Publisher: Phoenix Audio
Category: Book
List Price: $27.95
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Avg. Customer Rating:  55 reviews
Sales Rank: 327921
Format: Audiobook, Cd
Media: Audio CD
Edition: Unabridged
Number Of Items: 5
Shipping Weight (lbs): 0.3
Dimensions (in): 5.8 x 5.2 x 1
ISBN: 1597772143
Dewey Decimal Number: 330
EAN: 9781597772143
ASIN: 1597772143
Publication Date: July 1, 2008
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Product Description
The sub-prime mortgage crisis is only the beginning; a more profound economic and political restructuring is on its way. According to Charles R. Morris, the astronomical leverage at investment banks with their hedge fund and private equity clients virtually guarantees massive disruption in global markets. A quarter century of free-market zealotry that extolled asset stripping, abusive lending, and hedge fund secrecy will come crashing down with it. The Trillion Dollar Meltdown explains how we got here, and what is about to happen.
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 The Trillion Dollar Meltdown September 5, 2008
The beginning was very informative but then becomes bogged down with financial verbage. Hard read for the amature.
 Manias, Panics, and Crashes September 2, 2008
Excellent book outlining the ebb and flow of financial crises. Lots of historical examples and very good summaries.
CDS, SIVs , HF , $5 - $10 trillion swings in the derivatives market , Hard landings September 1, 2008
1 out of 1 found this review helpful
1. In June 2007, Two Bear Stearns hedge funds that invested primary in mortgage backed bonds announce they were in trouble meeting margin calls. The real estate bust was in progress and the high leverage funds were in trouble, value dropping from indices of 100 to 90. American sub-prime was global and blue chip financial companies admit big losses: Nomura, Royal Bank of Scottland, Lehman Bros, Credit Suise, Deutschebank, France BNP Paribas, IKB, and Caliber and Bank of England had to bail out North Rock..
2. In addition to the Consolidated Debt Obligations there existed a Structured Investment Vehicles (SIVs) financial structure, run within, but separated from the major money center banks. SIVs aer typically Cayman Island limited partnerships that collect bundles of bank loans or other securities. They are convenient for moving assets off bank's balance sheet and apparently have substantial holdings of commercial and residential mortgages and mortgage back securities. Banks chose to finance SIVs with inexpensive ABCP short-term maturities (money market fund) rather than maturity debt. Total asset backed commercial paper outstandings was about $1.2 trillion.
3. November 2007, SIV approached a state of chaos. Outstanding interbank commercial paper balances had dropped below $900 billion, with most of the fallout due to refusal to refinance SIVs, leaving banks potentially on the hook to supply more than $300 billion of risky and unexpected financing. At Citi, the lending to its own SIV was more than three times higher than its net new global consumer lending. Citi and other American banks with cooperation of the Treasury are working to organize a super-SIV to take $75 to $100 billion in SIV loans off their books.
4. Citigroup revealed it managed $400 billion in off-balance entries called long term SIVs loans. Almost all the SIV loads were financed by short-term paper. When the London money markets realized what the banks were doing, commercial paper sales came to a grinding halt. Bank shareholders discovered that SIVs weren't really off-balance sheet, since the banks had usually promised to take them back if they couldn't raise short-term financing.
5. October 2007, big banks and investment banks reported $20 billion in losses, $11 billion of it at Citi and Merrill, primarily in subprime-based CDOs with revised to $45 billion in losses. Citi received a $7.5 capital infusion from Abu Dhabi in the form of a convertible bond, a 11 percent interest coupon.
6. Derivatives are futures, forwards, options, and swaps. Derivatives reduce risk for one party. Derivatives hedge against the future, invest small now for the option to buying later. Derivatives are contracts based on or derived from some underlying asset, reference rate (interest rates or exchange rates), or indexes
7. Derivatives can be based on assets such as commodities, bonds, interest rates, exchange rates, stock market index, and consumer price index. Derivatives allow investors to make massive money by leveraging on small movements in price. In derivatives someone losses money while someone gains money, a supposed zero sum game.
8. One very popular derivate was the Credit Default Swap (CDS). If I am a fund manager with a risky subprime mortgage portfolio that I'd like to get off my books. I could try to sell it, but it would be easier to enter into a credit default swap (CDS) on the ABX. In Oct 2007, a midcredit "A" swap was trading at 60, down from a par of 100, down 40 cents on the dollar. What does it cost? I pay the counterparty $4 million to take the risk for the $10 million CDO portfolio. The result is I've crystallized my worries into a single payment, taken a $4 million hit, and no longer have subprime exposure.
9. Hedge fund raise cash by selling equity in the form of partnership shares. For every $1 invested from its partnership equity, HF invest $4 borrowed from its banks, equity investments are leverage 5:1. HF buys $100 million in first-loss bonds, underpinning a $2 billion CDO, 20:1 leveraging. The $100 million is financed with $20 million in equity and $80 billion from the bank. HF partners are leveraged 5X20=100:1. A loss of 1 percent on the CDO wipes out all HF partner equity. A potential loss of $20 million per percent drop.
9. Portfolios covered by default credit default swaps contracts ballooned from about $1 trillion in 2001 to about $45 million in mid-2007. CDS are private deals arranged for a fee by broker-dealer banks.
10. Banks are on the hook to make good losses on some $18.2 trillion of portfolios, while credit hedge funds have guaranteed some $14.5 trillion. Most funds can not survive even a 1 percent to 2 percent payoff demand on their default swap guarantees. Banks and investment banks carry large swathes of risky loans and investments because they have default insurance. Poor design, these companies do not carry bad debt reserves against the possibility of failure.
11. Additionally, at risk was the larger $43 trillion CDS insurance market for which Bear Stearn insured $13.4 trillion and the $150 trillion bond market and the $500 trillion derivatives market.
12. A hard landing predicted in 2009. $350 billion in subprime and other risky residential mortgages will be reset, many at punishing rates. Defaults will rise sharply. Two million people could loss their homes. House prices will continue to fall, 10 - 30 percent. Many consumers will be stuck in upside-down mortgages. The $9 trillions in home equity withdrawn is no long sustainable. Dollar decline will make commodity prices higher. US oil exports will rise and pass through dollar decline. A decline in credit availability will feed into the downward momentum.
13. Hardlanding started in 2008 and economic losses are expected to continue with more defaults and writedowns. The writedowns are a measure of the yield for holding such risky instruments. The billions in writedowns will negatively impact the economy. The Super-SIV structure floated by Citgroup and the Treasury looks like a blatant attempt to defer writedowns. Widespread collateral damage in hedge funds will trigger forced selling from margin accounts. Rolling bond downgrades will require divestures by pension funds and insurance companies that find themselves in violation of rules holding investment grade paper.
14. With notional derivative values in the $500 trillion range, rapid swings of $5 trillion to $10 trillion in derivative values are altogether plausible and could inflict enormous damage.
Insightful and balanced August 27, 2008
This is a well-written and well-research account of the present financial crisis and it's fun to read as well. The analysis is first class and provides the reader with new insights.
Good Insight Into the Inner Workings of the Current Crisis August 26, 2008
This book was printed with the intention of providing timely information to the general public. If you take that into consideration this book is indispensable. It provides a good background to the current crisis and the author presents information on some of the inner workings of our financial system that I was totally in the dark about. Overall, a quick and great read, order it sooner than later as the information will not do you any good in 6 months.
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