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alstry (35.03)

SWAPS are financial crack

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August 23, 2009 – Comments (9)

Specialty drug maker Warner Chilcott Ltd. is expected to announce as early as Monday the acquisition of Procter & Gamble Co.'s prescription-drug business for more than $3 billion, say people familiar with the matter, a sign that the market for loans on more highly levered deals may be loosening.

Six banks, led by J.P. Morgan Chase & Co. and Bank of America Corp. and including Credit Suisse Group AG, Citigroup Inc., Barclays PLC and Morgan Stanley, are expected to put up as much as $4 billion in financing for the transaction. Roughly $3 billion will go toward the acquisition, with the remainder refinancing $1 billion in existing Warner Chilcott debt.A leveraged loan is typically defined as a loan made to a borrower with a credit rating below investment-grade or that already carries a good amount of debt.

The deal is one of the larger transactions in a weak summer market for acquisitions. But perhaps its biggest impact will be on the dormant markets for deal financing, which has been largely shut since the mid-September 2008 collapse of Lehman Brothers Holdings Inc. Financing for deals have lately been mostly limited to big companies with strong credit ratings. None of the banks wanted to underwrite this deal alone, but "no bank wanted to miss out," said one person familiar with the matter.

The banks are in part attracted to the transaction because they can demand higher underwriting fees than during the last big deal-making cycle in the middle of the decade, said one person familiar with the deal.

Warner Chilcott is able to absorb those fees because interest rates remain historically low, which keeps the company's overall borrowing costs down despite the banks' additional charges.

http://online.wsj.com/article/SB125105652473052009.html#articleTabs%3Darticle

So here we go again...lending billions to a below investment grade company.  It doesn't really matter if the company can ever pay back the debt.....the fees will be a good start.  Then they can slice it up and sell it to our pensions making even more money. 

But the real fun starts when the banks start selling the SWAPS.  The worse the financials, the higher the SWAP premiums.....and my how the premiums can roll in.Since there is no limit to the amount of insurance the banks can sell on the debt, the premiums can actually exceed the amount of debt.....so long as the debt doesn't default, the SWAP never has to pay off.

OR IF THE BANKS WANTS TO TAKE THE OTHER SIDE OF THE TRADE, THEY CAN FORCE THE COMPANY OUT OF BUSINESS BY CALLING THE LOAN ON THE INEVITABLE COVENANT VIOLATION.

THE BANKS GET TO PICK AND CHOOSE WHETHER THE COMPANY LIVES OR DIES AND GET PAID BOTH WAYS.

As the loan becomes more distressed, the higher the SWAP premium with cash rolling in so long as the loan doesn't default.  Often times it is our pension funds who are the buyers of the SWAPS.....or in some cases, municipalities are sold the intruments costing taxpayers billions.

Often, just before the loan is about to default, and billions of premiums have been generated.....out of the blue someone comes in to refinance the debt and allow the distressed business to keep on operating.  In other words, the worse management runs the business, the more money the swap writers make.

If the business has competitors, they are screwed because they have to try to operate at a profit.  In the end, the money losing SWAP business has an unfair competitive advantage because they can sell at any price and know the rich uncle will come in at the end to extend and pretend they are trying to make money.

The public homebuilders are collectively the best example of an industry that has seen hundreds of private builders go out of business, hundreds of thousands of jobs cut, and millions of homes crash in value due to the money losing overbuilding practice of the SWAP protected public builders.  The public homebuilders have lost tens of billions over the past three years but managed to not get called on the covenant violations.

It appears the banks have learned nothing from the trillions of taxpayer dollars they just received as a result of a massive number of loans defaulting.  Or the millions of Americans that have lost their jobs while our pension funds are evaporating, our tax receipts are contracting, and real estate values are crashing, while citizens and private businesses are going bankrupt at rapidly increasing rates.....simply so bankers can make trillions destroying our nation's economy.

Welcome to the Ponzi world of credit default swaps......pretty soon they will destroy the economic world as we know it unless we restructure debt and bring back a fair playing field.

Remember, if government is out of money....it will need everything you have to maintain soverignty.

9 Comments – Post Your Own

#1) On August 23, 2009 at 9:57 PM, alstry (35.03) wrote:

POLITICIANS ARE NOT LEARNING EITHER....

When Miami-Dade Mayor Carlos Alvarez delivered his State of the County speech in February, he said the most serious economic crisis since the Great Depression required government to ``do more with less.'' Budgets must be trimmed, jobs cut and waste eliminated.

``Make no mistake, we are in for some tough times,'' Alvarez warned. ``We are all in this together.''

Yet, three-and-a-half weeks after the speech, Alvarez gave an 11 percent pay raise to his chief of staff, Denis Morales.

The hike increased Morales' salary from $185,484 to $206,783 annually; he also gets $18,720 in cash and executive benefits. The raise was backdated to Sept. 21, 2008, so Morales received the pay increase over the previous five months, too.

The result: his March 8 bi-weekly paycheck was for $17,281.

On the same day, the mayor gave a 15 percent raise to Robert Villar, his director of policy and legislative affairs, boosting his pay from $95,779 to $109,879. That increase, too, was backdated to September. The policy advisor's March 8 county paycheck: $9,747.

At a time when he is publicly preaching austerity and shared sacrifice, Alvarez has quietly used taxpayer funds to shower his closest advisors -- from his spokeswoman to his scheduler to his senior advisor -- with significant pay increases, county payroll data and personnel documents reviewed by The Miami Herald show.

In all, 12 employees of the mayor have received raises of more than 10 percent since last year, the county's payroll database shows.

http://www.miamiherald.com/460/story/1198476.html

Just wait to see how angry the citizens of Miami get when they read this tommorrow while their property taxes were just increased.

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#2) On August 23, 2009 at 10:00 PM, alstry (35.03) wrote:

From ZeroHedge:

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#3) On August 23, 2009 at 10:03 PM, selfdestruct2 (50.61) wrote:

Do you think maybe the problem might be that not enough people are even aware of what a credit default swap is and its proven destructive force to our economy. I know I find it a bit confusing.

And why has no one been able to stop them through legislation. I think I may already have an idea why.  $$$$$$$$$$$$$$$$$$$ 

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#4) On August 23, 2009 at 10:07 PM, alstry (35.03) wrote:

This issue will eventually come to the surface.....

Either through the destruction of our entire economy or through some scandel......

When it does, we as a nation will learn that we are all effectively Madoff's clients.......basically our entire economy became a Ponzi scheme, and while it was occuring, we were handing our entire nation's net worth to bail out the Madoff like bankers so more damage could be inflicted upon the citizens.

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#5) On August 23, 2009 at 10:59 PM, alstry (35.03) wrote:

Throughout this decade, the Wall Street banksters plundered more than $100 BILLION in fantasy “profits” from their global Ponzi-scheme – and then needed roughly twenty times that amount in government hand-outs to avoid a sector-wide collapse last fall. Then, as soon as that crisis (temporarily) passed, they began to immediately loot the taxpayer hand-outs, as well. At the same time, all of these fraud-factories have slashed their dividends to shareholders, adding to the massive losses of these investors from the melt-down in share prices.

One might think that these shareholders might be getting tired of being financially “raped” by these banksters. However, as I pointed out in “Explaining U.S. Market Psychology”, more than 50% of the shares of these fraud-factories are held by the wealthiest 1% of the U.S. population. These ultra-wealthy aristocrats are more out of touch with the real world than was Marie Antoinette – when she offered the starving French masses “cake”, just days before they chopped off her head.

While this is unlikely to occur in the United States (given the acute shortage of guillotines), it might be time for the Wall Street banksters to take heed of history.

They may own the politicians. They may own the regulators. And they may simply own most of America. However, they don't own the billion or so guns currently in the possession of an increasingly angry American population.

Massive economic suffering and a billion guns is a very dangerous mix!

http://seekingalpha.com/article/157732-colonial-bank-failure-highlights-the-problem

It seems more and more are connecting the dots........this cite and video was obtained from K. Denninger's blog.

How angry do you think we need to get before we start acting on that anger?  9.09

I know some ex Marines....let me tell you, they know how to use guns.....stay cool Fools.

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#6) On August 24, 2009 at 12:06 AM, alstry (35.03) wrote:

NOW POLICE ARE SELLING GUNS TO RAISE MONEY?

Reporting from Colorado Springs, Colo. - This conservative city is taking an unusual, some might say extreme, step to try to stem its fiscal woes: It's entering the gun business.

The Colorado Springs City Council is expected in coming weeks to approve the final details of a program that would allow the Police Department to sell confiscated firearms to federally licensed gun dealers. Police have already stopped melting down the hundreds of guns they collect from crime scenes, drug houses or civilians who don't need them anymore.

The sales are projected to bring in about $10,000 a year, only a slight dent for a city that faced a deficit of one-quarter its $200-million annual budget this year. But it still helps, said Vice Mayor Larry Small, who proposed the gun sales.

"Every penny counts," Small said.

Colorado Springs is home to the Army's Ft. Carson, the Air Force Academy and NORAD. Men and women in uniform mingle easily with civilians in the shopping centers and strollable downtown that sits in the shadow of 14,000-foot Pikes Peak. People here are comfortable around firearms.

But even in Colorado Springs, the idea of law enforcement as gun sellers has raised some eyebrows.

The Police Department objected, only to be overruled by the council, which in February voted 8 to 1 to direct the department to draw up the program it will consider this month. Lt. David Whitlock said the Police Department has been moving cautiously to address the many concerns the sales raise.

"There's all kinds of ancillary issues, one of which is the politics of being in the gun-selling business," Whitlock said. "The other is not introducing another weapon into the community."

Jan Martin, the lone council member who voted against the sales, said the small amount of money they could bring in is outweighed by the risk that a gun sold by the city could one day be used for a crime.

"I remember what some of those weapons were used for," Martin said. "Just the idea of putting those weapons back on the street is unconscionable."

http://www.latimes.com/news/nationworld/nation/la-na-gun-sales23-2009aug23,0,4831409.story

Pissed off marines.....pissed off cops.....and lots of extra guns out on the streets.....as poverty is exploding around America.

Statewide participation in the food stamp program increased by 25 percent — with more than 23,000 additional residents enrolled — over the nine-month period ending in June, according to new figures that advocates say show just how much Hawai'i families are struggling.

http://fwix.com/share/29_317c4fec54#

Yes....more and more families are struggling as Benny tells us the recession is ending?  As more go broke, more and more will lose their homes driving down the values even further.....

The firm said lenders initiated 2,822 foreclosure proceedings against homeowners in Massachusetts last month, more than five times the 502 that were filed in July 2008 and about the same as in June 2009. That indicates many borrowers are still having trouble making their mortgage payments.

“We’re seeing a lot of people with income problems’’ because of the recession, said Timothy M. Warren Jr., chief executive of Warren Group. “They’re losing their jobs, being put on furlough, or having their hours cut.’’

http://www.boston.com/realestate/news/articles/2009/08/20/foreclosure_proceedings_skyrocket_in_mass/?s_campaign=8315

Just the facts Fools.....and the facts are getting a lot worse....unless we restructure debt and stop the Zombulator.

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#7) On August 24, 2009 at 12:22 AM, alstry (35.03) wrote:

Aren't banker supposed to be making it easier on the consumer after the taxpayer just bailed them out?

Credit card companies slashed limits for an estimated 58 million card holders in the 12 months ended in April, even though a high percentage had good credit scores when their limits were cut.

http://www.nytimes.com/aponline/2009/08/20/business/AP-Credit-Cards-Credit-Limit-Cuts.html?_r=1

Heck, when the banks had a bad credit rating we slashed their interest rate and gave them piles of free money....shouldn't they do something similar to us?

Instead of getting mad at Alstry....you may want to direct your anger to the Zombulator....it will come after you eventually.

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#8) On August 24, 2009 at 12:34 AM, alstry (35.03) wrote:

Would you eliminate all of your citizens for $107 TRILLION?

AS Americans listened to people yammer on about "death panels" and other distortions of some of the health "reform" proposals circulating in Congress, larger and more important questions have gone unasked and unanswered.

First on the list should be: Are members of Congress out of touch with reality?

The nation can't pay for Social Security and the health entitlement programs it has now.

The Social Security and Medicare Trustees Reports for 2009, released in early May, laid out the situation plainly:

Social Security and Medicare have a combined unfunded liability of almost $107 trillion.

http://www.dailymail.com/Opinion/Editorials/200908200687

It is good to see Alstry ain't the only one thinking out there.....

 

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#9) On August 24, 2009 at 7:57 AM, alstry (35.03) wrote:

School Busses Shutting Down

HOUSTON – As a mother of two, Feleccia Moore-Davis is accustomed to the usual back-to-school swirl of new supplies, new clothes and new routines. But this year, that final flurry of summer is accompanied by an unusual worry.

Moore-Davis does not yet know how her children will get to school.

Last month, the financially-pressed Houston-area school district her two daughters attend decided to end bus service for students living within two miles of schools. Now Moore-Davis is contemplating the bustling intersections and streets without sidewalks the girls would have to navigate if they walked to school, and wondering whether her own work schedule can be reconfigured for drop-offs and pickups.

It is a dilemma facing thousands of parents across the country, as cash-strapped school districts from California to Florida have cut bus routes to chip away at spending.

http://news.yahoo.com/s/ap/20090824/ap_on_re_us/us_back_to_school_bus_cuts

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