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Systemic Margin Call

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March 08, 2008 – Comments (6)

Story today, Banks face systemic margin call, $325 billion hit: JP Morgan.

To me, this story is about how other people's exuberant incompetence is playing out exactly in a way that I thought it might and that is a key reason as to why I went to cash and I remain in cash.

This story is about how Thornburg mortgage and Carlyle were unable to meet margin calls, yet who's on the hook for those margin calls when the capital runs out?  I may be pre-mature here, but apparently with Carlyle and their 32 to 1 leveraged loans means that their entire $620 or so million dollars of capital is gone and the fire sale on their over $20 billion of toxic mortgage paper is leaving the banks that financed that insane leverage on the hook for the short comings.

On a side note, perhaps the banks that financed that toxic paper are better off as maybe they sold it to the fools that rushed in last August when the first crunch came.  So this stuff comes back to them, but it comes back with that 3% capital infusion that Carlyle investors have now lost.  This is pure speculation on my part.

So, the news has been dominated by the bank's holdings and the write-offs due to it, but it has been an enormous concern to me about the level of margin that investors have been granted and what the heck some of these fools are up to and how it can bite the banks and their investment arms that aren't so independent any more.  Who is on the hook when these leveraged hedge funds come unwinding?

It just seems to me that you can be living your life, minding your own business doing things as you've always done and bang, these idiots have put your bank at risk for losses that exceed capital, and that puts your investments at risk.  These idiots screw up big enough and your investments are frozen.  It means you don't have access to sell that stock you were planning on selling in the summer and in a year or two or three, when the mess gets sorted and you get control of your investments back, well, hopefully you did very good homework on your investments and they weren't being run by the same kind of self-serving shills that created this mess in the first place...

I simply lack confidence that I can, to a reasonable level, determine what and where are the risks.

6 Comments – Post Your Own

#1) On March 08, 2008 at 2:49 PM, thepull (99.54) wrote:

I'm always amazed when the talking heads are on CNBC talking about the bottom or getting into bank stocks.

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#2) On March 08, 2008 at 3:33 PM, EverydayInvestor (< 20) wrote:

That's why some of us don't watch CNBC. Booya!

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#3) On March 08, 2008 at 4:48 PM, F4Phanatic (76.08) wrote:

Whenever I need a good laugh, I watch Cramer going insane!  BOOOYAAAH!

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#4) On March 08, 2008 at 4:52 PM, dwot (97.03) wrote:

thepull, yeah, me too.  I just don't see how this corrects without at least one big bank going under and taking considerable wealth of the clients with over $100k in deposits.

 

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#5) On March 08, 2008 at 8:24 PM, Imperial1964 (97.93) wrote:

S&P target 1100?

Or lower? 

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#6) On March 08, 2008 at 9:14 PM, dwot (97.03) wrote:

Lol Imperial, I was just looking at the S&P on Wikipedia.  Interesting in these last 5 minutes looking at the long term graph if you did away with Greenbubble I bet the S&P would be more than 600.  I just a back of the napkin calculation of how much stock price have increased because of yields going down and investors bidding up the P/E and I got 544.

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