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alstry (< 20)

The CRAZY world of Credit Default Swaps



September 02, 2009 – Comments (9)

CDS incentivizes lenders to overleverage a company and not care whether the loan can ever be paid back...the key is being able to make money on the SWAPs and make sure you are on the "right" side of the trade.

Here is an example of Beazer Homes paying up to twice as much interest to payoff a loan at a relatively small discount so they can book a short term profit on the transaction despite paying much higher interest over the long term..... interest is not expensed for homebuilders, but capitalized into inventory....why do you think inventory on the balance sheet is going up each quarter?....then only to get whacked by an "one time" inventory writedown time and time again?

Beazer Homes, which began restructuring its significant debt load in June, announced a second round Tuesday.

The Atlanta-based company, which recently bought back or agreed to buy back $139.3 million worth of notes due in 2011, 2013, 2015, and 2016 for $102.5 million, said it plans to issue new notes due in 2017.

While Beazer gained $34.5 million because it bought back the old notes at a discount, the company will pay a heavier price for the new debt and the time it bought the company. The old debt interest rate varied from 6.5% to 8.125% while the new debt is at 12%.

If you are a legitimate builder trying to compete with money losing swap supported Beazer, good luck trying to sell a home at a profit.  This is why so many money losing public companies can still be supported by Wall Street even though they have little prospect of making a profit as they dig a deeper and deeper debt hole and the premiums on SWAPs continue to rise.

Welcome to Zombulation Nation....where profits are for panzies and corporate tax receipts to government have evaporated.

9 Comments – Post Your Own

#1) On September 03, 2009 at 12:07 AM, alstry (< 20) wrote:

Without profits and no tax receipts....government will be forced to look for new sources of revenues.....401Ks and IRAs seem like a natural choice for Alstry.

Somebody has to support governments spending $6.5 trillion dollars per year....much of which goes to our publicly traded companies.

If we don't stop this madness soon, Alstry guarantees you that eventually government will be forced to take everything you have in order to maintain government's soverignty.

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#2) On September 03, 2009 at 12:37 AM, alstry (< 20) wrote:

This is what happens to a Zombulation Nation when regulare companies must compete with money losing swap supported zombies:

A new study finds that the recession has left many jobless workers struggling to cope with the psychological stress caused by becoming unemployed in a weak economy.

Researchers at the John J. Heldrich Center for Workforce Development at Rutgers University said the financial strain that comes with being out of work combined with the sometimes daunting task of seeking new employment in a difficult job market has left many Americans "traumatized."

"Psychologically, it's a world of hurt out there for the jobless," Cliff Zukin, a Rutgers professor and co-author of the study, said during a conference call with reporters.

Zukin said "significant numbers" of respondents have had trouble sleeping since losing their jobs, have strained relations with family members and increased alcohol and drug dependency. Many also say they now avoid social situations.

The report released Thursday is based on a survey of 1,200 Americans who have been unemployed and looking for a job for the past 12 months. Two-thirds of respondents reported being depressed. More than half said they have borrowed money from friends or relatives. One quarter said they have skipped mortgage or rent payments.

Meanwhile, just 40 percent received unemployment insurance, and 83 percent of those who got aid said they're concerned the benefits will run out before they find a job. Half said they didn't have health insurance.

The survey found 60 percent of the recently unemployed lost their jobs without warning, while just 15 percent got some type of severance and almost none were offered retraining. More than half lost their jobs for the first time, while 40 percent had held the same job for three or more years.


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#3) On September 03, 2009 at 4:59 AM, hhasia (64.38) wrote:

Fractional reserve banking was invented by Nimrod. Nimrod, as in Sumaria pre-dating China and Egypt.  Sumaria was the first to use gold as a means of exchange. Banking was born there. As the system grew, it was clear great things could be built, and with one language no barriers.  The "there is nothing we can't do" mentality emerged along with the massive building program.   Needless to say we stand in a time and age quite similar. 1 language...yes (the language of computers) fractional banking world wide ( gone amuck). Arrogance "we saved the world" that invites a literal asteroid hit from out of nowhere. 

Wake-up for eternity is shouting from the heavens.


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#4) On September 03, 2009 at 5:46 AM, Seano67 (24.38) wrote:

No need to be calling Alstry a nimrod, dude! ***shakes finger reproachingly at you

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#5) On September 03, 2009 at 7:45 AM, hhasia (64.38) wrote:

What? I call no names in this post.  Alstry points out the flaws in the system. I agree with what the flaws and data point too.

I simply point to the source of these flaws. The source of these flaws were not invented by modern economics but in fact the source, the birth place of banking, was Sumaria.  This was the only time in history when banking and a single language on a global scale were united until NOW. The outcome of round one was to confuse the languages. The outcome of round I hesitate to contemplate. As well, arrogance invites disaster. And the mentality of Nimrods day and now are no different. Pride comes before the fall.


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#6) On September 03, 2009 at 12:32 PM, jesusfreakinco (28.32) wrote:


Since you were commenting on CDS', do you have any comments on this article - China cancelling derivative contracts?



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#7) On September 03, 2009 at 12:35 PM, alstry (< 20) wrote:



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#8) On September 03, 2009 at 3:00 PM, dudemonkey (51.32) wrote:

JFC, interesting development, and defintely seems to support alstry's thesis.  Alstry, I've been reading your blogs for as long as I've been on CAPS and I think you're at least directionally correct about this scenario.  A restructuring of debt seems to be necessary.  Everything I'm seeing in my own research points to the idea that the American consumer is being choked by debt.

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#9) On September 03, 2009 at 3:40 PM, jesusfreakinco (28.32) wrote:


It looks like the game of high stakes chicken is coming to a head.  Gold and silver are the canaries in the coal mine, in spite of the stable USD price.  This is a new dislocation and a significant event.

Let's hope 9.09 isn't the date.  I need a few more months to gain from this rally and get my house in order.  I am taking a bit of a gamble.  We'll see if it is worth it or I get burned by a bank holiday or something like that.


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