October 6, 2022
Notable
- Rumor has it the Polish are saving garbage to have fuel for the winter.
- A huge natural gas field in the Netherlands is in the process of being shut down.
- EU ambassadors agree to put a price cap on Russian oil.
- The USA may ease sanctions on Venezuela.
- CDS’s, finally!
The Polish are saving garbage? So they’ll have something to burn during the winter? That’s pretty terrible. Kind of explains why they really wanted that Baltic Pipeline. They’d probably love it if the Netherlands would stop shutting down its huge natural gas field but I guess when your citizens complain about all the new earthquakes since you started drilling in it, you gotta do what you gotta do. Of course, now they’re worried about freezing to death in the next three months, so it’ll be interesting to see if someone suddenly publishes a report that says the destroyed homes are imaginary and the Netherlands should start pumping natural gas like crazy.
The EU ambassadors have finally agreed to put a price cap on Russian oil, as I mentioned before. This will absolutely be wildly successful because the vote has to be unanimous and Turkey has already said no and even if Turkey changes its mind, Russia will just sell to China and India. Clearly, a pathway to oily freedom in Europe.
The USA is easing sanctions on Venezuela that were imposed when we decided that President Maduro was a cheating jerk. Apparently, he’s now magically a great guy. By the way, with the sanctions gone Venezuela can once again sell us oil. How fortunate for us!
And now, drum roll please…CDS’s!
This came up because CDS’s on the bank Credit Suisse are increasing in value…but so is the stock of the bank itself. This shouldn’t happen because the CDS is a measure of risk…that means as the CDS goes up, the stock should go down because investing in the bank is becoming more risky. This is all really confusing so you should just read below and discover ultimate bliss.
In 2007–2019, we had the subprime mortgage crisis. This happened because of CDS’s, CDO’s, and strippers.
Warning: profanity below.
What is a CDS? It’s a credit default swap. What the heck does that mean? Well, if you watched The Big Short like I suggested yesterday you’re now an expert. However, just in case you didn’t, here’s a great description of a CDS. Think of it as insurance, and you’re basically there.
And now here’s a great description of a CDO (collateralized debt obligation — it’s easier just to say CDO. Fewer syllables.)
Warning: profanity and strippers below.
Here’s a great illustration of what happens when greedy people sell worthless subprime mortgages to strippers.
To summarize (in a not so short way):
- Greedy jerks sold subprime mortgage loans to strippers who shouldn’t have qualified for them. Also, to other people.
- Greedy banks issued those loans carelessly because as long as house prices went up, they could pretend it all made sense.
- Greedy Wall Street people took those loans and packaged them together into bonds (remember those?). Because those bonds would include some bad and some good loans, everybody pretended the entire bond was good, even though a lot of it was trash. Then people bought the bonds as if they were super reliable when actually they were like what the Polish are saving.
- Some really smart guys realized that Wall Street and the banks were greedy jerks blinded by greed because they were greedy, and the smart guys offered to pay for an insurance policy (CDS) on the bonds (CDO). That meant that as long as the bonds stayed solvent, the smart guys just kept paying and paying their insurance premiums. Sort of like how you pay your homeowner’s insurance premium every year. Which is a waste of money because your home is still there, right?
- Banks were happy to take the smart guys’ money because hey, free money!
- But then the housing market crashed and CDO’s also crashed, and then the banks had to pay out the insurance policies (CDS’s). This is the same as when you finally get a big payday because your house burned down and the insurance company owes you. Score! Your house burned down! In the case of the CDS’s, the smart guys bought insurance policies on things they DIDN’T own (the CDO’s) while you bought on something you DID own (your house). Which is weird but the banks didn’t care because it still brought in money…until they had to pay the piper. (smart guys)
You might be tempted to hate the smart guys for betting against homeowners across the nation, but honestly you should really hate Wall Street and the banks for being so greedy that this crazy situation was even possible.
Lastly. The subprime mortgage crisis happened when rates went above 8%. We’re close to 7% right now. So all this CDS stuff I talked about? Very relevant. It’s not just because I wanted to sound really smart. Um.
Actually, lastly for real now. Lastly, do you want the sundae?
