Mar. 20th, 2008

peterbirks: (Default)
The modern world has moved on from the simple certainties of life — death and taxes. Another certainty can be added. That being, despite the fact that corporations never stop moaning about lawyers and claiming (in the US) that the Democratic Party is nothing but a lawyer-mafia front, but as soon as big money is at stake, the corporations will be the first to resort to the slimeballs to get out of paying up. Even if you lose, tie it up in the courts as long as possible.

So, let's step back a few months. Merrill Lynch has seven credit default swaps on its books, worth $3,1bn. It wants to get rid of them, so if signs a deal with XL Capital Assurance to pay it "insurance premiums" (for want of a better phrase) to hedge the liability of these CDS in case they go tits up. Merrill Lynch then writes on its books, quite legally, that these CDS are no longer its problem.

But, the CDS do look like they are going tits up. XL Capital Assurance looks at the technicalities of the deal, decides that Merrill Lynch had not been quite kosher when arranging it (a bit like a policyholder not declaring subsidence problems when taking out buildings insurance), and terminates the deals. It's now a matter for its auditors to decide how much of this $3.1bn it needs to "allow for".

So, where has this $3.1bn gone? You won't see it on the Merrill books, but you damn sure won't see all of it on the books of Security Capital Assurance (which owns XL Capital Assurance) either.

This is one of the true beauties of the legal process for companies, and it's one that they don't shout too loudly about. It's a neat way for real lost money to be ignored for years and years while the process goes through the courts. Two different companies can ascribe totally different values to something, perfectly legally.

This will be a neat way to get rid of at least some of the $300bn or so of stuff that has walked down the plughole. Make no mistake about it. It's real stuff that's vanished, but until you (or, rather, the courts) can decide who the stuff belonged to, you don't have to put it on the books. Both parties can carry on thinking that they are richer than they really are.


Knickers in a twist yesterday at the market rumours that murdered HBOS for a short time. Who made a killing here? FSA mutters about investigating market manipulation, etc.

But, more importantly, who cares? This is just traders trying to get one over on each other. This isn't real value being lost; it's just money being transferred to shrewd traders from bad ones -- economic Darwinism at work.


: Texas Hold'em NL $0.50/$1.00

Seat 1: Groby1969 ($17.50 in chips)
Seat 2: One Of These Is Me ($143.45 in chips)
Seat 4: FoxxNL ($21.31 in chips) DEALER
Seat 5: Gimmethreesome ($96.35 in chips)
Seat 6: PardonMonsiuer ($162.20 in chips)
Seat 7: c0LdAs1c3p0k4 ($33.00 in chips)
Seat 9: bigtiger08 ($89.60 in chips)
Seat 10: One of these is me ($99.10 in chips)

Gimmethreesome: Post SB $0.50
PardonMonsiuer: Post BB $1.00

*** HOLE CARDS ***

Dealt to One Of These Is Me [A◊ Q◊]
Dealt to One of these is me [5♠ 5♣]

c0LdAs1c3p0k4: Fold
bigtiger08: Fold
One of these is me (55): Raise $3.50
Groby1969: Fold
One Of These Is Me (AQs): Call $3.50
FoxxNL: Call $3.50
Gimmethreesome: Call $3.00
PardonMonsiuer: Call $2.50

*** FLOP *** [5◊ 2◊ K◊]

Gimmethreesome: Check
PardonMonsiuer: Check
One of these is me (55): Bet $8.00
One Of These Is Me (AQs): Call $8.00

FoxxNL: Fold
Gimmethreesome: Fold
PardonMonsiuer: Fold

*** TURN *** [6♣]

Note. Matt's initial comments below are my original post of this being 6d rather than 6c.

One of these is me (55): Bet $40.00
One Of These Is Me (AQs): Call $40.00

Where (if anywhere) have the players gone wrong?

Which one is me?

What's likely to happen next?

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