Synopsis of some comments in todays Telegraph
The discovery of huge hidden losses at General Motors's finance arm have raised fresh fears of bankruptcy at the world's biggest carmaker, sending tremors through the credit derivatives markets. The struggling group asked for a filing delay after admitting to an extra $2bn (£1.1bn) in accounting errors at its finance arm GMAC, raising total losses last year to $10.6bn. The news triggered a sharp spike in the cost of default insurance on GMAC's bonds, rising 75 basis points overnight. Car-parts supplier Dana Corp defaulted last week on $2.5bn of debt, following Delphi and Tower Automotive last year. Concern that General Motors may now be sliding towards the brink - linked to an estimated $200bn in credit derivatives - has renewed fears that the over-heated credit swap market could seize up in a crisis.
Timothy Geithner, President of the NY Federal Reserve, warned that the $300,000bn derivatives market had raced ahead of the infrastructure needed to support it and he is demanding that the International Swaps and Derivatives Association (ISDA) clean up it act prior to any credit crunch. He said the most conspicuous problems were in the $12,400bn market for credit derivatives, which has doubled in size every year for the last decade. He said the risk was very heavily concentrated, with America's ten biggest banks holding $600bn in potential credit exposure (on $95,000bn of notional trades), equal to 175pc of their financial reserves.
Warren Buffett has been warning since 2003 that derivatives are a ticking "time bomb", although his new metaphor is New Orleans' burst levee. This month he was explained that it has cost Berkshire Hathaway $404m to extract itself from derivatives inherited through General Re, the reinsurance group. He said: "We are a canary in this business coal mine. Our experience should be particularly sobering because we were a better-than-average candidate to exit gracefully.General Re has had the good fortune to unwind its supposedly liquid positions in a benign market. It could be a different story for others in the future."
Wonder how Kurt Kekorian now views his $868m investment at $31 per share in GM last May. GM shares closed at $21.13 yesterday which means that Kekorians investment has declined by 32% and the value of his investment has been diluted by $276m in less than 10 months. Thats the equivalent of losing nearly $28m per month, every month, for the past 10 months !
And to think that you were really pissed about getting stopped out on your recent Dow short when the market broke through 11200 ! :cheesy:
