Saturday, November 1, 2008

Mike Gasior: Long on one, short on the other..hedge funds, credit default swaps, and a discussion about "Rubber Band & Chewing Gum Economics"

As I trolled the web looking for financial and economic tidbits, I came across a series of video clips by Mike Gasior, via American Financial Services. It is interesting to go back a couple years in time and learn a bit about hedge funds, credit default swaps, and so forth.

I don't know Mike Gasior, or how trustworthy his information is, but it is worth taking some time to listen to what he has to say. He certainly is passionate about his topics!

November 2005 Commentary: Futures and Forwards

What are futures and forward contracts? A forward is going long - agreeing for the price of something now, for the delivery of something later. The person who sold it to you, is going short Forward contracts sell over the counter. Futures are exchange traded forward contracts. Watch the video for further clarification...

January 2006: Introduction to Mortgage Backed Securities

"They take the loans and mortgages and securitize them, the act of making these people's mortgages into a mortgage-backed security." Pass-through securities.. references the fact that ... long ago, the mortgage is sold to a pool. The bank services the mortgage... they take the home owner's loan and pass it through.. ultimately the payment lands in the hands of the owner of the mortgage-backed security."

Here is Mike Gasior's video clip about credit default swaps, May 2006:

I'm still a bit confused about this... paying for protection, paying others to take a risk...

Gasior's December 2006 discussion about hedge funds sheds some light on this topic:

Introduction to Hedge Funds

"The name is a misnomer...Hedge funds typically use derivatives for speculation. And now, there is a million different strategies pursued by hedge fund managers...And they are investing some of the wildest things on Earth."

Regarding hedge fund managers: "They will do anything, anything they have to do, to get it into that profitable situation...On an average day now, 30-35% of the trading on the NY Stock Exchange is hedge-fund related... It is an enormous segment of the business."

It is now November 2008. It is interesting to watch Mike Gasior's January 26 2008 Video -- and his "Rubber Band & Chewing Gum Economics", broadcast in May 2008. These video discussions weren't Gasior's usual upbeat illuminations about financial nuts and bolts. It was his commentary about the dynamics related to the financial crisis and the dynamics of the U.S. government's involvement in the process.

January 2008: "Fed Up"

From the January video: "Everything, everything that's being done by the Federal Reserve and the US Government about this crisis is wong, dead wrong. I have been around this stuff, I've been around the markets for the past 26-27 years...nothing makes sense anymore. We have a large problem. And everything being done to take care of the problem is wrong.... In the last 7-10 years, far too many people were lent money. Homeowners, corporations, people who never should have been lent the money. And now we will have to deal with that."

....Of all things, a tax rebate? I could just vomit at the thought of it..... This 150 billion tax rebate is gross stupidity..."

May 2008:

"In a capitalist economy, things go up and down... the cycles of life....All of this debt the US government going into to fund these bailouts, to fund these tax rebates. We run a very dangerous risk of there being a loss of confidence, a loss of faith with the US government, in investing in in the United States..."


Credit Default Swaps: The Next Crisis?
(Janet Morrissey, 3/17/08 Time Business and Tech)
As Bear Stearns careened toward its eventual fire sale to JPMorgan Chase last weekend, the cost of protecting its debt, through an instrument called a credit default swap, began to rise rapidly as investors feared that Bear would not be good for the money it promised on its bonds. Not familiar with credit default swaps? Well, we didn't know much about collateralized debt obligations (CDOs) either — until they began to undermine the economy."

1 comment:

Anonymous said...

I've gotten Mike's enewsletter for years and generally he is dead on -often long before the rest of us get up to speed. He's worth listening to.