Tuesday, July 21, 2009

Bill to Ban Naked CDS, CIT Terms and Market

by Bill McBride on 7/21/2009 04:05:00 PM

Update: "We'll probably ban naked credit default swaps."
House Agriculture Committee Chairman Collin Peterson, from Reuters: US House bill to require clearing of OTC derivatives

Orginal Post: I've heard that Agriculture chairman Collin Peterson and Financial Services Committee chairman Barney Frank (share oversight of of futures markets) are in agreement to have derivatives go through clearinghouses and to ban naked credit default swaps as part of the omnibus financial reform bill. More soon ...

Since several stories have the details wrong, here is the vig on the CIT loan:

"The Credit Facility has a two and a half year maturity and bears interest at LIBOR plus 10%, with a 3% LIBOR floor, payable monthly. It provides for (i) a commitment fee of 5% of the total advances made thereunder, payable upon the funding of each advance, (ii) an unused line fee with respect to undrawn commitments at the rate of 1% per annum and (iii) a 2% exit fee on amounts prepaid or repaid and the unused portion of any commitment."
That is a minimum 13% after paying back 5% immediately as a commitment fee. Tony Soprano would be proud.

Stock Market Crashes Click on graph for larger image in new window.

This graph is from Doug Short of dshort.com (financial planner): "Four Bad Bears".

Note that the Great Depression crash is based on the DOW; the three others are for the S&P 500.