Is a new crisis looming ?

[CultureCitizen]

What I can see is the following scenario :

Oil prices are going down. Some oil produces will be hedged. So the oil crisis will cascade into hedge contracts. Then banks loose solvency and will either require a second bail out or may be able to integrate other funds ( e.g. pension funds and other mid term investments ) into their capital structure.

After that I'm not sure what will happen but the mid term prediction is :

- Crash of the oil companies -> layoffs
- Oil notes crash
- Bank crash
- Either a second rescue or liabilities integrated into the banking capital structure.

Now , the question is not if I'm paranoid or not ( because I am ) the question is if I'm paranoid enough.
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Edit : References for your viewing pleasure
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Oil price slump sorts the hedged from the unhedged Reuters
Mexico s tremendous hedge Oil is falling but this big producer isn t worried

"Much of the recent energy boom has been financed with junk debt and a good portion of that junk debt ended up in collateralized loan obligations. CLOs are also big users of credit default swaps, which was an important target of the Dodd Frank push-out. In addition, over the past 6 months banks were unable to unload a portion of the junk debt originated and so it remained on bank balance sheets. That debt is now substantially underwater. To hedge, banks are using CDS. Hedge funds are actively shorting these junk debt financed energy companies using CDS (it’s unclear where the long side of those CDS have ended up – probably bank balance sheets and CLOs)."

Did Wall Street Need to Win the Derivatives Budget Fight to Hedge Against Oil Plunge naked capitalism

 

[Judicial review]

Focus on the markets reaction to news on the debt and our credit outlook,and congresses productivity. This will send the market crashing then it will be a chain reaction and an instant recession.

 

[SAYIT]

Yeah! We better raise oil prices to protect the American economy!
Sheesh.
Neither of you have considered the positive effects of $40/bbl oil, including but not limited to:
An extra $125-$200 BILLION in American consumer's pockets per year, the diminishment of OPEC's economic and political power, and a serious crimp in Russia's and Iran's ability to pay for mischief beyond their borders. I see why you are concerned.
Woo.

 

[Judicial review]

Yeah! We better raise oil prices to protect the American economy!
Sheesh.
Neither of you have considered the positive effects of $40/bbl oil, including but not limited to:
An extra $125-$200 BILLION in American consumer's pockets, the diminishment of OPEC's economic and political power, and a serious crimp in Russia's and Iran's ability to pay for misery beyond their borders. Woo. I see why you are concerned.
Woo.

Last i checked the majority of tax payers don't get to deduct their gas expenses on their taxes. Bottom line gas prices has nothing to do with tax revenue from tax payers one way or the other, however, what we do know that that the national debt keeps increasing and that's a major player in how an economy is really doing. Not to mention being underemployed, which mean less tax revenue to pay the national debt down, and most of the countries perception being negative. 1 big load of bad news will set off a fire storm. of selling in the market. It's a matter of when not if. get people back to full time and working and pay down the debt and then we can talk about a recovery.

 

[SAYIT]

Yeah! We better raise oil prices to protect the American economy!
Sheesh.
Neither of you have considered the positive effects of $40/bbl oil, including but not limited to:
An extra $125-$200 BILLION in American consumer's pockets, the diminishment of OPEC's economic and political power, and a serious crimp in Russia's and Iran's ability to pay for misery beyond their borders. Woo. I see why you are concerned.
Woo.

Last i checked the majority of tax payers don't get to deduct their gas expenses on their taxes. Bottom line gas prices has nothing to do with tax revenue from tax payers one way or the other, however, what we do know that that the national debt keeps increasing and that's a major player in how an economy is really doing. Not to mention being underemployed, which mean less tax revenue to pay the national debt down, and most of the countries perception being negative. 1 big load of bad news will set off a fire storm. of selling in the market. It's a matter of when not if.

Who said ANYTHING about taxes? That $125-$200 BILLION is savings at the gas pump and it doesn't even include savings from heating oil sales or from lower merchandise production and transport costs. Trust me, Chicken Little, the sky is not falling.

 

[Judicial review]

Yeah! We better raise oil prices to protect the American economy!
Sheesh.
Neither of you have considered the positive effects of $40/bbl oil, including but not limited to:
An extra $125-$200 BILLION in American consumer's pockets, the diminishment of OPEC's economic and political power, and a serious crimp in Russia's and Iran's ability to pay for misery beyond their borders. Woo. I see why you are concerned.
Woo.

Last i checked the majority of tax payers don't get to deduct their gas expenses on their taxes. Bottom line gas prices has nothing to do with tax revenue from tax payers one way or the other, however, what we do know that that the national debt keeps increasing and that's a major player in how an economy is really doing. Not to mention being underemployed, which mean less tax revenue to pay the national debt down, and most of the countries perception being negative. 1 big load of bad news will set off a fire storm. of selling in the market. It's a matter of when not if.

Who said ANYTHING about taxes? That $125-$200 BILLION is savings at the gas pump and it doesn't even include savings from heating oil sales or from lower merchandise production and transport costs. Trust me, Chicken Little, the sky is not falling.

Oh, yes it is falling. Food prices and cost of living is going nowhere but up as you know since you must do your own shopping. Why do you think that is? You know the SSI cost of living adjustment went up, so people on SSI got raises not decreases or stayed stagnent? That means it's getting more expensive to survive out there.

 

[Vigilante]

You better watch Russia, as they get squeezed JUST SO MUCH, before they will have to throw shit at someone!

 

[SAYIT]

Yeah! We better raise oil prices to protect the American economy!
Sheesh.
Neither of you have considered the positive effects of $40/bbl oil, including but not limited to:
An extra $125-$200 BILLION in American consumer's pockets, the diminishment of OPEC's economic and political power, and a serious crimp in Russia's and Iran's ability to pay for misery beyond their borders. Woo. I see why you are concerned.
Woo.

Last i checked the majority of tax payers don't get to deduct their gas expenses on their taxes. Bottom line gas prices has nothing to do with tax revenue from tax payers one way or the other, however, what we do know that that the national debt keeps increasing and that's a major player in how an economy is really doing. Not to mention being underemployed, which mean less tax revenue to pay the national debt down, and most of the countries perception being negative. 1 big load of bad news will set off a fire storm. of selling in the market. It's a matter of when not if.

Who said ANYTHING about taxes? That $125-$200 BILLION is savings at the gas pump and it doesn't even include savings from heating oil sales or from lower merchandise production and transport costs. Trust me, Chicken Little, the sky is not falling.

Oh, yes it is falling. Food prices and cost of living is going nowhere but up as you know since you must do your own shopping. Why do you think that is? You know the SSI cost of living adjustment went up, so people on SSI got raises not decreases or stayed stagnent? That means it's getting more expensive to survive out there.

Oh no! We have inflation! The sky is falling!
No, wait ... we have deflation! The sky is falling!
Oil prices are falling! Oh no!
Wait, oil prices are gonna rise! Oh no!
Dayam ... grow a pair, Princess.

 

[CultureCitizen]

Neither of you have considered the positive effects of $40/bbl oil, including but not limited to:
An extra $125-$200 BILLION in American consumer's pockets per year, the diminishment of OPEC's economic and political power, and a serious crimp in Russia's and Iran's ability to pay for mischief beyond their borders. I see why you are concerned.

Yes I did. It might go into spending, but it will probably go into paying credit cards.
Perhaps , what good will that gas price do if you were fired by the oil company in which you worked.

American Household Credit Card Debt Statistics 2014 - NerdWallet

Now, I might be wrong, but the amount of investment that is at stake orbits the 700 billion figure which is about 3 times higher than the figure you have juste mentioned.

As cash flow flattens major energy companies increase debt sell assets - Today in Energy - U.S. Energy Information Administration EIA

 

[Toddsterpatriot]

What I can see is the following scenario :

Oil prices are going down. Some oil produces will be hedged. So the oil crisis will cascade into hedge contracts. Then banks loose solvency and will either require a second bail out or may be able to integrate other funds ( e.g. pension funds and other mid term investments ) into their capital structure.

After that I'm not sure what will happen but the mid term prediction is :

- Crash of the oil companies -> layoffs
- Oil notes crash
- Bank crash
- Either a second rescue or liabilities integrated into the banking capital structure.

Now , the question is not if I'm paranoid or not ( because I am ) the question is if I'm paranoid enough.

So the oil crisis will cascade into hedge contracts.

Huh?

Then banks loose solvency

Banks have trillions in excess reserves. Why would they "loose solvency"?

Now , the question is not if I'm paranoid or not

The question is, do you have the slighest clue about how things work?
So far, not likely.

 

[SAYIT]

Neither of you have considered the positive effects of $40/bbl oil, including but not limited to:
An extra $125-$200 BILLION in American consumer's pockets per year, the diminishment of OPEC's economic and political power, and a serious crimp in Russia's and Iran's ability to pay for mischief beyond their borders. I see why you are concerned.

Yes I did. It might go into spending, but it will probably go into paying credit cards.
Perhaps , what good will that gas price do if you were fired by the oil company in which you worked.

American Household Credit Card Debt Statistics 2014 - NerdWallet

Yanno, when electric refrigerators were invented the iceman had to find new employment. Those who said "I told you so" when the stock market tanked in 2009 missed out on the greatest run-up in Wall Street history. The typical American household will have an extra $1500/yr thanks to $40/bbl oil and a lot of oil-producing nations will have to do with a serious revenue decline. Stop looking for negs and enjoy America's good fortune.

 

[CultureCitizen]

Banks have trillions in excess reserves. Why would they "loose solvency"?

Oh , then they didn't need to be bailed out in 2008? !wow! Please enlighten me and share your wisdom with me.

 

[Toddsterpatriot]

Banks have trillions in excess reserves. Why would they "loose solvency"?

Oh , then they didn't need to be bailed out in 2008? !wow! Please enlighten me and share your wisdom with me.

We're not talking about 2008, we're talking about your rambling nonsense, today.

 

[SAYIT]

Banks have trillions in excess reserves. Why would they "loose solvency"?

Oh , then they didn't need to be bailed out in 2008? !wow! Please enlighten me and share your wisdom with me.

Apples and oranges but I tell you what. Since you believe the sky is falling in America, why not pack up and get the fuck out. Trust me ... one whiny, sniveling moron won't be missed,

 

[CultureCitizen]

We're not talking about 2008, we're talking about your rambling nonsense, today.

Why , because they will have to pay billions to companies that hedged their oil prices.

Oil price slump sorts the hedged from the unhedged Reuters
Mexico s tremendous hedge Oil is falling but this big producer isn t worried

"Much of the recent energy boom has been financed with junk debt and a good portion of that junk debt ended up in collateralized loan obligations. CLOs are also big users of credit default swaps, which was an important target of the Dodd Frank push-out. In addition, over the past 6 months banks were unable to unload a portion of the junk debt originated and so it remained on bank balance sheets. That debt is now substantially underwater. To hedge, banks are using CDS. Hedge funds are actively shorting these junk debt financed energy companies using CDS (it’s unclear where the long side of those CDS have ended up – probably bank balance sheets and CLOs)."

Did Wall Street Need to Win the Derivatives Budget Fight to Hedge Against Oil Plunge naked capitalism

Now , you might have other sources. If so, I am open to discuss your viewpoint backed by the aforementioned sources. I will not however egage in a discussion supported by no references.

 

[Toddsterpatriot]

We're not talking about 2008, we're talking about your rambling nonsense, today.

Why , because they will have to pay billions to companies that hedged their oil prices.

Oil price slump sorts the hedged from the unhedged Reuters
Mexico s tremendous hedge Oil is falling but this big producer isn t worried

"Much of the recent energy boom has been financed with junk debt and a good portion of that junk debt ended up in collateralized loan obligations. CLOs are also big users of credit default swaps, which was an important target of the Dodd Frank push-out. In addition, over the past 6 months banks were unable to unload a portion of the junk debt originated and so it remained on bank balance sheets. That debt is now substantially underwater. To hedge, banks are using CDS. Hedge funds are actively shorting these junk debt financed energy companies using CDS (it’s unclear where the long side of those CDS have ended up – probably bank balance sheets and CLOs)."

Did Wall Street Need to Win the Derivatives Budget Fight to Hedge Against Oil Plunge naked capitalism

Why , because they will have to pay billions to companies that hedged their oil prices.

Why do you feel that?

 

[CultureCitizen]

Apples and oranges but I tell you what. Since you believe the sky is falling in America, why not pack up and get the fuck out. Trust me ... one whiny, sniveling moron won't be missed,

I did not say the sky was falling. I said a crisis was looming. Very different concepts, like apples and oranges.
I try to post threads supported by references, If you have other sources , I'll be happy to engage in constructive discussion.

 

[Toddsterpatriot]

We're not talking about 2008, we're talking about your rambling nonsense, today.

Why , because they will have to pay billions to companies that hedged their oil prices.

Oil price slump sorts the hedged from the unhedged Reuters
Mexico s tremendous hedge Oil is falling but this big producer isn t worried

"Much of the recent energy boom has been financed with junk debt and a good portion of that junk debt ended up in collateralized loan obligations. CLOs are also big users of credit default swaps, which was an important target of the Dodd Frank push-out. In addition, over the past 6 months banks were unable to unload a portion of the junk debt originated and so it remained on bank balance sheets. That debt is now substantially underwater. To hedge, banks are using CDS. Hedge funds are actively shorting these junk debt financed energy companies using CDS (it’s unclear where the long side of those CDS have ended up – probably bank balance sheets and CLOs)."

Did Wall Street Need to Win the Derivatives Budget Fight to Hedge Against Oil Plunge naked capitalism

Now , you might have other sources. If so, I am open to discuss your viewpoint backed by the aforementioned sources. I will not however egage in a discussion supported by no references.

Now how do all these energy-related trouble spots relate to the Dodd Frank pushout rule? Even though there are presumably large hedging-related losses on energy prices themselves, a lot of that was likely done via exchange-traded futures and hence would not hit the banks. Moreover, there is a large cohort of industrial buyers of energy like airlines who routinely hedge their purchases who are the losers on some of these trades. That mean those costs don’t hit the financial system, and they represent an opportunity loss rather than an actual outlay. M oreover, some experts contend that any energy hedging by banks would have been exempted from the push out but one wonders about the status of customized OTC derivatives written for customers.

Your last link is not supporting your crisis view.
The first two aren't very helpful either.

 

[CultureCitizen]

We're not talking about 2008, we're talking about your rambling nonsense, today.

Why , because they will have to pay billions to companies that hedged their oil prices.

Oil price slump sorts the hedged from the unhedged Reuters
Mexico s tremendous hedge Oil is falling but this big producer isn t worried

"Much of the recent energy boom has been financed with junk debt and a good portion of that junk debt ended up in collateralized loan obligations. CLOs are also big users of credit default swaps, which was an important target of the Dodd Frank push-out. In addition, over the past 6 months banks were unable to unload a portion of the junk debt originated and so it remained on bank balance sheets. That debt is now substantially underwater. To hedge, banks are using CDS. Hedge funds are actively shorting these junk debt financed energy companies using CDS (it’s unclear where the long side of those CDS have ended up – probably bank balance sheets and CLOs)."

Did Wall Street Need to Win the Derivatives Budget Fight to Hedge Against Oil Plunge naked capitalism

Now , you might have other sources. If so, I am open to discuss your viewpoint backed by the aforementioned sources. I will not however egage in a discussion supported by no references.

Now how do all these energy-related trouble spots relate to the Dodd Frank pushout rule? Even though there are presumably large hedging-related losses on energy prices themselves, a lot of that was likely done via exchange-traded futures and hence would not hit the banks. Moreover, there is a large cohort of industrial buyers of energy like airlines who routinely hedge their purchases who are the losers on some of these trades. That mean those costs don’t hit the financial system, and they represent an opportunity loss rather than an actual outlay. M oreover, some experts contend that any energy hedging by banks would have been exempted from the push out but one wonders about the status of customized OTC derivatives written for customers.

Your last link is not supporting your crisis view.
The first two aren't very helpful either.

The first two are intended to give a dimension on the amount of hedging involved.
Just Mexico's exports would mean some financial institution will have to pay 12 billion USD .
Second, if this continues for a long time American oil companies will default on their payments creating a situation very similar to the 2008 crisis.

And quoting the final paragraph of the article :
"The fact that these issues loom large in understanding the potential economic costs to banks, and hence taxpayers, and the underlying information about exposures was so opaque as to keep it from being included in the debate is troubling in and of itself."

Hence , we do not know exactly to what degree the banks are exposed. The risk is there because shale oil companies will not get any proffit while the oil stays below the $80 mark.

 

[Toddsterpatriot]

We're not talking about 2008, we're talking about your rambling nonsense, today.

Why , because they will have to pay billions to companies that hedged their oil prices.

Oil price slump sorts the hedged from the unhedged Reuters
Mexico s tremendous hedge Oil is falling but this big producer isn t worried

"Much of the recent energy boom has been financed with junk debt and a good portion of that junk debt ended up in collateralized loan obligations. CLOs are also big users of credit default swaps, which was an important target of the Dodd Frank push-out. In addition, over the past 6 months banks were unable to unload a portion of the junk debt originated and so it remained on bank balance sheets. That debt is now substantially underwater. To hedge, banks are using CDS. Hedge funds are actively shorting these junk debt financed energy companies using CDS (it’s unclear where the long side of those CDS have ended up – probably bank balance sheets and CLOs)."

Did Wall Street Need to Win the Derivatives Budget Fight to Hedge Against Oil Plunge naked capitalism

Now , you might have other sources. If so, I am open to discuss your viewpoint backed by the aforementioned sources. I will not however egage in a discussion supported by no references.

Now how do all these energy-related trouble spots relate to the Dodd Frank pushout rule? Even though there are presumably large hedging-related losses on energy prices themselves, a lot of that was likely done via exchange-traded futures and hence would not hit the banks. Moreover, there is a large cohort of industrial buyers of energy like airlines who routinely hedge their purchases who are the losers on some of these trades. That mean those costs don’t hit the financial system, and they represent an opportunity loss rather than an actual outlay. M oreover, some experts contend that any energy hedging by banks would have been exempted from the push out but one wonders about the status of customized OTC derivatives written for customers.

Your last link is not supporting your crisis view.
The first two aren't very helpful either.

The first two are intended to give a dimension on the amount of hedging involved.
Just Mexico's exports would mean some financial institution will have to pay 12 billion USD .
Second, if this continues for a long time American oil companies will default on their payments creating a situation very similar to the 2008 crisis.

And quoting the final paragraph of the article :
"The fact that these issues loom large in understanding the potential economic costs to banks, and hence taxpayers, and the underlying information about exposures was so opaque as to keep it from being included in the debate is troubling in and of itself."

Hence , we do not know exactly to what degree the banks are exposed. The risk is there because shale oil companies will not get any proffit while the oil stays below the $80 mark.

Just Mexico's exports would mean some financial institution will have to pay 12 billion USD .

If they bought these options on the NYMEX, which bank do you feel has to pay?

Second, if this continues for a long time American oil companies will default on their payments creating a situation very similar to the 2008 crisis.

Yes, defaulting on loans,or bonds, is a better claim than your initial rambling confusion.
As far as similarity to 2008, trillions in mortgages is more serious than billions in oil loans.
Banks in 2008 with minimal reserves is very different than banks now with trillions in reserves.

and the underlying information about exposures was so opaque

Yes, if you're going to claim that a few billion in potential losses is going to cause banks with TRILLIONS IN EXCESS RESERVES to become insolvent, your lack of backup information makes your claim opaque.