Major insurance company AIG said yesterday they can no longer quantify what their credit default swaps are worth, this after their auditors concluded there was “material weakness” in the way AIG was doing their valuations.

Sounds like the early days of the Enron implosion, doesn’t it? Except that the numbers are much bigger. A CDS is a way of buying insurance on bonds without calling it insurance because, well, only insurance companies are allowed to sell insurance.

Consider GM. The market cap of GM is $15 billion or so. There are about $1 trillion in credit default swaps bet on the success or failure of GM. It is virtually impossible for this to be hedged because there is not $1 trillion in GM bonds available as collateral.

Soon, probably quite soon, there will be a major counterparty collapse and this will triggering a cascade of defaults. When AIG says they can no longer value their CDS, this in effect means the CDS are worthless.

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President Hugo Chavez on Sunday threatened to cut off oil sales to the United States if Exxon Mobil Corp. wins court judgments to seize billions of dollars in Venezuelan assets.

John Robb says “might be an interesting test of the fungibility of oil…” I’d say oil is quite fungible, which means any oil is about the same as any other oil. So if Chavez refuses to sell oil to the US, the US can buy it elsewhere, including buying the oil that Venezuela sold to someone else. Because Venezuela would have to sell that oil elsewhere, as oil is the primary driver of their economy. But could they sell it at the same price or would buyers demand a lower price knowing Venezuela was flooded with supply?

It appears that Venezuela accounts for about 15% of US imported crude oil and petroleum. So, which country would be hurt more by a shut down of sales?

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Instead of burning sugar cane scrap (the traditional method), the scrap will instead be used as fuel to create electricity in Australia.

Sure, it will still be burned and carbon will be emitted. But the burning will be much more efficient and less carbon will escape. Plus, petroleum-based products won’t be used, and just producing and trucking them in has a huge carbon footprint in and of itself.

Using locally produced fuelstock to create electricity looks to be a major coming trend.

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Mish’s Global Economic Trend Analysis has some of the best coverage anywhere on the unfolding subprime and credit crisis. Mish voted for Ron Paul in the primary, realizes Paul can’t win now, and has switched to Obama. The war is a primary reason why.

The public is sick of this war for economic reasons. Polls show the single most important thing we can do economically is leave Iraq. That’s all you need to know. There are plenty of reason to vote against Obama. I for one, will not like many of the programs he will support.

But there is one powerful reason to vote for him. That one reason is enough.

Obama is smart enough to understand you cannot bomb enemies into an attitude change and it is a waste of money to even try.

Let’s hope Obama genuinely believes this and will end the war. Is he anti-imperialist? Of course not. But pragmatic reasons for ending the war, expense and lack of public support, will suffice just fine too. The important thing is that it ends, quickly too.

That Obama can pick up votes from libertarians who voted for Ron Paul shows how his support is cutting across all the usual boundaries.

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“I’m gonna party like a rock star, hit a bunch of strip bars
Wake up naked in a hotel room
Throw my TV out the window, smoke a bunch of endo
Anything to get my mind off of you.
Find a telephone pole to wrap around my car,
and party like a rock star.

After all the nights we spent cuddling on the couch
and all the parties I passed up because you didn’t feel like going out
I guarantee you Steven Tyler didn’t put up with crap like this
But tonight I’m making up for what I missed
Oh yeah.”

Official website.

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Exxon has won a court decision which freezes $12bn in assets of the nationalized Venezuela Oil company in a dispute over Exxon’s investment of $750 million.

Bonds of the oil company dropped in response, and now only fetch 66.75 cents on the dollar, which, I think, makes them junk bonds.

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Just as real estate prices might start normalizing by 2010 or so, more downward pressure will hit the market, according USC researchers. By then, large numbers of baby boomers will start retiring, and will be selling their homes. Thus, in many states, more houses will be on the market than there are buyers for them.

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