Global markets in ‘black swan’ event. The Bloomberg Financial Conditions Index is now at nine standard deviations from the norm.
“It’s way off the scale, a one-in-billions chance,” said Marriott, a fellow of the Royal Statistical Society. “This is absolutely a black swan event.”
In statistical theory, about 68 percent of events are within one standard deviation above or below the average, 95 percent are within two deviations and 99.7 percent within three. Markets are currently 9.47 so-called standard deviations from usual levels, the Bloomberg index shows.
Krugman: Economic slump “nasty, brutish — and long”
Bank bailout not working. The banks are holding onto the money, and not lending it.
Next steps? Find a way to force the banks to write their assets down to nuclear winter levels.
Bailout plan has contrary effect. Mortgage rates go up, not down.
The collapse of Lehman, a huge dealer in swaps, taught many that buying credit protection is a useless hedge if the seller isn’t stable themselves.
In recent weeks, some people have called for the regulation or even wholesale elimination of the CDS market. They can relax. The financial collapse is totally taking care of that!
Iceland default triggers CDS worries. Because of course lots of financial institutions sold CDS on Iceland banks and now will have to cough up some serious money. How rude is that? Credit Default Swaps are a type of bogus insurance that no one ever expected would ever have to be paid off, so they morphed into a form of speculation instead. But then banks started cratering.