A credit default swap is a contract between two parties, one of whom is giving insurance to the other that that party will be paid in the event that a financial institution, or a financial instrument, fails. The genesis of the current global financial crisis lies primarily in the selling and trading of complex financial instruments called derivatives, a financial instrument that derives its value from an underlying asset but not the asset itself.

In this crisis, financial institutions, primarily Bear Stearns, Lehman Brothers, and Merrill Lynch, created, marketed and sold arcane and complex derivatives based on the subprime mortgage market. To offset the risk to investors, a credit default swap was also available. In essence, it is an insurance contract but unlike an insurance product, credit default swaps are unregulated and do not require the seller to set aside reserves on their balance sheets to cover potential losses. AIG was one of the biggest underwriters, perhaps issuers is a better term (for they didn’t actually underwrite since that would have meant setting aside reserves on their balance sheet) of these credit default swaps. Thus these institutions were caught with large liabilities as the subprime mortgage market faltered with no reserves to cover those losses.

The size of this credit default swap market is estimated at $50 to $60 trillion dollars. It is not clear who all the holders of these credit default swaps are but it’s likely that includes most pension funds, mutual fund companies, hedge funds, sovereign funds, commercial banks, brokerage and investment houses as well as individual investors. As a measure of comparison because it is hard to actually fanthom what $50 trillion dollars looks like, the official US Federal debt is some $10.2 trillion (or about $33,000 per every US resident), of which about $5.7 trillion is held by the investing public and $4.5 trillion is held in government accounts such as the Social Security and Medicare trust funds. In short, the credit default swap liability is at least four times the debt of the US government.

A transcript of the 60 Minutes report is available at CBS News.

In other financial news today, Germany moved to guarantee all private German bank accounts – currently worth €568bn — in an effort to prevent a full-scale contagion of the German banking system. Below the fold, the report from the Financial Times. (more…)

This is the eighth poll of the critical battleground state of Ohio (link to US census demographic data) and the second in a row to show a clear Obama lead in the Buckeye State. Today’s poll from the Columbus Dispatch finds that Senator Obama leads Senator McCain 49% to 42%.

Amid growing concerns about the economy, Ohio Democrats are coming home to Sen. Barack Obama, giving him a 7-point advantage in a new Dispatch Poll as the volatile presidential campaign swings into its final month.

The Illinois senator’s lead of 49 percent to 42 percent over Republican Sen. John McCain comes at an especially opportune time for Obama because thousands of Ohioans already are casting ballots in the state’s first presidential election allowing any registered voter to vote absentee. The new setup takes away some of the heft from the adage “the only poll that counts is the one on Election Day.”

Ohio is even more critical to McCain’s campaign this year since he pulled out of Michigan last week. Not only has no Republican ever won the presidency without carrying the Buckeye State, McCain almost has to run the 2004 electoral table to win, carrying every single state President Bush won four years ago, including Ohio.

(more…)

The US Presidential race in Colorado remains rather dynamic and fluid with the lead changing back and forth over most of September but this is now the second poll in the past week to show the race in a dead heat. According to the Mason-Dixon poll in the Rocky Mountain State, Senator Obama and Senator McCain are tied at 44% apiece with 9% as yet undecided. Perhaps more importantly to McCain’s chances, Libertarian Bob Barr is attracting 4%.

Securing their reputations as independent-minded swing voters, Coloradans are now evenly split over the race for the White House, with a new poll showing the two presidential candidates tied at 44 percent statewide.

The latest Denver Post poll, conducted by Mason-Dixon Polling and Research, illustrates the fluidity of the race. In August, the poll had Democrat Barack Obama with a slight 45 percent to 42 percent lead over Republican John McCain among registered voters who say they are likely to vote in the November general election.

In the new poll of 625 registered voters conducted Sept. 29-Oct. 1, another 8 percent of the state’s voters — broken down roughly equally among Republicans, Democrats and unaffiliated voters — are undecided.

And 4 percent of Colorado’s voters are going for a third-party candidate, likely Libertarian Bob Barr, according to The Denver Post’s pollster, Brad Coker of Mason-Dixon. The margin of error in this poll is plus or minus 4 percentage points.

(more…)

Odds & Ends
Here are some particulars that may or may not change in 2008.

– Since 1904, Missouri has always voted for the eventual winner of the election in a presidential election, with the single exception of the 1956 election. Currently, Missouri is trending for McCain. If Obama does win then it would mark the Show Me State’s second deviation from the national norm.

– McCain leads in West Virginia by eight points. The last Democrat to win the White House and lose West Virginia was Woodrow Wilson in 1916.

– Obama leads in Nevada. The Silver State has picked the winner in the last seven elections. If Missouri falters, Nevada then assumes the title of most consecutive times of picking the winner.

– Since 1964, the winner has taken at least two of the following three states: Florida, Ohio and Pennsylvania. Obama now leads in all three though the race remains competitive in the first two.

– From 1856 through 1960, Vermont always voted GOP. It is the only state in the Union that can make that claim. It voted for a Democrat for the first time in the LBJ landslide of 1964. The second time that the Green Mountain State would go blue was in 1992 when it voted for Bill Clinton. It has voted Democratic ever since.

Return to Main

Funny stuff.

Return to Main

Oy vey. Oy gavalt. The mensch versus the yenta. Oy vey.

This Internet-only ad from the Republican Jewish Coalition is a response to Ms. Silverman’s The Great Schlep exhorting young Jews to trek to Florida to convince their parents and grandparents (and their deceased relatives???) to vote for Senator Obama. Sorry couldn’t pass this one up.

Return to Main

Here are eleven articles from both the US and international media about the US Presidential race. Highlights of each article provided with a link to the full article.

McCain Camp Turns to Maine’s Second District
By Sasha Issenberg in the Boston Globe.

The Democratic strategists may have to work especially hard to keep the Second Congressional District blue. Yesterday, Republican John McCain’s campaign announced that it had begun withdrawing from Michigan, but would start committing resources to Maine, where strategists say he has been buoyed by the addition of Sarah Palin to his ticket.

This is one of only two states that award electoral votes in a manner other than winner-take-all: A losing candidate statewide can still claim one of the state’s four electoral college votes by winning one of the two congressional districts. While both campaigns have long expected that Obama would carry the state, both public and private polls show the race closing. In one poll released two weeks ago by Rasmussen Reports, a steady double-digit advantage that had carried Obama through the spring and summer had shrunk to four percentage points.

Nebraska and Maine?
By Jay Cost writing for Real Clear Politics.

I noted with interest stories today discussing McCain and Obama opening up campaign offices in some far-flung places: McCain in Bangor, Maine and Obama in Omaha, Nebraska. Maine and Nebraska do not have reputations as swing states, so what the heck are these guys up to?

Part of it is to head off the possibility of a 269-269 tie in the Electoral College. What happens when there is such a tie? We go to Amendment 12, which states:

The person having the greatest Number of [Electoral College] votes for President, shall be the President, if such number be a majority of the whole number of Electors appointed; and if no person have such majority, then from the persons having the highest numbers not exceeding three on the list of those voted for as President, the House of Representatives shall choose immediately, by ballot, the President. But in choosing the President, the votes shall be taken by states, the representation from each state having one vote; a quorum for this purpose shall consist of a member or members from two-thirds of the states, and a majority of all the states shall be necessary to a choice.

That’s right, the House of Representatives – which acquitted itself so beautifully over the last week! – gets to make the choice, but with a twist. Each state gets one vote. That makes things a little dicey, for both campaigns.

For McCain, the problem is obvious: the Democrats control the Congress. Not only that, but they currently control 27 of the 50 state caucuses. The GOP controls 21 and 2 are split.

But Obama has a problem here, too. In this scenario, McCain will have won more states, which means that to win, Obama will have to convince some Democrats to vote against their states. A few unfortunate souls would probably have to vote against their own districts. In 2004 George W. Bush won 255 congressional districts to Kerry’s 180. A 269-269 tie like this implies that McCain will probably have won more districts than Obama, which would complicate matters for the Democrat.

Ah, the infinite wisdom of the Electoral College.

Pueblo Revs up McCain’s Campaign
By Todd Hartman in the Rocky Mountain News.

Republican presidential candidate John McCain, seeking to rebuild campaign momentum after a recent rough patch, got a boost from an unexpected source Friday — a working-class southern Colorado town typically labeled a Democratic powerhouse.

Some 3,500 fired-up supporters packed Massari Arena on the Colorado State University-Pueblo campus to cheer on McCain, giving the senator another lift after an emotional town hall meeting in Denver and a credible — depending on who you ask — debate performance by his vice presidential selection Sarah Palin the night before.

“How about Sarah Palin last night?” McCain asked, to kick things off. The answer came in the rally’s loudest roar, accented with foot-stomping, sign-waving approval. “I almost felt sorry last night for my old friend Joe Biden. She did a magnificent job.”

(more…)

International aid organizations have been warning that Zimbabwe faces food shortages in the coming months unless more is done to get emergency aid to millions of hungry Zimbabweans. This as the United Nations says Zimbabwe’s food crisis is being amplified by the global food crisis and soaring food prices. This comes as President Robert Mugabe and opposition leader Morgan Tsvangirai struggle to set up a unity government. And Zimbabwe’s crisis has long since become a regional one as hundreds of thousands of Zimbabweans have fled to neighbouring countries in search of help. Below a report on Zimbabweans living in Botswana, one of Africa’s wealthiest countries and one of the most stable.

Return to Main