CoCo Bonds to go snap crackle and pop

[goldbones]

These are the things that are going to cause a lot of the damage i believe to the banking system:

COntingent COnvertible Security's also known as CoCo's sounds like a breakfast cereal (see vid below), but basically these things were set up as a bail-in instrument so that if the bank got into trouble the bond holders are converted into equity or ordinary shares. Problem is if these things blow up and start getting converted to equity it sends the signal to the market that all is not well since these things if they convert act like a rights issue, not only that but the bond holders who are now equity holders will want to dump the shares of the bank as soon as possible creating downward pressure and a drying up of liquidity both sides while completely destroying any confidence. By analogy: what is meant to be like an airbag in a car actually will turn out to be an atom bomb ...rather than give a chance of survival it ensures certain death not just for that car but cars miles around. I call it suicide finance, i mean a bank can still be in trouble and go under for other reasons but these sorts of things absolutely ensure it.

https://www.youtube.com/watch?v=5Qiv47uruys

 

[whitesands1]

1 hour ago, goldbones said:

These are the things that are going to cause a lot of the damage i believe to the banking system:

COntingent COnvertible Security's also known as CoCo's sounds like a breakfast cereal (see vid below), but basically these things were set up as a bail-in instrument so that if the bank got into trouble the bond holders are converted into equity or ordinary shares. Problem is if these things blow up and start getting converted to equity it sends the signal to the market that all is not well since these things if they convert act like a rights issue, not only that but the bond holders who are now equity holders will want to dump the shares of the bank as soon as possible creating downward pressure and a drying up of liquidity both sides while completely destroying any confidence. By analogy: what is meant to be like an airbag in a car actually will turn out to be an atom bomb ...rather than give a chance of survival it ensures certain death not just for that car but cars miles around. I call it suicide finance, i mean a bank can still be in trouble and go under for other reasons but these sorts of things absolutely ensure it.

https://www.youtube.com/watch?v=5Qiv47uruys

 

Bet there was a lot of back slapping and bonuses paid out when CoCo's were incepted.  

You make it easy to understand how these work @goldbones - if the contingency you have protect against crystalises then you end up with shares in a company that is illiquid and everyone wants out.  Exactly Suicide Finance.

What have they learned?

[goldbones]

1 minute ago, whitesands1 said:

Bet there was a lot of back slapping and bonuses paid out when CoCo's were incepted.  

You make it easy to understand how these work @goldbones - if the contingency you have protect against crystalises then you end up with shares in a company that is illiquid and everyone wants out.  Exactly Suicide Finance.

What have they learned?

By the way these were set up in 2009, so they have been trading these things for 7 years but they shot up in popularity about 2 years ago because "everything is alright now and these bonds pay better than normal bonds".

So Mortgage backed securities had just failed and some "genius" comes up with a new instrument that obviously is totally different and will actually save the banks.

God have mercy on our souls, the lunatics obviously run the asylum.

[oliversw5]

These bonds are scary!.

Ive recently sold my entire share portfolio, Ill look to get back in when the **** truly hits the fan but it has a long way to fall. I think cash and PM are the way forward for a while. When it does hit the fan ill be looking to stock up commodity shares for the next upturn (whenever that is).

Just my 2 cents

 

[Paul]

Here are a few mainstream media reports on what these CoCo bonds are.  

Gives a 'man on the street / ABC ' explanation of them, the great unwashed may try to understand

Nothing that us collapse-atarians have not known already.  

Just another posh term for weapons of mass financial destruction/credit default swaps/derivatives etc.

 

[shemyaza]

A weapon of mass distraction is the low demand CoCo bond market. The Collaterised Debt Obligations market has risen 150% since 2009 as these are slowly drip fed back into the system at pennies on the Pound.

[whitesands1]

Getting away with it!  

Bail out - kept the cash machines going (and the bonus pool topped up).

No one wants to put their money where their mouth is.  When things get so complicated that even the "experts" can't make it easy for us men in the street to understand it is just a matter of time till it all goes wrong, again and again and again............

At least gold and silver is easy to understand, buy it on the way up,wait and store it safe.

[shemyaza]

It's rinse, dry, repeat all over again. Bail-out borrowed money from the future and failed to return it, we are nearing that future with a huge vacuum of money missing from the pavement ahead. That is the storm that's coming.

[shemyaza]

Would the UK voting leave mean France cannot subsidise a Non-EU project? EDF may have a major problem perhaps?