tag:blogger.com,1999:blog-10911751.post5580003967841243972..comments2024-03-07T02:00:01.582-05:00Comments on NEI Nuclear Notes: Loan Guarantees for New Nuclear Could Total $20.5BUnknownnoreply@blogger.comBlogger8125tag:blogger.com,1999:blog-10911751.post-54337683335331194272008-01-12T15:33:00.000-05:002008-01-12T15:33:00.000-05:00More on CDS...A credit default swap is priced like...More on CDS...<BR/><BR/>A credit default swap is priced like this:<BR/><BR/>CDS = PD * (1 - Recovery) * Notional<BR/><BR/>This conservatively ignores discounting, which is immaterial for showing why antinukes are playing fast and loose with their fair valuations. As I posted previously, the antinukes like to quote the value of the Notional rather than fair value of the CDS. <BR/><BR/>I finally got my hands on some data from Deutsche Bank, JP Morgan and the like. For utilities, PD ~ 2% and Recovery = 0.5, meaning that CDS = 1% x Notional is a pretty good estimate. Needless to say, 1% of $20 billion is scarcely pocket change for the federal govt., and a pittance in relation to the financial and environmental good that resuscitating the nuclear power industry will provide.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-10911751.post-49042682907520152032007-12-24T13:14:00.000-05:002007-12-24T13:14:00.000-05:00IMO Bradford knows full well what the loan guarant...IMO Bradford knows full well what the loan guarantees are about. We aren't "blithely dismissing" him as "ignorant" The opposite is true. We know he knows the truth, but he is purposefully spreading misinformation (some would label it a different but accurate term).<BR/><BR/>The first mortgage I ever had came with a "loan guarantee" in the form of mortgage insurance. All I know is if I didn't pay the mortgage the guarantee would not get me a free house. I'd still be on the hook for the debt. The mortgage holder would be covered, but someone else would come after me.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-10911751.post-71781378955040094112007-12-24T09:04:00.000-05:002007-12-24T09:04:00.000-05:00The antinukes understand finance about as well as ...The antinukes understand finance about as well as they understand any other technical aspect of nuclear power, which is to say that they hardly understand it all. Computational finance has changed by leaps and bounds since the last nuclear plant was built, and it's no surprise that nuclear opponents do not understand the risk management applications made possible by these advances.<BR/><BR/>A "loan guarantee" is technically considered to be a credit default swap. The fair value of a CDS is much, much less than the notional value of the CDS, or $20 billion in this case. CDS value depends on the probability of default and the likelihood of any recovery, but it is a tiny fraction of the notional. If you've ever paid mortgage insurance, you know that the cost of mortgage insurance is only a modest fraction of the cost of the loan.<BR/><BR/>It's a nice trade for the federal government. Provide a CDS that you will in all likelihood never have to make good on, and likely has a fair value in the tens of millions, in exchange for the very real possibility of a steady annual stream of tens of millions in nuclear powered federal taxes. Nice deal.<BR/><BR/>The antinukes will continue to quote the value of the notional, thereby implying that the CDS is worth 50 or 100 times more than its risk-neutral fair valuation. Whenever you spot this, be sure to tell them you're on to this trick.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-10911751.post-67350397374969302952007-12-22T08:38:00.000-05:002007-12-22T08:38:00.000-05:00Anonymous,Peter Bradford was also an NRC commissio...Anonymous,<BR/><BR/>Peter Bradford was also an NRC commissioner. So he should have no excuse not knowing how the loan guarantee program works. <BR/><BR/>I didn't "blithely dismiss" him. I provided arguments and facts rebutting his claims.David Bradishhttps://www.blogger.com/profile/02439638522932781068noreply@blogger.comtag:blogger.com,1999:blog-10911751.post-10417497418366053592007-12-21T15:05:00.000-05:002007-12-21T15:05:00.000-05:00Peter Bradford is a former public service commissi...Peter Bradford is a former public service commissioner (Maine, I believe). So you can't blithely dismiss him as ignorant simply because you don't agree with him.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-10911751.post-7658890761552708052007-12-21T14:50:00.000-05:002007-12-21T14:50:00.000-05:00I am pretty sure that the anti-nuclear lobby will ...I am pretty sure that the anti-nuclear lobby will have a pretty tough time this time around. The utilities are picking their sites very astutely, going for places that welcome them. As we've seen, they have had no success in preventing a license extension, although they are trying with Indian Point and Vermont Yankee. I don't think the government will lose any money on these loan guarantees because the plants will be licensed, built and put into operation on schedule on budget.Matthew66https://www.blogger.com/profile/14300778464353560180noreply@blogger.comtag:blogger.com,1999:blog-10911751.post-57437460986946663622007-12-20T11:01:00.000-05:002007-12-20T11:01:00.000-05:00All well and good, however there is a risk that th...All well and good, however there is a risk that the utilities have a hard time planning for - political risk. Endless delaying tactics by activists, brought after construction has started, can kill a project financially, as the utility bears high debt-service costs while earning nothing from an incomplete plant. This is straight from the anti-nuclear playbook circa the late 70s and early 80s. It is mitigating this risk, one that is completely outside the control of project planners, that IMO justifies the government loan guarantees.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-10911751.post-4455461546307119162007-12-20T10:49:00.000-05:002007-12-20T10:49:00.000-05:00Peter Bradford has been an anti-nuke for decades. ...Peter Bradford has been an anti-nuke for decades. So any inaccurate comments he makes are not due to lack of knowledge.Anonymousnoreply@blogger.com