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The Prudent Investor


About Toni Straka:

Here is an update on the size of the derivatives market with the latest official figures (.pdf) from the Bank for International Settlements (BIS). Hold your breath, as we are not anymore talking paltry billions but TRILLIONS of whichever fiat currency.

Current emergency meetings on banks and markets are still only in the stage where politicians and central bankers are bickering over how to create a few more hundred billions Euros and FRNs. But toxic MBS pale in comparison to the mushrooming growth of the derivatives market. According to figures released in the quarterly review of the BIS (pp A103) in September the total notional amount of outstanding derivatives in all categories rose 15% to a mindboggling $596 TRILLION as of December 2007.

Two thirds of contracts by volume or $393 TRILLION fell into the category of interest rate derivatives. Credit Default Swaps had a notional volume of $58 TRILLION, seeing the sharpest relative increase after a volume of $43 TRILLION a year earlier.

Currency derivatives reached a volume of $56 TRILLION.

Oh, and every grand balance sheet comes with a trash can. Unallocated derivatives with a notional amount of $71 TRILLION are looming over the heads of the disintegrating investment community too.

However You Look At It, This Is an Accident Waiting To Happen

Don't lose your sleep because of these numbers that KO my desktop calculator. In an ideal world - in which we are not - long and short derivatives would net out each other, leaving only a fraction of risk. The BIS tries to assess this net risk with a total of $14.5 TRILLION (2006: 11.1 TRILLION) in gross market value for all contracts but comes up with a second figure.

The so called Gross Credit Exposure appears almost moderate at $3.256 TRILLION after $2.672 TRILLION a year earlier.

Even when taking the lowest of these figures shudders run down my spine. All emergency talks have so far focused on a few hundred billions in fiat currencies, but the current nervousness demonstrated by hectic talks of finance ministers and central bankers all over the globe should give everybody a vague idea that something here may blow up any day. This pool of so far silent derivatives without a major bust can come to life any day with the failure of a multinational financial firm.

The BIS review is a good way to grasp the dimensions long term monetary expansion has brought upon us. A net risk of $14 TRILLION compares with the annual GDP of the USA. Nobody, absolutely nobody can afford this tab in the case of an unorderly unwinding of this market that is roughly 12 times the size of the global economy. I conclude a lot more paper promises will be burnt in the coming derivatives tsunami. As a reminder, most of these contracts have been moved off balance sheets into under capitalized subsidiaries that profited from the good rating of the parent company. But in case of a default it is this nasty, nasty huge notional amount that becomes a liability.

As the vast majority of these contracts have no market, failure will come in the form of counterparty risk. This makes all the current emergency meeting a bit more understandable if politicians are already aware of the biggest bubble that may find no other way of deflation than a sudden burst. I base my sense of urgency on the rapid growth of the net risk in only one year, rising a stunning 30% at a time when the first signs of the credit crunch appeared.

German chancellor Angela Merkel said ahead of an emergency meeting with French president Nicolas Sarkozy in a TV interview that she would present a rescue package for German banks on Monday. This is also expected from several other European countries. Italian president Silvio Berlusconi went so far as to suggest a concerted stock exchange holiday. It would fit the other crooked nails in the coffin of free markets.

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This article has 77 comments:

  •  
    "We owe it to ourselves"
    2008 Oct 13 08:38 AM | Link | Reply
  •  
    This is a totally intractable to policy issue at this point. CDS are here and if we are wise we will take the legal fix that these instruments are unenforceable as contracts against public policy - enforcement of gambling debts. This sounds drastic I know, but the facts are there for the argument to be made, and there is little question but what all parties were aware they were engaging in a side bet as pure speculation since they knew the counterparty had no security or reserves to measure his capacity to write the contracts. Will it hurt to do declare the contracts unenforceable? I would think just saying the swap might not be enforceable will be sufficient to collapse some parties to the contracts who will be exposed to market forces directrly. Drastic? absolutely. Needed absolutely. Besides these contracts are largely nugatory and would only clog bankruptcy proceeds (where they would not be assets in most cases)
    2008 Oct 13 09:17 AM | Link | Reply
  •  
    (apologies to Don Ho)

    Giant bubbles,
    Given time,

    Giant bubbles,
    Blowin' my mind.

    Giant bubbles,
    Make me tremble all over,

    I've got a feelin' that I'm gonna,
    Owe ya 'til the end of time.
    2008 Oct 13 11:08 AM | Link | Reply
  •  
    Whidbey,

    I'm sure you're not the first to think of that, but here's the rub: economic activity is completely based on trust, on faith that financial contracts will be upheld by courts and can be enforced. Which country wants to be the first to say "we're abrogating contract enforcement"? While I agree with you that we're headed there, the choruses of "what about me?" from Main Street will become a deafening roar when that happens.

    I'm still not seeing a way out of this.

    To the author: I'm now hearing that we are actually into the quadrillions of dollars in derivatives. It's just silly, it's not even scary anymore. Desensitization has set in. Antal Fekete wrote recently: "you cannot hedge debt risk by owning more debt." Of course he's right. I think Paulson and Bernanke know it too, I just wish they'd stop before they completely destroy the USD.
    2008 Oct 13 12:06 PM | Link | Reply
  •  
    "faith that financial contracts will be upheld by courts and can be enforced"

    Too late. Just ask WaMu bondholders.
    2008 Oct 13 12:46 PM | Link | Reply
  •  
    Does anyone watch Star Trek?

    There is a great Star Trek episode from the late 1960s entitled “Specter of the Gun”. Kirk, Spock, McCoy, Scotty and Chekhov are compelled to fight Wyatt Earp and his gang in a showdown at the O.K. Corral. Curious aliens have, of course, orchestrated the battle: some kind of a moral psychodrama. Anyway, in this episode Mr. Spock develops a “knock-out” gas from ingredients found in Doc Holiday’s office. The protagonists logically figure that if they can render the Earp Gang unconscious, then they won’t have to fight them at the O.K. Corral. (And as we know, the Earp’s defeat the Clanton’s at the gunfight at the O.K. Corral. And as Mr. Spock so aptly points out, “history cannot be changed.”)

    All are certain that the gas will work; but just to be sure, Scotty volunteers to be the test subject for the agent. Spock, for one, is spellbound, when the potion fails to work. “Fascinating” he quips. Spock goes on to explain the enormity of this paradox. “The potion” he explains, “must work. By all laws we know, it simply cannot fail. And yet it has failed”. Spock goes on to theorize that a massive manipulation of the crew’s brain patterns must be occurring. He also explains that this knowledge, if used correctly, can save the crew from certain demise at the O.K Corral.

    Back to 2008. At some point, the massive manipulation of our brains, orchestrated by Spanky Paulson and all of his uber-wealthy cronies, will end. Reality will intrude. The global economy MUST crash because there are simply too many dollars "worth" of worthless assets gathering dust in the safes and hard drives and account ledgers of the world's financial instutions. Tens of Trillions of dollars worth! And no amount of mass hypnosis (in the form of 'pundits optimism'), or empty words (in the form of government guarantees on EVERYTHING), or spin can change reality. Get that? Reality cannot be changed.
    2008 Oct 14 10:12 AM | Link | Reply
  •  
    I doubt that the derivatives market is operating on trust - if it ever did. In cases where the claiming party to the contract also owns the instrument perhaps it could be enforced as a form of insurance. Otherwise it was just money on the gambling table anyway. My understanding is that the liabilities far outweigh the actual instruments ("references"). Since it is a logical impossibility that the contracts could be universally enforced the courts should not enforce the contracts. Courts are about real things and real damages - the real economy.
    2008 Oct 14 07:06 PM | Link | Reply
  •  
    Ashizashiz:

    Very well said........period.

    Like the article states very trufhfully, "absolutely nobody can afford this tab"

    This thing is astronomical, I was recently talking with one of the best financial heads this world has ever seen. (my opionion)

    I made the statement that I feel this thing is going to come unwound and hard.

    He replied, "I agree, it is coming apart, and it is so much more serious than most realize,...........muc... more."
    2008 Oct 15 03:09 PM | Link | Reply
  •  
    I know the Star Trek episode well, and I agree it's a good analogy for all these futile bailouts. I've also been sounding the alarm about the derivatives time bomb for a long time. If you like Star Trek, check out my web site at home.earthlink.net/~de_star_trek/ .

    Dave
    daveeriqat.wordpress.c.../
    2008 Oct 15 05:22 PM | Link | Reply
  •  

    Where is the line between reasonable investing and manic gambling?

    Who has been risking what has not been produced by their sweat to play in an arena only they sort of understand?

    Is the driver greed, aka love of money for it's own sake, or is it insecurity, aka fear of lack of money?
    2008 Oct 16 01:36 PM | Link | Reply
  •  
    Abrogating derivatives sounds good, but with what consequences?
    It is an idea worth pursuing. The alternative may be to see the banks that are counterparties come crashing down and the billions of public money that has been plowed into those banks lost to credit speculators.
    2008 Oct 16 01:55 PM | Link | Reply
  •  
    Unfortunately TaxConsultant, your legal argument will have no basis and thus no legal standing because the unwinding had begun. Lehman is already on the hook for 300 billion of these financially deadly instruments. AIG's exposure still is unknown. That is why rthe gummint covered AIG and NOT Lehman. The die has been cast. The marks have been set. That's the reality.

    Also note that GM has 1 trillion against it for it's bonds on a derivative contract. GM doesn't even have that amount in bonds. It is a bet in GM's default. Why do think the auto industry asked for 25 billion in gummint gimme's ?
    2008 Oct 16 02:26 PM | Link | Reply
  •  
    Jump, capitalist pig -- the party is over!

    Jump, because you do not deserve any bailout, especially with what remains of the taxpayers' money.

    Jump, it is only right, as you have looted and plundered the land of your birth without any regard of the consequences for your friends and neighbors or the future of our children.

    Jump, you rotten bastards in your three-piece suits, your wingtip shoes, your Rolex watches and your damned suspenders, you who threw good hard-working men with dirt under their fingernails out of work.

    Jump, you stinking rats who lied to the American worker, who bribed and corrupted the representatives of the people to send Americas good paying jobs to sweatshops in Mexico, China, to India, leaving in their wake minimum wage jobs while you stuffed your pockets at the expense of your fellow Americans.

    Jump, you bastards, who called it business when it was really treason when you sold out your Nation for profit.

    Jump, you miserable scum, as you have destroyed the American family, forcing mothers to leave their children with strangers to make ends meet.

    Jump, for having sold your fellow human beings into financial slavery, chained to a lifetime of debt without end.

    Jump, for making Americas currency all but worthless.

    Jump, for throwing families off their farms, for taking away peoples homes, for the stagnating wages.

    Jump, you bastards for influencing the foreign policy of America to make war in order for your corporations and banks to seize and control the resources of other nations.

    Jump, for you have the blood of the innocent on your hands, murdered in the name of corporate greed.

    Jump, you bastards, for helping to give us Bush and Cheney who would turn America into a corporate controlled fascist state.

    Jump, you capitalist exploiters of humanity, at least give us, your victims, the satisfaction of seeing you jump, along with all the other Wall St practitioners of soulless greed and exploitation.

    Jump!
    2008 Oct 16 08:03 PM | Link | Reply
  •  
    I don't think anyone here made a single coherent point. Sorry. I keep trying to figure out who wins and who loses in these CDS situations, and from what I've seen post-Lehman, those most leveraged who got their margins called, had to liquidate. Over the past few weeks (maybe months), those with ties to the "bets" held, sold off into an unforgiving market. One day triple digit down, the next triple digit up. Sell, recover, sell, recover. Any unforeseen bad news about the economy, turbo-charges the sell-off for that day. The VIX reflects the potential range of the day.

    Just like a casino, some will win and some will lose and you're trying to convince us that we will all lose. Economies will de-leverage, that we've seen, but as everything becomes worth less, they also cost less. Sure, this will continue to tear apart people's retirement savings, IF you are expecting anything less than capital preservation in your elections.
    2008 Oct 16 11:15 PM | Link | Reply
  •  
    I guess I'm a bit confused by this: "But in case of a default it is this nasty, nasty huge notional amount that becomes a liability." Since only the notional amount (not real dollars) is exchanged, then the only liability would appear to be the net accrued interest payment (if you are talking interest rate swaps only, since this is the vast amount of the issue). Currencies, on the other hand, generally will be exchanged as currencies rather than notional amounts. If your counterparty defaults, you just exchange the currency you have into the currency you need to unwind the transaction. Pray for currency stability! I think it's the credit default swaps that will cause the lion's share of the mess if a biggun goes under... and that's why ALL banks were encouraged to simultaneously belly up to the TARP bar; that is, so that there would be no "looks like they had to" going on among the big boys.
    2008 Oct 17 02:18 AM | Link | Reply
  •  
    sorry, but this is just another example of getting hysteric about a threat of derivatives implosion. the danger is real, yes, but the probability as well as the true amounts involved are grossly overstated imho.
    the biggest danger is that the non-lending by banks leads to corporate defaults by otherwise sound companies which in turn would trigger CDS-events. The net-net amounts even in the case of LEH will be far, far less than the fear mongerers predict here. it may be anywhere bewteen 8 billion and 100 but that#s about it and even if a couple of counterparties were to default you may not even hear about it. restv assured, the BIS, the fed, ecb and the IMF are all in close contacts with the big players. the cds market may be absolutely intransparent and unregulated - but right here right now he powers that be will absolutely ensure that it will not go into a collapsing mode.
    1 week from now, when the LEH case has been finally settled and the derivatives world has not turned into a supernova people will slowly start to realize that the wordl is not coming to an end. and all of a sudden, bank lending will slowly start again . and stock markets will see some heavy upward spikes.
    too optimistic? maybe. but not unlikely. in any case, the staggering notional amounts involved seem to confuse people and lead them to underestimate the vast resources of the combined central banks
    2008 Oct 17 03:51 AM | Link | Reply
  •  
    With commodity prices imploding...Does this mean inflation is over... is the bigger evil Deflation?? In the Depression of the 1930s this was one of the major problems...What is interesting is the Asian economies in 1998 experienced tremendous Deflation ( Debt Deflation) which lead to MASSIVE Inflation...More so with the printing presses running in the US and the rest of the world.what effect will that have?

    Where do you think we are headed?? As a member of Myinvestorsplace.com, we are seriously looking for solutions. Any ideas/
    2008 Oct 17 04:23 AM | Link | Reply
  •  
    bosjun, aptly put. I second that emotion!
    2008 Oct 17 07:43 AM | Link | Reply
  •  
    nobody talks about it - I mean nobody -is it denial that it exists ? does it exist ? the only people who talk about it seem like gold bugs or silver bugs-

    If this is the case why is there even a stock market trading - If these debt dollars or whatever debt currency come into existence are they blackholes which will suck every dollar printed or on a computer into it ?
    these derivatives sound stranger then quantum physics or string theory -

    when one explodes will the fed just state it doesnt matter the dollar is just a piece of paper - he will type the number in the computer (if it fits ) with a plus sign in front and press send - Then say see how easy that was to fix - because he presses send -your house will then be worth an easy 100 million dollars -

    so the way I see it is look on the bright side you will soon be as rich as warren buffet is today -

    the only way to deal with this at this point is with a sense of humor otherwise it hurts to much
    2008 Oct 17 09:05 AM | Link | Reply
  •  
    after reading my comment I forgot to proofread, spellcheck, cross my t's and dot my i's - sorry to those who care
    2008 Oct 17 09:11 AM | Link | Reply
  •  
    On one hand, don't forget that CDS are zero sum game. Which means although it's hundreds of trillion of dollars, in the end, it's just money flying around different parties and not end up destroyed.

    On the other hand, CDS resolution *ISN'T* instantaneous. In fact, in a bankruptcy proceeding (that is complex and takes a long time [READ: Almost all large ones] )and in a situation where pockets of it may resolve before the rest, money can absolutely be frozen away from segments of the "CDS web", creating cash vacuums that can destroy economies.

    The best way forward, without changing contract law, is to create a central clearinghouse and force all CDS to settle at market value at the same time, and outlaw new CDS from being generated for a while (CDS holiday), at least until regulation about it is created. Since CDS is a zero sum game, the instantaneous resolution should yield no net loss to the whole economy, although individual companies could go bankrupt. (But since their CDS is also simultaneously settled, their bankruptcy will not ripple anymore)
    2008 Oct 17 10:01 AM | Link | Reply
  •  
    Also, now that I think about it, since it's a zero sum game, it's possible for world government to buy up of all CDS at market price and then instantly vaporize it between themselves. (All the while outlawing any new CDS generation or trading)

    Since it is zero sum, the actual exchange of money between countries may end up to be very little or manageable. It may even be less than all the bailouts the world have already done.

    This will instantly restore confidence!
    2008 Oct 17 10:04 AM | Link | Reply
  •  
    I know a portfolio manager that had derivatives through Lehman. (Lehman was the broker in between the counter parties). After Lehman went under he was very concerned about his positions.

    However, he said that for any position where the gain was more than $400,000, the counter party had to put up T Bills as collateral, and those positions were 100% covered.

    That left the positions with less than $400,000 gain. Here, he collected 97% of the amount owed.

    I also know that one of the things that made the AIG default so immediate is that there were collateral calls on their CDS position as the positions deteriorated.

    So, I conclude that there is a need for more transparency here, but it is unlikely we are facing a systemic crisis because the contracts have collateral when the positions get too big.
    2008 Oct 17 10:53 AM | Link | Reply
  •  
    "...and that's why ALL banks were encouraged to simultaneously belly up to the TARP bar; that is, so that there would be no "looks like they had to" going on among the big boys."

    You do realize what you just wrote (and what the Fed just did)?? Forced a transaction for the sake of appearances? What happened to transparency? Did the Fed not just violate SarBox, by obscuring from the market the condition of certain of those 9 banks, by forcing the other good ones to in effect camouflage them???

    This entire bailout is Unconstitutional, and this bank buy-in was the worst piece yet!!!

    P.S. -- I don't give a FLIPPIN' RIP if it ends up working, if it's illegal and also undermines the principles of free markets, which are economic expressions of personal liberty! This deal was WRONG. Period.
    2008 Oct 17 10:58 AM | Link | Reply
  •  
    This is a great piece, thanks. Here's a question for the alpha community: what do you think is the ratio between the bailout size so far (say 700B+300B already spent = 1T) and the cumulative total of executive bonuses paid during the bubble at the major institutions, say since 2003?

    My rough guess is: bailout size = twice cumulative industry bonus payout 2003-2007.

    Wouldn't it be nice to know this number?
    2008 Oct 17 01:26 PM | Link | Reply
  •  
    Didn't FASB just allow these gangsters to lie about these illiquid crap paper investments. The SEC is suspending FASB 157 rule that would of brought these worthless toxic paper onto there books. There is no accountability in this world any longer the Kingmakers now rule us all. I still think somehow there day of reckoning will come. FASB lost whatever accountability they might of had up to this point. Consequences will come from all this paper printing regardless of business conditions. Protect yourself. Weimer is upon us.
    2008 Oct 17 02:17 PM | Link | Reply
  •  
    the article and brilliant comments/analysis were facinating: i read an article found on the rense site via,'lyndon la rouche' and a writer-analyist declare 'all derivitives need be neutralized-made-insta... illegal,therefore null-void,no legal actions taken,end of game' ....as roughly quoted.
    what Troubles me ,is the severe lack-of...programs on sunday morning,thuroughly discussing-educating (how about reading-aloud these comments and article?!!) the derivitave market and voicing comments like the above,which were the best yet,i have ever read,thank you comment experts! i will circulate this to my friends.
    IMHO....I'd agree,about rendering derivitives null and void,illegal for-ever!!
    2008 Oct 17 02:40 PM | Link | Reply
  •  
    bosunj: Great poem. Needs a bit of work with the rhyming though.

    General:

    Not all derivatives are zero sum. The ones structured as insurance aren't. They are a stream of small payments for 'protection' against loss of a large sum. It is not a bet on the value of an item where one loses what another gains. It is an exchange of risk for cash.

    The insuring party can collect a small amount over time until the contract ends OR they wind up making a much larger payment to cover the loss in event of a default. It is unlikely that the two sums will match.

    While it might be possible for the government to buy everyone out and offset everything, it would be incredibly expensivee.

    For those 'zero sum' pairs, any party with a profitable position wouldn't sell for less than their current gain, and no party with a losing position would want anything less than break even. The government would pay one of the two more than the value of the contract and so costs would be total more than the figures you see from BIS.

    Hundreds of trillions of dollars would need to be created to cover everything. The dollar would soon rival the Zimbabwe dollar for purchasing power.
    2008 Oct 17 02:51 PM | Link | Reply
  •  
    Please see the following link for the actual MO around this situation. Obviously greed and mismanagement played their part. But this level of analysis seems naive. The financial take-down is the second phase of the NWO roll out, and as long as its viewed as an isolated financial crisis, they will have fooled us twice.

    www.stevequayle.com/Ne...
    2008 Oct 17 03:04 PM | Link | Reply
  •  
    These are HeisenSwaps - you can only know their value by destroying them.
    For this and one other reason there should be restrictions on the ownership of Credit Default Swaps. Once these appear on the balance sheet of a financial entity it is impossible to assess the entity's exposure to risk. Indeed, it could be said that that is their intended purpose. If the risk of loss from these swaps was limited, diffusion would not matter because the loss would be limited. It only takes one element of a swap to hold the risk of an unlimited loss and the entire system is put at risk.
    Think of infinity/n. However large n is, the risk remains infinite no matter how many hands it passes through. Try to offset it and you have infinity/n -infinity/n. There is no sane answer.
    2008 Oct 17 03:20 PM | Link | Reply
  •  
    The only way to fix this problem is to take over all major banks, and most other financial institutions and cancel all the derivative contracts. In order to do this the property rights of the constitution has to be suspended so if shareholders lose their value they wont have a claim --- why Paulson didn't want court review of his decisions initially. This is such a mess that ownership of assets anyone holds is impossible to figure out. CDS are almost like insurance --- money to be paid off at default. The problem is when default is happening say on a mortgage batch several companies have to pay several other companies while the initial deed on a property could be owned by a bank that could be in bankruptcy or have no right under it because they will get paid off by institution that has no money. An impossible sitution for a judge to decide who owns the property and forclose it under the current law and even sold if a property is forclosed. To make a long story short almost every other debt has been insured like this so property doesnt end with mortgages but ownership of every collateralized commercial debt, so take your money buy gold coins and put them in a pillow case to ride this out. Kind of end of capitalism as we know it?
    2008 Oct 17 03:35 PM | Link | Reply
  •  
    Next Tuesday, Oct. 21, we will find out who has to pay the piper on the Lehman debt. If AIG wrote its CDS's naked then we taxpayer are going to take the hit. We, I think, have a lot to worry on this score since AIG does not seem how to do anything right except to plan and execute toga parties.
    2008 Oct 17 03:46 PM | Link | Reply
  •  

    Pant pant pant, hyperventilating commies spreading lies.

    The Lehman headline figure was $300 billion and the actual payouts when it went bankrupt to counterparties was $4 billion. And most are not going to go bankrupt. Practically none, really.

    The reason the figures pile up is there is no netting of trades. The solution is simple, clearing, as we use for futures contracts. The Chicaog Merc has already started the process of setting up a CDS centralized clearing system. As in all such systems, the banks participating are the underwriters for the whole exchange as counterparty to each, therefore they can't default, net (the winners on the trades are in the underwriting pool, it can't go bust on a payout since it is collecting said payout).

    This may take a few months to set up, that is all. And all the end of the world traders are going to find it is only their twisted world of hate that has ended.
    2008 Oct 17 03:57 PM | Link | Reply
  •  
    I am glad someone besides me is finally talking about the "raging elephant" in the room.

    I did an audio update on this situation last week: www.rapidtrends.com/la...

    Great article. Much needed info right now.
    2008 Oct 17 05:09 PM | Link | Reply
  •  
    Interesting and thought provoking article and commentary by all.
    My question is relative to the suggested banning of CDS instruments:
    Was/is the problem the outrageously unwise and profligate 40 to 1 leverage implemented in peddling them which was allowed by the discredited and criminally suspect officials and marketers, or was it the CDS instruments themselves ?
    Seems to me that the insurance instruments, if used appropriately, are basiclly not at fault.
    What am I missing?
    If this article's worst case possibility occurs, this problem appears to be bigger than we are.
    Three to five years of Emergency Funds to sustain your family's needs is not a bad idea right now, all theory aside.
    2008 Oct 17 06:50 PM | Link | Reply
  •  
    <i>"Just like a casino, some will win and some will lose.."</i>

    Bx is right folks! What's the problem??
    Don't you know there are very wealthy..i mean powerful...i mean influential people handling the situation?
    They say so on CNN!

    Relax, go grab a cold one and sit back and watch tv.
    Everything will be alright.
    2008 Oct 17 09:09 PM | Link | Reply
  •  
    Good article. Something the mainstream media whores speak little about.
    A ticking time bomb.

    This reminds me of an old saying told to me back in the seventies.

    "The English would expand themselves to death, the Germans would arm themselves to death, and the Americans would loan themselves to death." Author unknown...

    Is this crisis being manipulated to lead the world to the following which David Rockefeller stated in 1994 at a Bilderberger meeting in Germany.

    "We are on the verge of a global transformation. All we need is the right major crisis and the nations will accept the New World Order."

    Nicholas Sarkozy recently has spoken about a new single currency for the planet. Sarkozy is a stooge of the Rothschild clan.
    2008 Oct 17 10:03 PM | Link | Reply
  •  
    Though all comments above have raised good points they are still missing out on some fundamental aspects of a fiat currency: fiat currency is a zero sum game, the credit side corresponds exactly to the debit side in other words whosoever owns legal title to the credit side may command goods and services from the debtor. Now the Q is, who are they? If the central banks create money they create also debtors,which is the entire economy. The profiteers are those who dont have to repay their debt - socializing of debt and privatizing of profits. The profiteer have created debts against themselfs through financial vehicles and the trick is to keep control of the credit side and shift the debit side to the public. That's easy money!
    2008 Oct 18 01:24 AM | Link | Reply
  •  
    As I see it, most of these CDS contracts are just gambles. Where there is a default of the underlying debt, the "guarantor" of the CDS is liable. This then becomes a problem where the CDS is not a gamble, and is used as insurance for a real debt. If the "guarantor" of the CDS has insufficient funds (bankrupt), the CDS contracts will be paid-out pro-rata. The main problem is where the CDS is not a gamble, but is a real debt. If this is the way it works, isn't it time the law was changed to give the holders of debt priority over all other CDS contracts? Please tell me what I am missing.
    2008 Oct 18 03:31 AM | Link | Reply
  •  
    <I>JasonC:
    The reason the figures pile up is there is no netting of trades. The solution is simple, clearing, as we use for futures contracts. The Chicaog Merc has already started the process of setting up a CDS centralized clearing system. As in all such systems, the banks participating are the underwriters for the whole exchange as counterparty to each, therefore they can't default, net (the winners on the trades are in the underwriting pool, it can't go bust on a payout since it is collecting said payout).</I>

    If it were that simple, we would've done it already.

    The problem is that there are many non-bank entities that holds CDS.

    Some of these are also already insolvant, but are currently existing due to accounting tricks (google up level 3 asset) and govt life support. They cannot pledge their CDS to support the MERC because it'll be more than their net worth.

    There'in lies the problem: Certain banks are alive because some securities (and their deriverative) have "no market price" yet. Once these level 3, mark to fantasy, are forced to mark to market, the bank will instantly be shown to be naked (i.e. insolvant). The emperor has no clothes, but we've turned off the lights so nobody knows in the darkness -- just wait till morning.

    There're enough of these kinds of banks to worry the market, hence the constantly decline dow syndrome and the not willing to lend syndrome.

    Any CDS resolution cannot simply be a voluntary pooling by banks (otherwise it could've been done already); it has to end up being govt buying up CDS one way or another. The buying's important secondary effect is to provide capital (i.e. clothes) so that when all's revealed, the banks are not insolvant. If the govt is not corrupt, then such CDS for cash/treasuries exchange must be accompanied by sufficient equity and warrant pledge; so that the govt is eventually made whole.

    Smarty_Pants is right in that it would be incredibly expensive to the govts involved. I question isn't it *already* expensive with all the piecewise bailout package we see and not getting any results. The 600 trillion CDS is *THE* biggest problem of all; and the only true one that can push us into civilization oblivion. However, if the govt do them properly, the world won't have the pay anything close to even 0.5% of the 600 T, and that I think is more than a bargain. Structured properly with equities and warrants, this can eventually be claimed back.

    Needless to say, if we solve the CDS issue, be prepared for a restoration of confidence you've never seen before!
    2008 Oct 18 09:07 AM | Link | Reply
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    bosunj -- right on .. but you left out the Ratings Agencies who put AAA stamps on all that junk and let the bastards sell them to widows and children.
    2008 Oct 18 04:05 PM | Link | Reply
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    The Question is: When?

    The Real Economy is faltering daily. Anyone w/a Business Knows This. Income is being swatted to the floor...

    The Other Big Question is: Can Businesses Survive long enough for the Bail Out to get to them?

    Business is @ Risk w/no clear vision of Survival. Co's that have a Good Free Cash Position w/little Debt may make it. Hedge Funds, Derivative Contracts & the Deer in the Head Lights...

    I cut 2/3rds of my portfolio in '98 w/LTMC favoring physical gold instead. The 1 repeat 1 Hedge Fund Long Term Capital Management, took Asia & Russia Apart. The Mkt took 3-4 mos to digest this, but the Economy's that were affected took a few yrs to come back. The IMF will have to sell Gold in order to Finance the Insolvent Economy's; Iceland, Ukraine, & whom ever blows up tomorrow. So, Gold too will go down. The Hedge Funds have been Long Gold & Oil. The Deleveraging of these assets by Forced Margin Calls & Distributions is also very real.

    IMO, No One is getting out of this whole. The Gold will always be worth something & worse case scenario we end up using Global Credits. I'm sure we can trade the Gold, US$, etc...for Credits.

    Machinka has a Valid Points that more people Need to Understand before we are all Merged Together...I am afraid that the people will be so desperate that there will be little resistance. Socialization as I write is being put into place as the alternatives are unmanageable. The US is on the Verge of Electing a Full on Socialist Govt to control or restructure this World...I hope there is a Wisdom that encourages Free Enterprise as well as helping the people. The lessons learned in the 30's from Over Taxation to the top tier was a perfectly good reason not to create jobs or enterprise.

    2008 Oct 18 05:05 PM | Link | Reply
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    While I rarely comment, this thread appears to have missed the notion of diversification among asset classes. In that derivatives, (as well as currencies, stocks, bonds and other related financial instruments) are essentially paper assets representing the "theoretical value", (or sum of tangible and intangible assets, and occasionally, the future earnings of such assets), we should all pause to consider that concentrated exposure to "paper assets" can be hazardous to the future wealth of its owners. Further, I would submit that the time is ripe for seeking out alternate asset classes. Specifically, asset classes representing "physical wealth", (as opposed to "paper wealth") as a hedge against future erosion of paper assets. Deflationary forces notwithstanding, the commodities sector at large looks increasingly attractive, and more specifically the energy and agricultural complex as well. Bottom line: the law of unintended consequences weighs heavily when it comes to the current bias for the mass creation (or dilution) of currencies and other related paper asset classes. Historically speaking, one can only draw very very very negative conclusions. Thus, the above thoughts on alternate asset classes.
    2008 Oct 18 05:59 PM | Link | Reply
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    Kinja Rules +
    machinka, you are both correct ! as GW Bush even said " this sucker is going down ". The elitest bankers have known for ions this was going to happen , they planned it that way . ordinary man , workers , will be slaves , + with the evil elitest as their rulers . I have also read many times , That the eliststs feel " the the ave man is too stupid to make their own decisions ". Now they're not going to be able to . The American citizens were dumbed down with bought + paid for TV stations , media sports + prime time TV . The elistests heve said , " keep them too busy to see what's really going on ." God help us all ! We are truely in the last days !
    2008 Oct 18 06:22 PM | Link | Reply
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    a huge amount of comments, I scrolled through about a half and saw only one that made sense to me.
    Indeed, take any option you buy for $10 for the right to buy some company CMP at $120 a share in 2010. It is a derivative written in $120 but the risk is of course $10, so what's the point of fussing about 120$ and how it will collapse the world economy? The worst that can happen is it will be left unexcercised and someone will lose 10$ or it will be excercised and someone will lose whatever is CMP price on top of 120. There are of course more complex cases, but the hundreds of trillions, especially written in capital letters, are simply not there to be worried about.
    2008 Oct 19 09:44 AM | Link | Reply
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    while the comments about netting are correct, so 600T notional is probably more like 600B (assuming these guys knew how to hedge) and the only risk is one of the links will collapse during the settlement phas ---- the comment by japan2000 is completely incorrect.

    A naked position in an "insurance-type" option like a CDS or even Call or Put, is very (very, very, very) risky. Just think of the downside of a writing a Call. The stock goes up to 1000 and you sold a Call at 100. You have to come up with 900 smackoroonies -- or leave town and hope the Feds didn't freeze your passport.
    2008 Oct 19 09:51 AM | Link | Reply
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    sorry kingaj is right of course, some of them do have unlimited loss potential , but apparently not all of the 600 tril are naked calls, that was the point I tried to make
    2008 Oct 19 10:36 AM | Link | Reply
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    Can we get rich by by passing or heading off any calls on the CD's. (i.e. buying a share of the Palm Island and World Island in Dubai before the Prince calls in all CD's to help make his construction bills).
    If nothing else happens maybe there will be a mandatory 12 Step Program for investors who over extend there personal financial limits and financiers who over extend their financial institutions.
    Lots of luck folks. I hope you're not afraid of getting your hands dirty in your backyards while you plant vegetables to survive on. Too bad about city covenants that prohibit farm animals within the city limits.
    2008 Oct 19 12:19 PM | Link | Reply
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    hmm, maybe this is why treasury default swap spreads are climbing.. anyway visit my blog distressedvolatility.c...
    2008 Oct 19 02:30 PM | Link | Reply
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    This is MAD Part II, now in financial terms instead of nuclear bombs capable of destroying humanity (financial health) many time over.

    Will the good people of this planet allow MAD Part II become a reality?

    Or will every country take a step back and look at the problem and not let those toxic financial MBS bombs detonate?

    De-nuclearization of those MBS is the answer, slow and painful but not fatal.

    Those who want immediate relief will be given just that; everybody will fatally suffer instantly if the few advocating instant solution have their way.
    2008 Oct 19 04:55 PM | Link | Reply
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    CAN ANYONE EXPLAIN WHAT IS HAPPENING IN SIMPLE LANGUAGE...eg C=CAT B=BAD
    2008 Oct 19 06:21 PM | Link | Reply
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    I think Buffet said a number of years ago that derivatives are the financial equivalence of weapons of mass destruction. Seems like others are picking up on that theme like aarc above.

    Seems like a plan to defuse them as carefully as possible is in order.
    2008 Oct 19 10:52 PM | Link | Reply
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    Great article and some very insightful comments. I am no CDS expert, below is just my observation, anyone please correct me if I am wrong.

    It looks like the major issue is with CDS, which is essentially insurances bought and sold on the underlying companies' "solvency". My guess is most of these contracts are 5 years or less. It is like buying/selling a 5 year life insurance, so if the insured person(company) doesn't die, the slate is wiped clean and the buyer of insurance (paid very little if they bought in the last few years) losses the premium they paid; and the insurer collects the premium(not much if they sold last year, remember AIG CDS was trading at 15bps) and walks away free and happy.

    Wouldn't the solution be for the governments to study who are the major underlying credits and if they are NOT allowed to fail (in the case of AIG and Barclays) for the next few years, then this CDS market would automatically evaporate, that's assuming no major new positions are added on.

    Also, I believe the BIS numbers refer to notional amount. The actual premium should be much less. i.e. if I bought AIG CDS last year, I would only have to 15 cents per $100 notional protection. Even now, Citibank's CDS is around 3.5%, so as long as Citibank doesn't go into bankruptcy in the next 5 years, the CDS seller will make some money, but not nearly as much as the notional amount suggests.

    2008 Oct 19 10:53 PM | Link | Reply
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    Phat Cat... your last paragraph: "Also, I believe the BIS numbers refer to notional amount. The actual premium should be much less. i.e. if I bought AIG CDS last year, I would only have to 15 cents per $100 notional protection. Even now, Citibank's CDS is around 3.5%, so as long as Citibank doesn't go into bankruptcy in the next 5 years, the CDS seller will make some money, but not nearly as much as the notional amount suggests."

    Exactly. See my comments above.

    And currency swaps don't exchange notional amounts (they exchange the currency) and shouldn't even be considered in the discussion.
    2008 Oct 20 08:57 AM | Link | Reply
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    Wow, this got a huge response. It is unbelievable that bank management
    could gamble such amounts and they should be treated as criminals for their crimes against the economic stability of this nation.
    2008 Oct 20 10:50 AM | Link | Reply
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    Insiderman, Phat_cat.

    Any discussion of credit derivatives always devolve into "but it's only notional value" discussion. As a result, it's very hard to start discussion why it's a real problem.

    These securities assume a relatively calm market. They're mostly right, until they're not.

    When they're wrong, the presence of these securities greatly couples all the participants together like a big titanic, so that if one end goes down, the others can be dragged down by it, and then more, etc. Titanic didn't sink instantly, it sank as each compartment filled with water slowly. This is exactly what is CDS's capability.

    CDS on its own seem to reduce risk for the party and counterparty, as it allows parties to hedge. Exactly like what you said when you say puts hedged with calls, etc. However, zooming out to the big picture, the risk didn't vanish. Instead, it's diverted into the system itself. What was a localized effort to reduce risk, becomes a global effort to redirect risk to the system -- enhancing the damage if system failure does happen.

    What happens in your hedge scenario, if your call hedge unravals because the counterparty went bankrupt and cannot pay your contract? Suddenly, you're unhedged on your put, which could cause you to go bankrupt (since it has to be marked to market instantly); which means all your outstanding contracts cannot be honored.

    The Systemic Failure scenario isn't that someone cannot pay the CDS -- it's that one of the counterparty vanishes due to some other external shocks. We've plenty of external shock right now. This is exactly why this is dangerous.

    An analogy is that plutonium is pretty stable, until enough heat is generated, perhaps from non-nuclear explosions, that you end up with a major nuclear explosion.

    Going back to the enhancing systemic failure argument. You can see that, in a typical pre-CDS world, bankrupcy by big financial entities, although painful, does not excessively ripple outwards. Yes, investors will get burned, so will some creditors; but the damage is more or less contained to those with direct financial stake with the big BK entity. There's limited leverage (due to regulation against real leverage that can be tracked).

    Because the scale is limited, and the loss is local, those people who lost money as a result of the original BK acted as a financial buffer for the rest of us; so the rest of the economy feels less damage.

    In a CDS scenario, if a big party goes boom, then all it's counterpart may become unhedged. The CDS may already be traded halfway around the world, so even those with no direct dealings will be hurt. The leveraged provided by the CDS (like the leverage that options give you) is now poison, esp as positions become threatened; and the damage is magnified many times it's size. Now another big entity is more likely to go boom, and thus further magnifying systemic risk, etc etc.

    In contrast to the above, because the loss is not as limited, it's not local, and it gets magnified as it claims another victim, the original "big entity BK" is now a systemic event.

    This is why something that's originally nothing (i.e. zero sum), can do so much damage. The notional value only makes it that much harder to dis-entangle this mess.

    2008 Oct 20 11:51 AM | Link | Reply
  •  
    Please. Laughter is hurting my ribs, I cannot sit . . .

    Well said. Too late, but well said. Congrats.
    2008 Oct 20 12:35 PM | Link | Reply
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    you got dizzy by seeing the number and wrote this article absent minded. what is the risk in an interest rate swap (2/3 of all derivatives). zero. you agree to exchange interest rate payments and as long as your counterparty is alive you do it on the agreed schedule. if they dont pay you, you dont pay either.

    as for the CDS, you should have bothered to look at LEH: from 400bn notionial, only 4.2bn were one way bets, the rest fully hedged. big deal. what is their inherent problem from a regulator point of view? tying up capital in unproductive way.
    2008 Oct 20 02:10 PM | Link | Reply
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    bbzz24,

    The interest rate swap only comes into effect if there is significant movement in interest rate. With most market situations, the swaps are a non-issue and the fees generated can be lucrative.

    Consider what happens if hyperinflation does in fact occur, and in a short period of time, interest rate is forced to move quickly. We're talking from today's 3-4% ish to like 12% or more, depending on how bad the situation gets.

    At that level, someone who took the wrong side of the swap may end up owing more than their entire net worth. So, they cannot fulfill the margin requirement of the swap.

    *The question to ask is what then?* The holders of the other side of the swap will find their hedging position only partially paid (or worse: tied up in BK court) Now that could cause cash-flow issues as they need to fulfill heir margin requirement too!

    Repeat this, and you have systemic disaster in the making.

    Derivatives only hedge against small, "payable" risks and pains, but cannot defend (and in fact worsens/magnifies) systemic and drastic shocks to whatever they're trying to insure against.

    Who insures AMBAC if AMBAC insures more than their entire net worth on all the securities?
    2008 Oct 20 02:51 PM | Link | Reply
  •  
    Ever so salient is the following:

    “Exact dates of collapses are impossible to predict. But one of the best-known facts about empires is that they do collapse. No exceptions.”

    Mad Economist - 2006
    2008 Oct 20 08:01 PM | Link | Reply
  •  
    Consider-this,

    The same thing happens to options sellers when the VIX increases from ~20 to 65, as just happened. It's a 'black swan' event that can force sellers into bankrupcy because the sellers' portfolio model did not anticipate such a swing. What will happen when one of the big clearing firms cannot meet the obligations of the options buyers?

    I think a very real future scenario is that the coming hyperinflation in the U.S., caused by unsustainable governmnet obligations, will force counterparties in interest rate swaps to default.

    Yes things look deflationary now, but this country looks to me alot more like Zimbabwe day by day.
    2008 Oct 20 08:37 PM | Link | Reply
  •  
    The markets stabilize because the computational models used before the crash if still in use, would now indicate more of the same when in fact, so much has changed.

    The link below shows an overview of models, and lectures regarding most aspects of assigning value to risk. Depending on the investment or its type of exposure select the appropiate model to evaluate the course of its expected risk.

    www.quantcode.com/modu...


    Then based on this experience compare it to the quarterly review as provided www.bis.org/publ/qtrpd...
    2008 Oct 20 09:00 PM | Link | Reply
  •  
    I agree that if the systemic risk unravels, we will have a full implosion of bankruptcy on a global scale. However, isn't the inter-government effort to guarantee big companies will help to prevent this from happening? My point is that if we get through the next few years without major blow-ups, and I am sure that will not be a miracle but a government orchestrated takeover or nationalization, all these CDSs will expire and we then have a clean slate.

    The problem is with some of the gambles corporates take. These companies could be beyond saving. Did you see the news that Citic Pacific in HK announced a $2 bn loss on currency tradings?
    2008 Oct 21 04:30 AM | Link | Reply
  •  
    We just change CDS into another form of currency, like Monopoly money. Then we have a contest. Whoever has the most CDS in two weeks (the end of the contest) wins the first place prize of $100. Second place is $50. Then the contest is over and the CDS are cancelled and used as fuel in government fireplaces.
    2008 Oct 21 12:48 PM | Link | Reply
  •  
    I enjoyed reading the Spock analogy......I concur...since this was all related to housing a more simple analogy: sometimes its easier to knock an old house down than to completely remodel....we can't keep insuring everything....
    2008 Oct 21 03:05 PM | Link | Reply
  •  
    Sobering information, but not surprising, since both political parties have striven to outdo each other in describing the sartorial splendor of a stark naked and gelded Emperor. We can only hope that when all these fewmets hit the fan, we'll already have run out of electricity, and it won't splatter over every square inch of our world.
    Plutocratic catamites of Mammon should remember, however, that when the middle class sees its own children starving, it forgets its Christian upbringing, and fat rich kids begin to look like calves and piglets. The United States economy could strut, prance or shuffle its way into a scenario reminiscent of Bourbon France in 1789, Romanov Russia in 1917, or worse yet, Easter Island in the century before European contact.
    2008 Oct 22 02:46 PM | Link | Reply
  •  
    Coming soon....

    Bankrupt Western economies...

    Poverty on an unseen scale...

    2008 Oct 22 03:48 PM | Link | Reply
  •  
    now i know why one of the biggest winners listed on pbs nightly business report for wed. 22oct2008 was [ta da]:
    TUPPERWARE!!! [TUP]. Yup,
    thanks for a great article, great comments and poetry. just needed a biblical passage or two [Isaiah is my fav].
    2008 Oct 23 01:50 AM | Link | Reply
  •  
    bosunj

    "jump"

    What about all of those workers that wanted more and gave up paying attention to their representatives, senators, school board members in order to keep them accountable?
    I'm one of those who went in pursuit of the money, who lost one marriage thinking that my job was to provide more "things".
    I'm one of those "workers" that never got a "University or College" education. That settled for an electrical apprenticeship in a copper mine in Arizona where I was brought up in a "Democratic" household that blamed all the ills on business and the "rich".

    Then I went in to the power plant construction industry where there were workers (like me) that actually thought for themselves. When you start up a power plant you cannot afford to take anyone's word that the engineering, construction or even the components are right or working correctly.
    That was where I started to realize that I was a part of the problem because I'd never paid attention to what those that are elected were up to. I was not active in holding them accountable. I never researched their voting records, heck, I didn't eve know the issues that were being brought up. I didn't know the history of our monetary system, tax system, etc. and how they came to be as they are.

    Nope, I rode that wave of euphoria during the '60s when wages and the buying power of the dollar were very small. When I went to Germany in 1967 the value of the german mark was 4 marks to the dollar.

    Anyway, I agree that we are in a pickle however, I'm tired of the blame game. We need to learn from OUR mistakes and move on with real workable, solutions that demonstrate we've learned that greed and power are symptoms of a disease and that humility, sacrifice and thinking of others and not ourselves is the cure.
    2008 Oct 23 10:26 AM | Link | Reply
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    Bosunj:

    You're entitled to your opinions, as are other people around the world.
    However, you'll miss the U.S. when it's gone. As will all of the other haters.
    See you in hell.
    2008 Oct 23 11:14 AM | Link | Reply
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    Two questions: (1) Can someone make it absolutely plain why this matters? I see the figures and acknowledge their size. However, I have yet to see someone explain play by play for us newbie’s why notional size matters in the case of derivatives. (2) How is it that the notional amount can be so large? Is their overlap in what these derivatives cover?

    Maybe these are basic questions but I am sure some of you have had to answer this for yourselves at some point. If the explanation is long please direct me to some literature on the topic. Thx.
    2008 Oct 23 03:33 PM | Link | Reply
  •  
    Two questions: (1) Can someone make it absolutely plain why this matters? I see the figures and acknowledge their size. However, I have yet to see someone explain play by play for us newbie’s why notional size matter in the case of derivatives. (2) How is it that the notional amount can be so large? Is their overlap in what these derivatives cover? Maybe these are basic questions but I am sure some of you have had to answer this for yourselves at some point. If the explanation is long please direct me to some literature on the topic. Thx.
    2008 Oct 23 03:35 PM | Link | Reply
  •  
    These numbers matter on the short and sweet premise that there is no such thing as a free lunch.

    $600T could be 3/4 "worthless" and that deterioration has to come from "somewhere". That "somewhere" might just be all the money in the world for all that we know.

    It is not simply quantifiable in terms of monetary value either. This steps right in front of the catastrophic shortcoming bus in our financial world -- mainly transparency, accountability, how to regulate, and perhaps the most important -- control away from self-elitists. Simply stated those "with" control vs. those "without" have made the entire planet insolvent, even those whom "have done everything right" in their personal finances.

    Big stuff Maynard'.

    Money makes the world go around, and when it stops -- I'm guessing that the momentum will drive Earth's populous to chaos.

    Be glad you are in the united states, buy a gun and plant a garden.
    2008 Oct 24 01:07 PM | Link | Reply
  •  
    Need some help

    Have you guys heard of this site that has returned over 50% YTD? I read a review about it and it sounds good. Just want to get some feedback before I sign up for the free 30 day trial. Here is the link www.gotoguy.com/?p=470
    2008 Oct 25 12:24 PM | Link | Reply
  •  
    consider_this,
    banks have prucedures in place to manage interest rate risk: for example daily exposure should be such that 1pip change in interest levels of another currency should not impact the company's positions by more than 100k. for different currencies the limits are varying.
    i have seen pretty nasty grillings of prop traders who have gone slightly over the risk levels for the entire book.
    2008 Oct 25 03:21 PM | Link | Reply
  •  
    The Bank of International Settlements recently reported that the amount of outstanding derivatives has now reached the $1.14 quadrillion mark ($548 Trillion in listed credit derivatives plus $596 trillion in notional [or face value] OTC derivatives).
    The derivative market has been unregulated since its inception. A crisis of this magnitude will require a global strategy. Do we really believe this bubble is a result of an unregulated free market or a calculated boom bust cycle in order for central banks to create a world economic government under the IMF?
    Jan 05 02:38 AM | Link | Reply
  •  
    edgar filings shows JPM at 86 trillion and citi at 37 trillion as of last quarter. these are only two of many. read footnotes of Q and it is broken out by industry sector.


    On Oct 23 03:35 PM novice12 wrote:

    > Two questions: (1) Can someone make it absolutely plain why this
    > matters? I see the figures and acknowledge their size. However,
    > I have yet to see someone explain play by play for us newbie’s why
    > notional size matter in the case of derivatives. (2) How is it that
    > the notional amount can be so large? Is their overlap in what these
    > derivatives cover? Maybe these are basic questions but I am sure
    > some of you have had to answer this for yourselves at some point.
    > If the explanation is long please direct me to some literature on
    > the topic. Thx.
    Jan 05 04:02 AM | Link | Reply