boisterousbob

On Goldman and CIT: No Free Lunches

"The article is about risk concentration so whether the CDS is a hedge or not, there is still a counterparty on the other side of the transaction. 5 banks hold 97% of the notional value of derivatives"

Good point!

Just as there is very little transparency in price discovery, the clearing arrangements are totally opaque and net off potential is completely masked. How do you know the 5 banks with 97% notional aren't individually net flat? I'm sorry if you think this is a ridiculous question, but it has to be asked.

On Goldman and CIT: No Free Lunches

"everyone that dealt with them was overcollaterized and thrice hedged, who the hell is the last guy in line ultimately responsible for payment if and when CIT goes bust?"

Out of interest, why does there have to be a last guy? Couldn't there be 50 or 100 institutions collectively on the hook for this?

The meltdown scenario is interesting, but I would think the impact has to depend on the shape of the interconnections? Sure, if bank A guarantees CIT 100% and bank B guarantees bank A 100% there will be a quick domino. But if this quickly resolves into the entire market being on the hook, then what's another $30 billion?