http://www.zerohedge.com/article/and-next-aig-public-edition
This is exactly what I am talking about when I say these institutions CANNOT hedge their large risks. The number 2 derivative holder in the country (Bank of America) and the number 3 derivative holder in the country (Goldman Sachs) had to be bailed out by the government through AIG (another large derivative holder) when AIG had just $10 billion dollars in collateral calls that it could not pay. AIG was the largest insurer in the world!!! The number 1 derivative holder int eh country (JP Morgan) needed $90 billion or so in bailout monies when its major counterparty failed - Bear Stearns. See Is this the Breaking of the Bear? January 2008 for how easy that was to see coming at least 3 momths in advance! That circle of concentrated risk is even smaller now then it was back then. Now 5 institutions hold 97% of the notional vale and 88% of the market value in derivatives, and they are all basically in the same business and all basically hedge with each other. It is not a true hedge when the other side can't pay, and history has clearly proven how easy it is for the other side not to be able to pay. See a sampling of my many posts on this topic
This is exactly what I am talking about when I say these institutions CANNOT hedge their large risks. The number 2 derivative holder in the country (Bank of America) and the number 3 derivative holder in the country (Goldman Sachs) had to be bailed out by the government through AIG (another large derivative holder) when AIG had just $10 billion dollars in collateral calls that it could not pay. AIG was the largest insurer in the world!!! The number 1 derivative holder int eh country (JP Morgan) needed $90 billion or so in bailout monies when its major counterparty failed - Bear Stearns. See Is this the Breaking of the Bear? January 2008 for how easy that was to see coming at least 3 momths in advance! That circle of concentrated risk is even smaller now then it was back then. Now 5 institutions hold 97% of the notional vale and 88% of the market value in derivatives, and they are all basically in the same business and all basically hedge with each other. It is not a true hedge when the other side can't pay, and history has clearly proven how easy it is for the other side not to be able to pay. See a sampling of my many posts on this topic