WHO'S HOLDING THE C.D.S.'s (credit default swops)?
- Thread starter bgp
- Start date
Goldman sachs hholds a shitload of these and keeps them off the balance sheet. it has been a huge source of income for them, and a huge risk that many are unaware of.
$200,000,000,000,000 is a ridiculously mis-leading figure.
If I'm long 100 Dec Eurodollar futures (NOT the currency) and short 100 March Eurodollar futures I'm holding 200million in "derivatives". In fact though my exposure would be a several tick move in the spread which would be 10k or so.
It's the same with options traders. They can have a zillion contracts open but if they're boxed, flied ect the net p/l swing could be virtually ZERO.
The derivative books of major IB's are not materially different. There's a big difference between Bear, Citi, MER or LEH dropping a few billion as opposed to a few trillion.
The NOTIONAL value of off-balance sheet derivatives transactions is staggering. And its unregulated compared to the rest of the Street. The DERIVATIVES market is the spider web of trouble that the G7 countries collectively are scared to death of seeing unravel.
And they should be. I'm a broken record with this but you can't pull one strand of a spider web and not move the entire web.
And that is EXACTLY what the Fed and other central banks have been trying to do each time a crisis develops in a specific area of the financial markets. Current example - the meddling with ARM market for the ignorant people that took on ARMs at historically low interest rate levels.
And they should be. I'm a broken record with this but you can't pull one strand of a spider web and not move the entire web.
And that is EXACTLY what the Fed and other central banks have been trying to do each time a crisis develops in a specific area of the financial markets. Current example - the meddling with ARM market for the ignorant people that took on ARMs at historically low interest rate levels.
Quote from Pa(b)st Prime:
$200,000,000,000,000 is a ridiculously mis-leading figure.
If I'm long 100 Dec Eurodollar futures (NOT the currency) and short 100 March Eurodollar futures I'm holding 200million in "derivatives". In fact though my exposure would be a several tick move in the spread which would be 10k or so.
It's the same with options traders. They can have a zillion contracts open but if they're boxed, flied ect the net p/l swing could be virtually ZERO.
The derivative books of major IB's are not materially different. There's a big difference between Bear, Citi, MER or LEH dropping a few billion as opposed to a few trillion.
Plus there are many thing sthat can happen to minimize the exposure in any derivatives - all of these have actually taken place in the last six months - too name a few:
- parties can cancel the contract by agreement
- parties can effectively cancel the contract by one party buying out the other party's company
- voluantary agreement to simply stop trading in a market with no bid
- informal agreement to set a price floor
Yes, that's true.
And so is the fact that doing any one of the above has severe ramifications.
Every single derivatives transaction is entered into for a specific financial goal. Problem is, its an intricate weave that you just can't unravel one strand at at time.
In the end, SOMEone is going to take a loss. You can't just erase the trades, somebody takes the hit somewhere along the line.
All they have done in the last 6 months is shuffle the cards around - but they are still the same cards, and some of those cards are marked "GIANT LOSS"
Here's another angle - some of these RE backed derivatives might be worth a hell of lot more than Markit shows -
We haven't had 50 - 90% losses in the real estate collateral value. Or 50-90% losses in the amount recoverable after foreclosure.
Could turn out the Street takes a far worse beating than Main Street and the homeowners - not saying there's anything wrong with that.
We haven't had 50 - 90% losses in the real estate collateral value. Or 50-90% losses in the amount recoverable after foreclosure.
Could turn out the Street takes a far worse beating than Main Street and the homeowners - not saying there's anything wrong with that.