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Pastimes : Clown-Free Zone... sorry, no clowns allowed
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To: patron_anejo_por_favor who wrote (228269)3/14/2003 8:20:11 PM
From: ild  Read Replies (1) of 436258
 
From yesterday's ContraryInvestor.com

The 4Q 2002 US Banking System Derivatives report hit the Street yesterday. The bottom line is that this report is simply another in a series of testimonials to incredible credit creation in this country. The banking system notional derivatives exposure balloon just grows larger with each passing quarter. Year over year, US banking system notional derivatives exposure increased a mind-boggling 23.5%
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As of the end of 4Q 2002, total US banking system notional exposure to derivative contracts was $56.1 trillion. Total banking system derivatives exposure rose 5.5% in 4Q. Quite interesting is the fact that banking system revenues from derivatives activities actually fell (21.4%) quarter over quarter. So the banks are accepting more risk for lower fees?
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By far, the vehicle to which the US banking system has the greatest exposure is interest rate derivatives, particularly interest rate swap vehicles. 86% of banking system derivatives activities are "interest rate referenced".
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And for all intents and purposes, JP Morgan, BofA and Citibank tower over their banking peers. These three hold 89% of the US banking system derivatives book. They are also the folks who have accepted the most derivatives related credit exposure relative to their risk based capital.


They make big use of Berkshire Hathaway's annual report and this is their comment on what and why Buffer said

As you know, Buffet is oftentimes tactful in his broader or generic criticisms of various aspects of the financial markets as he sees them. During the height of the tech mania he clearly refrained from labeling the tech-crazed crowd as lunatics. His comments were that he didn't "understand" investing in technology related stocks. Well, the comments regarding derivatives in last weekend's Berkshire annual report simply don't mince words. Buffet is far from omnipotent, but we take his comments regarding derivatives quite seriously directly because he has an insiders view of the game. If he and Munger are having a tough time both understanding and dealing with their own derivatives portfolio, do you think the managements' at JPM, BofA, Citi, etc. are a whole lot smarter when it comes to really understanding and having their hands around the potential risks in their own derivatives books? It is clearly apparent that the primary mutual of Omaha wild kingdom that keeps Buffet up at night is the Gen Re derivatives book.

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