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Pastimes : Clown-Free Zone... sorry, no clowns allowed
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To: LLCF who wrote (3032)7/10/2000 10:42:11 PM
From: pater tenebrarum  Read Replies (2) of 436258
 
Dave, the point is actually not a single institution's exposure - the risk is system-wide. in derivatives you can never remove risk from the system - only from particular trades. they're a zero-sum game and every risk A offsets is taken on by B. what's more, OTC derivative contracts are not liquid - they depend entirely on counterparties making good.
the question what happens in an inter-market MCHVE to those positions remains unanswered - we haven't had one yet since everybody has derivatives growing out the wazoo.
they're one of the symptoms of the credit/debt spiral US private sector entities of all stripes have created. it's all dandy as long as the economy chugs along (even so, defaults in junk bond land are already mounting), but i expect that the yield curve inversion and the widening of credit spreads has several big institutions breathing a sigh of relief that they can keep derivatives off the balance sheet and that no-one seems particularly interested in taking a closer look.

i bet you one soon-to-be-worthless share of (i-nut of your choice) that we'll get a high-profile debacle in the industry before long...and that the word 'derivatives exposure' will be mentioned...:)
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