Dennis, Truth be told, most of the heavily margined players never see Naz stocks. They are heavily margined because they are using stat models to "control" risk, and you can't model an area that has no or few value parameters. In fact, the great majority are not even that heavily into equities. It is bonds, currencies and real estate that get most of the indebted players. And the margins on those critters is huge.
LTCG suffered very small losses compared to their total portfolio, but huge losses compared to their capital, which was wiped out. It is like in commodities. If you short me a million bucks worth of T-bonds, and they rise 5%, that isn't very much if you are fully covered with cash. But if you are carrying the short on 5% margin, which is legal, uh, Houston, we've got a problem. <g>
My guess is that 99% of all derivative contracts make perfect sense for the institutions that use them. My fear is that the 1% takes down many of them, or, at least causes their profits to take a dive. |
