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Non-Tech : Derivatives: Darth Vader's Revenge
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To: Worswick who wrote (1016)3/22/2001 11:21:25 AM
From: Worswick  Read Replies (1) of 2794
 
From the Prudent Bear: March 16....

"...We also have little doubt that derivative players are and will continue to play a prominent role in the unfolding crisis. They have willingly become "receptacles" of enormous market risk – equity, currency, interest-rate, credit - in what will prove a great failed experiment with sophisticated "risk management" techniques and vehicles. If the true story is ever told about these derivative markets, the storyline will be much more about reckless leverage and speculations than managing risk. And with global positions surpassing $100 trillion, the derivative marketplace is very much a "weak link" in the acutely fragile global financial "daisy chain." If one major derivate player falters, perhaps a Japanese institution, then the entire frail system is in jeopardy. And as we have stated previously, the derivative players assume continuous markets and marketplace liquidity. Neither will be forthcoming as derivative traders look to offload the risk they have accumulated over this boom cycle. My favorite flood insurance analogy would today have torrential rains and a swelling river level leaving the flood insurance speculators in a panic as they rush to a reinsurance marketplace with no takers, in what they had always assumed would be liquid and functioning market. So much for making bold assumptions…"
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