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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum

GLD 387.11

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4:00 PM EST

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To: abuelita who wrote (31287)	3/18/2008 7:52:37 PM
From: stan_hughes	Read Replies (1) of 218171

Cliff Notes version is that those numbers represent a potential huge liability -- not all of it will go bad, and not all at once, but if you compare the amount of the invested capital of Bank X to even a tiny fraction of default experience on derivative numbers that large, you could easily and quickly see Bank X wiped out completely during an adverse credit event One other feature of that derivatives exposure is that everybody is cross-guaranteeing everybody else, so if one biggie goes down, it will take a lot of the others with it in a daisy-chain effect. The Fed's role in such a situation is to be the backstop to prevent the failure from spreading, but even the Fed has limited resources In a worse case scenario of a major default where US banks and the Fed could not honor their obligations, ultimately the United States itself would be faced with the choice of either backing up the debts by printing money in the trillions to pay them off, or to repudiate the debts, rendering US currency worthless as a promise to pay. The aftermath of both of those situations would not be very pretty

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