John Pitera's Market Laboratory Message Board

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Strategies & Market Trends : John Pitera's Market Laboratory

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To: John Pitera who wrote (9158)	3/23/2008 7:14:33 AM
From: stan_hughes	Read Replies (1) of 33421

It might temporarily "take the liquidity issue off the table", but it doesn't and can't address the matter of the insolvency of any one of a number of major financial institutions being exposed in the event of a large counterparty failure somewhere in the $500 trillion labyrinth of outstanding derivative agreements where some or all of these institutions are dependent upon the good performance of the link in the chain that fails That's what scared the crap out of everyone about Bear -- de facto counterparty failure, given that Bear was the 12th-largest actor in the derivatives play -- that, and the prospect of having the whole sordid mess on the front page in all its gory detail for the world to see if Bear went bankrupt under Delaware law and was therefore made subject to public and very close forensic accounting examination -- hence a bogus deal disguised as an acquisition (more like an expropriation, actually) was required to avoid that pesky little issue The other inference being of course, that a major counterparty failure is beyond the ability of the Fed to remedy -- simply too much money would be involved

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