Totally unregulated normally doesn't bother me much. It might keep me from directly participating esp. if there is transparency concerns but I don't consider it automatically bad or evil, sometimes its even a plus.
As for $62tril, many of those net out. The actual value of real money or asserts is nowhere near that, add in the lost or fraudulent claims of money or assets and it still nowhere near that.
You have the fraction that represents zero sum debt that actors in the market directly or indirectly owe to themselves.
Then you have the much larger factor about how the these derivatives are totaled up. (see below)
None of which changes the fact that there is a huge amount of highly leveraged complex risk out there that is now causing problems. But it isn't really equivalent to the gross production of the world, even though the headline numbers would make you thinks so. Even if only 2% of that represents actual money at risk, and only 10% of that is really lost, you would still be talking about over $124bil in losses.
----
In fact,derivatives can be written on more than the face value of ll the actual bonds that exist (ever heard of the ABX index(s)?). If I buy a derivative for $1 that says Megan pays me $5 dollars if the value of a specified $1,000,000 General Motors bond declines to say, $950,000, then the ISDA statistics will say we have a $1 million derivative, even though in reality it is a $5 "bet"
it is quite easy to demagog these numbers, which is why people do so
Tell me, what bank or hedge fund has failed due to over-indulging in credit default swaps?
Posted by Jozef | April 16, 2008 6:30 PM
meganmcardle.theatlantic.com |
