Hawk, yes.
There are many problems with these transactions. The big flap about mark-to-market accounting illustrates the time problem. The transactions must be (at any time) quantifiable. Like bonds: no matter when you do a bond transaction, it has a value at that moment.
With bonds, even though they have a time element, there's no bankers yelling "Wait! This transaction won't reach maturity for 2 more years, so you can't value it now!"
Wrong. A default event is by definition a probability. It can happen, and at that moment it has a value.
en.wikipedia.org
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Agree about meddling by short-term traders, and many more troublesome aspects of these transactions.
I'm speculating, but suspect that OTC leveraged transactions were responsible for the huge blowup in commodity prices. They were financed by the carry trade, interfered disastrously with regulated markets, and disrupted the economics of supply and demand.
Not only when prices shot up, but also when they came down.
Do we know that's true? No. But I'm suspicious. When the Saudis told Bush that it was "speculators" pushing up the price of crude, I think they were right. It was hedge funds, using massive sums of leveraged money, backstopped by OTC derivative "insurance" on their plays.
Ordinary people paid on the way up, they paid at the top. Now at the bottom, they're guaranteeing the "insurers", as taxpayers. In mortgages, commodities, and currencies: you name it.
JMO
Jim
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