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Non-Tech : Derivatives: Darth Vader's Revenge
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To: axial who wrote (1705)9/18/2010 10:55:29 AM
From: Hawkmoon  Read Replies (1) of 2794
 
The Chinese banks won a game of drag race “chicken” with foreign banks. Most credit support annex agreements would say that closing out these trades would be an event of default, and then the cross default on all the trades would kick in with the same counterparty.

So instead of permitting a Chinese bank to default on their obligation, US banks "re-negotiated" the deals, right?

And that's a sign of Chinese financial strength?

It's best to remember the maxim: Borrow $1 Million and you have a problem. Borrow a Billion and the bank has a problem.

Despite the grievous harm done, that power could have been retained had the US recognized the need to become known again as a "fair dealer":

Agreed.. with a caveat. One of the reasons the "Big 5" US investment banks were permitted to go to 40:1 leverage by the SEC was due to their inability to profitably compete against the European banks, many of which were leveraged 50:1 or even 70:1.

So "playing fair" means that all financial rivals need to adopt the same regulatory "playground". And achieving that on a global level, that all parties will respect is tantamount to herding cats.

I'm not so sure that any replacement for the USD is going to be based on a "fairer" system, especially when countries like China are threatening default in order to get re-negotiated terms on their swaps.

Hawk
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