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Non-Tech : Derivatives: Darth Vader's Revenge -- Ignore unavailable to you. Want to Upgrade?

To: Worswick who wrote (1016)	10/17/2000 11:58:04 AM
From: Thomas M.	Respond to of 2794

But, of course, you will never hear Greenspan discuss debt. prudentbear.com <<< This question came at the end of recent McTeer speech in Houston, on “The Role of Technology in the U.S. Economy.” “The question I have for you as a member of the Federal Reserve and all the Federal Reserve Governors is simply this: In the New Economy, I will use Microsoft as an example, companies are more dependent on intellectual capital as opposed to financial capital, unlike an Old Economy company like Exxon, where they obviously need a lot of intellectual capital too, but financial capital is the constraint. The question is, though, as the economy evolves into the New Economy and financial capital seems to be less important – companies are using just in time inventory, managing working capital needs better, so on and so forth. Why is it that we seem to have excessive credit growth? Why is it in a 6 or 7 percent nominal GNP economy M3 consistently grows 10 to 12% a year. Why is it the two largest government sponsored enterprises, for instance Fannie Mae and Freddie Mac are exploding their balance sheets. Why is it that the Federal Reserve, at the hint of any crisis, ‘97, ‘98, Russian defaults, Long Term Capital Management, Y2K, the Federal Reserve explodes its own balance sheet to facilitate another of explosion of credit in the economy. It seems like to me there is a disconnect because the economy seems to require a lot of financial capital to continue to grow. It seems the New Economy paradigm would argue that financial capital would be used ever more efficiently and require less credit on the part of the Nation’s central bank.” >>>

To: Worswick who wrote (1016)	3/22/2001 11:21:25 AM
From: Worswick	Read Replies (1) \| Respond to of 2794

From the Prudent Bear: March 16.... "...We also have little doubt that derivative players are and will continue to play a prominent role in the unfolding crisis. They have willingly become "receptacles" of enormous market risk – equity, currency, interest-rate, credit - in what will prove a great failed experiment with sophisticated "risk management" techniques and vehicles. If the true story is ever told about these derivative markets, the storyline will be much more about reckless leverage and speculations than managing risk. And with global positions surpassing $100 trillion, the derivative marketplace is very much a "weak link" in the acutely fragile global financial "daisy chain." If one major derivate player falters, perhaps a Japanese institution, then the entire frail system is in jeopardy. And as we have stated previously, the derivative players assume continuous markets and marketplace liquidity. Neither will be forthcoming as derivative traders look to offload the risk they have accumulated over this boom cycle. My favorite flood insurance analogy would today have torrential rains and a swelling river level leaving the flood insurance speculators in a panic as they rush to a reinsurance marketplace with no takers, in what they had always assumed would be liquid and functioning market. So much for making bold assumptions…"