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Strategies & Market Trends : The coming US dollar crisis -- Ignore unavailable to you. Want to Upgrade?

To: Real Man who wrote (4183)	2/11/2008 4:26:23 PM
From: RockyBalboa	Read Replies (2) \| Respond to of 71442

Vi, correct regarding the bulk of the trades which are of plain vanilla type. Yet they can build up significant exposure on the fixed side, particularly if the market moves a lot. I remember this from the mid 90s when corporate treasurers swapped liabities into fixed only to see the long end go down a lot further, like from 7.5 to 4s. They were complaining all the time and some had their deals reneged or in nice bank talk, "bonificated", as if something like an implied put on rates existed. Perhaps not so plain vanilla as supposed? Secondly I got to read FIASCO recently, in which a MS trader elaborated about expensive derivatives sold to clients, in the hope clients dont blow up on it (some did...) and then one real nasty case from a desk I used to work with: They issued an ill designed libor floater which was simply a tough sale from the beginning as clients never understood it. While it had a nice large spread, some like 125bp the terms called for adjustments to the downside, never to the upside over the life of the bond. The head trader quickly found out that this thing is not pretty on the books and has proven nearly unhedgeable. He inherited because it couldnt be sold to clients in sufficent size... Unlike in equities where traders would often employ house cleaning activities, the swap books are usually a mess and a mountain of swaps built up over time. To me it often appeared as if existing counterparty limits were never an issue for traders.