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Strategies & Market Trends : Waiting for the big Kahuna -- Ignore unavailable to you. Want to Upgrade?

To: carranza2 who wrote (79737)	3/15/2008 9:06:19 AM
From: Real Man	Read Replies (2) \| Respond to of 94695

Real value of derivative market is 11 Trillion. Notional is NOT very meaningful, but we lack any good handle on OTC positions. 11 Trillion real value is very meaningful. While derivatives are instruments that TRANSFER risk to the system, they by definition increase systemic risk. That's what we are dealing with right now. There are long and short posisions, some winners, some losers, the losers can't pay, so counterparty risk cascades through the system causing a domino effect. Bear situation was very dangerous, so they were quickly bailed out by the Fed. Unfortunately, I don't think they are alone. The credit market was ABSOLUTELY MURDERED due to derivatives. These instruments decreased risk and spreads on the upside, but now they are doing just the reverse. Spreads are far in excess of where they should be, as the credit market is pricing a massacre, and they could expand still. What a mess...