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

To: ggersh who wrote (14189)	11/7/2008 8:17:23 PM
From: Real Man	1 Recommendation Read Replies (1) \| Respond to of 71456

It's all fat tails -g- en.wikipedia.org Playing on fat tails has led to fat payout this October. We smile. -g- en.wikipedia.org

To: ggersh who wrote (14189)	11/8/2008 8:21:50 AM
From: axial	Read Replies (2) \| Respond to of 71456

gg, re: "Knew this a long time ago"... I think you're right that some people did; it's clear that others who should have known, didn't. Or they knew and ignored their knowledge. Hard to say, since everyone is pointing the finger at someone else. Rating agencies, Greenspan, the mortgage industry, investment bankers, John Q Public. Everybody's innocent. Or guilty. By public commentary, I think most people believe Wall Street knew what was going on. Like the sign said, "Jump, you fxxkers!" --- About 5 years ago we proposed a hedging program for a large municipal transit authority: forex, snow removal, fuel. About 2 weeks of research went to the specific problem of default risk. There was lots of material on the subject, literally dozens of papers and studies, maybe hundreds: far more than I could assimilate in the time available. The way we proposed to handle default risk was pretty simple: we limited our exposure. We only hedged enough to take out the budgetary peaks and valleys, and hedges never exceeded reserves. The point? Even then default risk was a recognized problem; the risk couldn't be eliminated, but it could be contained. However, it stood to reason that if one committed to a fully-hedged (never mind leveraged) position default would be disastrous. --- What I'm trying to understand is whether there isn't some middle ground between Vi's position that all derivatives should be banned, and the circumstances that got us here. The question is, "What if non-derivative steps were taken to eliminate or decrease default risk?" Parallel to that is the fact that so far the failure rate on swaps (at auctions) has been low, by reports. I haven't seen specific percentages, just statements that they were negligible. However it's impossible to tell whether that would have been true before recent interventions. Maybe the low default rate is the outcome of emergency measures. --- Perhaps I don't understand Vi correctly. Agreed, that backing a derivative position (contract) with another similar contract is pretty goofy. Using corruptible (or just incompetent) rating agencies to validate such contracts, ditto. But backing contracts with pledged hard assets is not goofy. There's still the issue of basis risk, and whether contractual terms have been met, but that's not a default problem. --- Loosely related is the following: In another dialogue, we've been discussing the cost of insuring US debt. Well if the US defaults, doesn't it seem likely that the whole damn global financial system will fall apart? What's the point of insuring that risk? Who could possibly have the resources to pay, especially in a global meltdown? Any informed input appreciated. Jim

To: ggersh who wrote (14189)	11/8/2008 1:15:36 PM
From: LTK007	Read Replies (1) \| Respond to of 71456

<<Speaking before the November 7 meeting, German chancellor Angela Merkel said that what was needed was a programme that drew on the lessons of the current global financial crisis to prevent a repeat of such a crisis. Edit: Hah!!!!!!!!!!!!!! That is like saying after all the Four Horses of The Apocalypse have fled the barn and are galloping free "Ah i think we need a plan to close the barn door!", sort of PATHETIC, no??.Max)>> i excerpted this from a post i just made as i think it sums up my longterm view of all this "POOLPAH!" Max