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

To: James F. Hopkins who wrote (17010)	4/21/1998 5:26:00 PM
From: Oeconomicus	Read Replies (2) \| Respond to of 94695

Jim, do you have a link to the entire BIS report quoted in your link? I've seen this same paragraph quoted before and have to wonder how it would read in-context. All the stats on banks' exposure to derivatives appears to be based on the face or nominal amount of the various instruments. This dramatically overstates the risk for several reasons. If the derivatives portfolios are properly balanced, the exposures to particular currencies or interest rate terms would tend to offset each other and even if left with unhedged net exposures, the risk is marginal. For example, say a bank does three currency swaps - Dollars for Yen with customer 1, Yen for DM with customer 2 and DM for Dollars with customer 3. Guess what, the bank has three contracts on their books, but they are back to Dollars. Of course they've skimmed some income off of each swap, but they are only exposed to movements of Yen or DM against the dollar IF one of the counterparties defaults - and then only for the movement in exchange rates, not the face amount of the contract (If I borrow Dollars and swap for Yen, then the Dollar falls and I default, my bank loses only the amount of additional Dollars it takes to repay their Yen obligation, not the face amount swapped). This 3 customer portfolio is an overly simplified example since, when you through in interest rate swaps, swap options, collars and any other common bank derivatives activity, as well as hundreds of customers, figuring out net exposures to anything is difficult. Suffice it to say that the gross amount of derivatives on a bank's books is nearly meaningless. Now, as for Fed, Wall Street and Republican complicity in the crimes of Nazi Germany, you MUST be kidding. If the Fed, the US government or Wall Street tried to help bail out the German economy in the early '30s, how does it follow that it was a right wing conspiracy to aid Hitler's rise to power? He rose to power because Germany was a mess and he played off the anger and desperation of the German people. But I'm no gold-bug, so WDIK? Alles Gute, Herr Buschman