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

To: Henry Volquardsen who wrote (42)	9/6/1998 4:47:00 PM
From: C.K. Houston	Respond to of 2794

U.S. TELLS JAPAN Y13 TRILLION MAY NOT BE ENOUGH FOR BANKS Futures World News - September 05, 1998 03:33 San Francisco-Sept. 5-FWN--U.S. FINANCE OFFICIALS TOLD their Japanese counterparts on Friday that the Y13 trillion yen earmarked to recapitalize Japanese banks may not be enough. The message came during the meetings between U.S. Treasury officials and Japanese Finance Ministry officials, said Eisuke Sakakibara, Japanese vice finance minister, in a briefing to reporters here. If the funds are not sufficient, Japan will provide additional funds. However, that would involve further negotiations with opposing political parties. Currently, banking reform legislation is pending in the Diet and it is unlikely the legislation will be passed any time soon. Sakakibara said Japanese Finance Minister Kiichi Miyazawa pledged that Japan will continue doing what is necessary to rebuild its economy. Conversations also focused on the perception gap between the United States and Japan about how serious its economic situation is. Sakakibara pointed out that the ordinary Japanese people don't know Japan is in a financial crisis. He said U.S. Federal Reserve Chairman Alan Greenspan made the comment that some day, ordinary people will have a sense of urgency, but at that time, it will be too late. It is a feeling within the U.S. government there is a perception difference between how the world perceives Japan's economic situation and how that same situation is perceived by the Japanese. Sakakibara pointed out the financial crises in Russia and Latin America are not directly related to the Japanese crisis. He noted that when the United States talks about a crisis in Latin America or Russia, it has to think about the responsibility, not only of Japan, but of other Group-of- Seven countries. U.S. officials, while not blaming Japan for the financial crises, have been stressing Japan is part of the solution. As the world's second-largest economy, it would greatly help matters if Japan could get back on track. Greenspan joined Japanese finance officials for dinner on Friday. Sakakibara said the global financial crisis was discussed. Greenspan said regulation of short-term capital flows is not a solution for the financial markets. Miyazawa said there might be a solution between no regulation and regulation.

To: Henry Volquardsen who wrote (42)	9/7/1998 12:44:00 PM
From: Worswick	Read Replies (1) \| Respond to of 2794

Henry wonder if this is accurate? Posted by Bryan on Sunday, 6 September 1998, at 11:19 p.m. (C) The Prudent Bear For Private Use Only Today, under the Federal Reserve margin rules, stock buyers can borrow only 50% of the value of the share they buy. In 1929, they could borrow up to 78%. A plain vanilla equiy swap involves a notional principal, a specified tenor, preset payment intervals, a fixed rate(the swap coupon), and a floating rate pegged to some well defined index. The floating rate is based on the total return of a stock index(such as the S&P 500, the DJIA, the Russell 2000, etc.) Alternatively, the swap may be pegged to a sector(semiconductor, networking, computer box maker). Suppose an institution wants to receive the index return and pay the fixed rate. The payments are to made each quarter on a notional principal of $50 million. The tenor is one year. The swap dealer(like Bankers Trust) prices the swap at 10%qr(a periodic rate of 2.5%) The swap is written so that the notional principal is constant over the life of the swap. The institution has $50 million in exposure to the index on what technically amounts to 10% margin. In other words, equity swaps allow the institution to borrow 90% of the value of the index they are purchasing! Higher than 1929! And Alex Rivlin said she wasn't sure this market was running on credit! By the way, there is no national clearinghouse for swaps like there are for futures and options. Swap Dealers are on their own with regards to default risk and credit risk. Thanks Henry. For those of you interested in an ongoing discussion of derivatives other than this site the url is: prudentbear.com go to teh individual discussions pages

To: Henry Volquardsen who wrote (42)	9/8/1998 3:05:00 AM
From: Peter Singleton	Read Replies (1) \| Respond to of 2794

Henry, I don't have any experience in international finance, don't know a whole lot about it, in fact, but that said, why not take Miyazawa at his word re: LTCB and the risks to the financial system. Chernomyrdin is also talking about some pretty scary things, and quite openly. Despite both of these guys having a position they are advocating, suppose they're both telling the truth? This is a full-blown, real-thing crisis. Suppose the English had asked us for help in the middle of 1939, and told us the Germans were ready to declare war in Europe. Sure, their assertion about the German's intentions was absolutely made to support their request for assistance. But they would also have been telling the truth. Peter