Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: kahunabear who wrote (344)	10/4/1998 6:12:00 PM
From: Henry Volquardsen	Read Replies (1) \| Respond to of 2794

Whipsaw, They want to because that is often the cheapest way to finance a speculative position. When you buy a treasury bond and then finance it with a one day repo you have the benefit of owning the bond without having to put up cash. If you buy the December delivery Treasury bond future you are essentially doing the same thing, the price is the price of the cheapest to deliver bond repoed to the delivery date. When the banks say they have collateral they are not saying they have no exposure. They do have risk to the value of the collateral. However if you have sufficient collateral and daily margining it is no different than exchange margining. As long as they have demanded sufficient collateral they can wether the storm. The problem with LTCM is they were operating on very thin margin so there was not a lot of margin for error. From what I know of the business there is no one who is being margined as aggressively as LTCM. Any ongoing losses suffered cuts into the investor equity. That equity includes the $3.5 bln from the bailout group. After that it would be back to bad loans. Henry