[A-List] credit default swap disaster - the dog that did not bark?

[Todd Boyle]

Many if not most, of the conditions in the derivatives outstanding
might never trigger.  And furthermore, even if a derivative ultimately
turns out to have value on the dates in its terms, it is not necessarily a
loss to the holder but often a sort of unrealized gain.  In fact,
they might not even have a loss on the underlying asset or
liability.  (It seems to me, they have a real loss to the extent
of cash paid for the derivative, if any.)

On the other hand, most of the derivatives have consequences
when market prices swing sharply, for things like oil, metals,
equity, interest rates/ long bonds etc.   So, the $109 billion below,
could double overnight...
TOdd


At 01:43 PM 10/17/2008, Michael Hudson wrote:
>Well, SOMEBODY is going to lose a bundle. Who will it be?
>     Hedge fund losses alone won't bring the system down, because anyone
>joining has to sign a paper saying that they can afford to lose the money
>with no sweat.
>     the problem is if anyone has been dumb enough to insure the losses; or
>whether the bank itself will have made bad bets.
>     Michael
>
>
>On 10/17/08 3:42 PM, "Charles Brown" <charlesb at cncl.ci.detroit.mi.us> wrote:
>
> >
> >
> > 
> ------------------------------------------------------------------------------
> > --
> >
> > To: Progressive Economics
> > From: Doyle Saylor
> >
> > --------------------------------------------------------------
> >
> > On Oct 16, 2008, at 3:00 PM, Chris Burford wrote:
> >
> >
> > I would be interested to know whether other list members think that
> > the
> > collapse of these 50 trillion dollar structures will cause an
> > unimaginable
> > further lurch into profound depression or whether they are just
> > worthless
> > air, and could be blown away.
> >
> >
> > Doyle;
> > In a discussion of J.P. Morgan's derivatives this is a quote from Conde
> > Nash Portfolio -
> >
> >
> > J.P. Morgan continues to dominate the world of derivatives. It has
> > derivatives contracts tied to $90 trillion of underlying securities. Of
> > that, $10.2 trillion are credit-derivatives contracts. Those
> > mind-boggling totals are somewhat misleading. They reflect what is
> > called the ³notional² amount in the world of derivatives, based on
> > the underlying amount of the contract, not its current value. When
> > offsetting contracts are taken into account, that figure is whittled
> > down to a much smaller-though still enormous-$109 billion of
> > derivatives, of which $26 billion are credit derivatives. That¹s the
> > amount the bank could lose if all its trading partners went out of
> > business, an extremely remote event. But the exposure is climbing, up
> > 17.4 percent from the end of 2007. That¹s equal to 20 percent of the
> > bank¹s net worth.
> > 
> http://www.portfolio.com/views/columns/wall-street/2008/10/15/Credit-Derivativ
> > es-Role-in-Crash
> >
> > Doyle;
> > Observe the notional value being stated above.
> > thanks,
> > Doyle Saylor
> >
> >
> >
> >
> > This message has been scanned for malware by SurfControl plc.
> > www.surfcontrol.com
> >
-------------- next part --------------
A non-text attachment was scrubbed...
Name: not available
Type: text/html
Size: 3787 bytes
Desc: not available
URL: <http://greenhouse.economics.utah.edu/pipermail/a-list/attachments/20081017/af4cc985/attachment.txt>