william the wie
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- Nov 18, 2009
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Even before you get to synthetic CDOs securitized loans will normally generate 200% of face value in derivatives. That comes in the forms of tranches and CDSs with future and spot markets a multiple of 6 in the form of options also created, currency swaps in FOREX are also created but they would not go through the new exchange.How can the derivatives coursing through the world's economy have a greater dollar value than global GDP?Can't argue with your reasoning although I think Larry Summers was and is full of crap on this one. Would there be major transitional instability during the switchover, quite possibly. But as the 2000-1 and 2003-8 sequels to Born's proposal proved postponing a necessary step just increases the costs. Worse yet those transitional effects would be over in less than 6 months but the 100s of trillions of dollars of worldwide derivatives coursing through the US economy should have at least a 1% spin off in back office fees and such forever. Stupid politics and stupid economics.Whatever her motives, Blanche Lincoln's attempts to rein in derivatives met the same fate as Brooksley Born did in 1998 when Larry Summers called Born to tell her if she continued to call for transparency her efforts would lead to the worst financial crisis since WWII.
I'm afraid this mess will be back sooner than any of us imagine.
Only worse.
Is it credible a $38 million pool of mortgages could generate $280 million in total losses for investors before the principal was wiped out?
When does Larry Summers open his hedge fund?
GDP is a measure of current production not wealth. At current interest rates the US "market capitalization" is about 1/3-1/2 quadrillion. Since derivatives are hedges and speculations against various risks nominal values can exceed the value of planet with no more than arbitrage speculation.