How Exposed Is Our Financial System To Another Russian Default?

[g5000]

There's a guy down in Texas who sells mattresses. Every year, he runs an ad in which he tells the consumers that if a particular team wins the Super Bowl, he will refund them the money for any mattresses they bought in the past year.

This marketing strategy has reaped him tremendous returns.

But what if that team wins? He's screwed, right?

Well, to offset his risk, this same guy goes to Vegas and bets big on the OTHER team winning.

This is what the financial world calls a "hedge". The guy is brilliant and he makes millions every year.

This is supposed to be the same methodology "hedge funds" use. Thus the name.

In 1994, a hedge fund by the name of Long-Term Capital Management was started by a big swinging dick from Salomon Brothers and two other guys who shared a Nobel Prize in economics in 1997.

So of course everyone wanted in on this fund, right? Too bad. You had to be a gazillionaire to be allowed to invest with these big brains.

Now let's suppose our mattress guy borrowed a million dollars to place his bets in Vegas. That's called "leveraging". As long as he can cover his bets after the Super Bowl, no problem. But if he over-leveraged, and the first team wins, he's screwed.

That's what happened to LTCM. They were massively over-leveraged. But they hid that fact from their investors. Their collateral chains were so complex that no one caught on.

Until...1998. That's when Russia defaulted on its debts.

It turns out LTCM had made some incorrect assumptions. Every financial institution makes assumptions. They have to. Human nature is unpredictable, so you do the best you can.

When Russia defaulted, LTCM imploded. And all that leverage they had was owed to other banks. Uh oh!

And thus we ended up with what is called "systemic risk". The domino effect.

The US government did not really rescue LTCM. They did step in and sold off the bits and pieces of LTCM to their creditors and dissolved the hedge fund.

Fast forward to 2006. Once again, the financial world over-leveraged itself and used a formula to calculate their risks which contained assumptions.

No one ever thought to look at the formula and ask, "What if instead of a positive number for assets, we plug in a negative number?"

As in, what if housing prices fall?

BOOM!

So here we are. 2022. Russia's economy is collapsing, and a LOT of banks have loaned money to Russia. And a LOT of banks have derivative bets on Russia's debt.

And our banks are no longer too big to fail. They are too big to save.

 

[westwall]

There's a guy down in Texas who sells mattresses. Every year, he runs an ad in which he tells the consumers that if a particular team wins the Super Bowl, he will refund them the money for any mattresses they bought in the past year.

This marketing strategy has reaped him tremendous returns.

But what if that team wins? He's screwed, right?

Well, to offset his risk, this same guy goes to Vegas and bets big on the OTHER team winning.

This is what the financial world calls a "hedge". The guy is brilliant and he makes millions every year.

This is supposed to be the same methodology "hedge funds" use. Thus the name.

In 1994, a hedge fund by the name of Long-Term Capital Management was started by a big swinging dick from Salomon Brothers and two other guys who shared a Nobel Prize in economics in 1997.

So of course everyone wanted in on this fund, right? Too bad. You had to be a gazillionaire to be allowed to invest with these big brains.

Now let's suppose our mattress guy borrowed a million dollars to place his bets in Vegas. That's called "leveraging". As long as he can cover his bets after the Super Bowl, no problem. But if he over-leveraged, and the first team wins, he's screwed.

That's what happened to LTCM. They were massively over-leveraged. But they hid that fact from their investors. Their collateral chains were so complex that no one caught on.

Until...1998. That's when Russia defaulted on its debts.

It turns out LTCM had made some incorrect assumptions. Every financial institution makes assumptions. They have to. Human nature is unpredictable, so you do the best you can.

When Russia defaulted, LTCM imploded. And all that leverage they had was owed to other banks. Uh oh!

And thus we ended up with what is called "systemic risk". The domino effect.

The US government did not really rescue LTCM. They did step in and sold off the bits and pieces of LTCM to their creditors and dissolved the hedge fund.

Fast forward to 2006. Once again, the financial world over-leveraged itself and used a formula to calculate their risks which contained assumptions.

No one ever thought to look at the formula and ask, "What if instead of a positive number for assets, we plug in a negative number?"

As in, what if housing prices fall?

BOOM!

So here we are. 2022. Russia's economy is collapsing, and a LOT of banks have loaned money to Russia. And a LOT of banks have derivative bets on Russia's debt.

And our banks are no longer too big to fail. They are too big to save.

No, what he does is buy insurance for the possibility of a loss.

Gosh, you are truly stupid.

 

[Mac1958]

There's a guy down in Texas who sells mattresses. Every year, he runs an ad in which he tells the consumers that if a particular team wins the Super Bowl, he will refund them the money for any mattresses they bought in the past year.

This marketing strategy has reaped him tremendous returns.

But what if that team wins? He's screwed, right?

Well, to offset his risk, this same guy goes to Vegas and bets big on the OTHER team winning.

This is what the financial world calls a "hedge". The guy is brilliant and he makes millions every year.

This is supposed to be the same methodology "hedge funds" use. Thus the name.

In 1994, a hedge fund by the name of Long-Term Capital Management was started by a big swinging dick from Salomon Brothers and two other guys who shared a Nobel Prize in economics in 1997.

So of course everyone wanted in on this fund, right? Too bad. You had to be a gazillionaire to be allowed to invest with these big brains.

Now let's suppose our mattress guy borrowed a million dollars to place his bets in Vegas. That's called "leveraging". As long as he can cover his bets after the Super Bowl, no problem. But if he over-leveraged, and the first team wins, he's screwed.

That's what happened to LTCM. They were massively over-leveraged. But they hid that fact from their investors. Their collateral chains were so complex that no one caught on.

Until...1998. That's when Russia defaulted on its debts.

It turns out LTCM had made some incorrect assumptions. Every financial institution makes assumptions. They have to. Human nature is unpredictable, so you do the best you can.

When Russia defaulted, LTCM imploded. And all that leverage they had was owed to other banks. Uh oh!

And thus we ended up with what is called "systemic risk". The domino effect.

The US government did not really rescue LTCM. They did step in and sold off the bits and pieces of LTCM to their creditors and dissolved the hedge fund.

Fast forward to 2006. Once again, the financial world over-leveraged itself and used a formula to calculate their risks which contained assumptions.

No one ever thought to look at the formula and ask, "What if instead of a positive number for assets, we plug in a negative number?"

As in, what if housing prices fall?

BOOM!

So here we are. 2022. Russia's economy is collapsing, and a LOT of banks have loaned money to Russia. And a LOT of banks have derivative bets on Russia's debt.

And our banks are no longer too big to fail. They are too big to save.

I haven't looked at the numbers, but I'm guessing that our banks will get through it in one piece. Hey, maybe we can tell Russia to fuck themselves on our Treasuries!

Regarding "too big to fail", that's a self-inflicted wound. It only got worse after the Meltdown. We don't seem to learn shit.

 

[iamwhatiseem]

I wouldn't want to be an Italian or French banker right now.
Over half of all the money Russian companies owe to world banks is French and Italian.
And then Austria, and then the United States with about 14% of Russian debts.
But then you have to look at who do these French and Italian banks owe money to.
Uh oh.

 

[bendog]

MSN

www.msn.com

Obama couldn't bring himself to it, but the beauty of "fiat money" is that when the value of assets disappears in a market (ie the asset becomes worthless in that no one will buy it, so the person(s) owning the assets lose the value of all the money they paid for the asset) IS the creator of the fiat money (u and I) can buy the asset for ... next to nothing, and then sell it when the value returns.

That doesn't help the folks who owned the asset when it's value goes "poof", but the loss of value to the overall markets may be overstated

 

[g5000]

No, what he does is buy insurance for the possibility of a loss.

Gosh, you are truly stupid.

O'rly?

Mattress Mack loses $9.5M on Super Bowl LVI bet

The wagers were part of a Gallery Furniture promotion that brought in about $20 million in revenue.

www.foxbusiness.com

Texas furniture salesman Jim "Mattress Mack" McIngvale has lost approximately $9.5 million after placing record-setting bets through Caesars Sportsbook's app on Super Bowl LVI.

[snip]

The moneyline odds for the Bengals to win was at +170 when McIngvale placed the bets. If he won, Mattress Mack would have generated a profit of just over $16.2 million. However, the Los Angeles Rams ultimately ended up beating the Bengals 23-20.


Thanks for playing, stupid.

 

[g5000]

I haven't looked at the numbers, but I'm guessing that our banks will get through it in one piece. Hey, maybe we can tell Russia to fuck themselves on our Treasuries!

Regarding "too big to fail", that's a self-inflicted wound. It only got worse after the Meltdown. We don't seem to learn shit.

I hope to hell someone is looking at the numbers and unwinding their risk.

 

[MarathonMike]

There's a guy down in Texas who sells mattresses. Every year, he runs an ad in which he tells the consumers that if a particular team wins the Super Bowl, he will refund them the money for any mattresses they bought in the past year.

This marketing strategy has reaped him tremendous returns.

But what if that team wins? He's screwed, right?

Well, to offset his risk, this same guy goes to Vegas and bets big on the OTHER team winning.

This is what the financial world calls a "hedge". The guy is brilliant and he makes millions every year.

This is supposed to be the same methodology "hedge funds" use. Thus the name.

In 1994, a hedge fund by the name of Long-Term Capital Management was started by a big swinging dick from Salomon Brothers and two other guys who shared a Nobel Prize in economics in 1997.

So of course everyone wanted in on this fund, right? Too bad. You had to be a gazillionaire to be allowed to invest with these big brains.

Now let's suppose our mattress guy borrowed a million dollars to place his bets in Vegas. That's called "leveraging". As long as he can cover his bets after the Super Bowl, no problem. But if he over-leveraged, and the first team wins, he's screwed.

That's what happened to LTCM. They were massively over-leveraged. But they hid that fact from their investors. Their collateral chains were so complex that no one caught on.

Until...1998. That's when Russia defaulted on its debts.

It turns out LTCM had made some incorrect assumptions. Every financial institution makes assumptions. They have to. Human nature is unpredictable, so you do the best you can.

When Russia defaulted, LTCM imploded. And all that leverage they had was owed to other banks. Uh oh!

And thus we ended up with what is called "systemic risk". The domino effect.

The US government did not really rescue LTCM. They did step in and sold off the bits and pieces of LTCM to their creditors and dissolved the hedge fund.

Fast forward to 2006. Once again, the financial world over-leveraged itself and used a formula to calculate their risks which contained assumptions.

No one ever thought to look at the formula and ask, "What if instead of a positive number for assets, we plug in a negative number?"

As in, what if housing prices fall?

BOOM!

So here we are. 2022. Russia's economy is collapsing, and a LOT of banks have loaned money to Russia. And a LOT of banks have derivative bets on Russia's debt.
ys
And our banks are no longer too big to fail. They are too big to save.

Interesting analysis. I have to believe that after the 2008 debacle we are on more solid footing banking-wise but there's always some X factor that seems to come floating in. China doesn't want their financial interests threatened so in a worst case scenario they would step in also.

 

[bendog]

I hope to hell someone is looking at the numbers and unwinding their risk.

I don't see how to unwind it without "writing it off" ie taking a paper loss. But if the policitical solution could be found, the assets would recover value.

The real problem is political and not economic. Putin's self imposed only end game is "at least" Ukraine giving to Russia its' eastern provinences and Crimea, accepting demiliteraized status with Russia having no constrictions on invading yet a FOURTH time, and not paying any damages for wasting Ukraine. Those are all non-starters for Ukraine. And even if the West allows Putin to literally starve the defenders of Kiev and other cities, Putin simply doesn't have enough troops to occupy all of Ukraine, and the longer it goes on, the less the west will need Russia carbon.

To invade Russia, Nato would have to have all of its members vote for it, and to vote for it, they'd have to violate the Nato charter. Putin's claims of needing territory to avoid another 1941 invasion are actually baseless SO LONG AS NATO IS AROUND. And if Nato is not around, Putin can reclaim the Baltics or any other state. That was one of the dangers of Trump. Nato is not obsolete, and trump was merely spouting what Putin and AmericanIsolationists wanted to hear

So where's the political solution? Germany and Japan became non-militarized capitalistic republics under US protection. That's not happening here. Russia could make a non-aggression treaty with Ukraine, and pay Ukraine in "free gas" to rebuild ... and that wouldn't have any actual cost to Russians' standards of living. The Ukrainians justifiably hate Russians now, and not just Putin. So while at one time some kind of joint defensive positions in the eastern Ukraine provinces might have happened .... not gonna happen now. Crimea was really more Russian than Ukraine, but now .... how is it in Ukraine's self interest to stop bleeding Russia? Is Putin going to passify them by sending in ISIS fighters? If he expands Syria into europe .... Greece or Malaysia circa 1949?

 

[Mac-7]

How Exposed Is Our Financial System To Another Russian Default?​

Who cares as long as Golfing Gator is well fixed to ride out the storm?

sure America will be completely flooded with refugees from the 3rd world

but thats ok since Gator along with most other libs prefer that hispanics dominate anyway

 

[Stormy Daniels]

No, what he does is buy insurance for the possibility of a loss.

Gosh, you are truly stupid.

Yes, because that's a magic wand. If any such losses do materialize, the insurance companies pull money out of their hats like a bunny and everything is A-OK.

You are truly stupid.

 

[westwall]

Yes, because that's a magic wand. If any such losses do materialize, the insurance companies pull money out of their hats like a bunny and everything is A-OK.

You are truly stupid.

Casinos buy jackpot insurance all the time.

DURRRRR

 

[Stormy Daniels]

Casinos buy jackpot insurance all the time.

DURRRRR

Oh dear god, do you actually think you're saying something useful?

 

[Fort Fun Indiana]

There's a guy down in Texas who sells mattresses. Every year, he runs an ad in which he tells the consumers that if a particular team wins the Super Bowl, he will refund them the money for any mattresses they bought in the past year.

This marketing strategy has reaped him tremendous returns.

But what if that team wins? He's screwed, right?

Well, to offset his risk, this same guy goes to Vegas and bets big on the OTHER team winning.

This is what the financial world calls a "hedge". The guy is brilliant and he makes millions every year.

This is supposed to be the same methodology "hedge funds" use. Thus the name.

In 1994, a hedge fund by the name of Long-Term Capital Management was started by a big swinging dick from Salomon Brothers and two other guys who shared a Nobel Prize in economics in 1997.

So of course everyone wanted in on this fund, right? Too bad. You had to be a gazillionaire to be allowed to invest with these big brains.

Now let's suppose our mattress guy borrowed a million dollars to place his bets in Vegas. That's called "leveraging". As long as he can cover his bets after the Super Bowl, no problem. But if he over-leveraged, and the first team wins, he's screwed.

That's what happened to LTCM. They were massively over-leveraged. But they hid that fact from their investors. Their collateral chains were so complex that no one caught on.

Until...1998. That's when Russia defaulted on its debts.

It turns out LTCM had made some incorrect assumptions. Every financial institution makes assumptions. They have to. Human nature is unpredictable, so you do the best you can.

When Russia defaulted, LTCM imploded. And all that leverage they had was owed to other banks. Uh oh!

And thus we ended up with what is called "systemic risk". The domino effect.

The US government did not really rescue LTCM. They did step in and sold off the bits and pieces of LTCM to their creditors and dissolved the hedge fund.

Fast forward to 2006. Once again, the financial world over-leveraged itself and used a formula to calculate their risks which contained assumptions.

No one ever thought to look at the formula and ask, "What if instead of a positive number for assets, we plug in a negative number?"

As in, what if housing prices fall?

BOOM!

So here we are. 2022. Russia's economy is collapsing, and a LOT of banks have loaned money to Russia. And a LOT of banks have derivative bets on Russia's debt.

And our banks are no longer too big to fail. They are too big to save.

All valid points, but the Russan portfolio held but US banks is "only" in the ballpark of about $100 billion, right?

It's not a good thing, but if that $100 billion turns to zero overnight (it will, if it has not already), that is still a drop in the bucket compared to the wealth that vanished in 2007/2008.

Right?

 

[LordBrownTrout]

Hi name is mattress mack. When hurricane harvey hit he opened his entire warehouse for a temporary place to stay.

 

[g5000]

All valid points, but the Russan portfolio held but US banks is "only" in the ballpark of about $100 billion, right?

It's not a good thing, but if that $100 billion turns to zero overnight (it will, if it has not already), that is still a drop in the bucket compared to the wealth that vanished in 2007/2008.

Right?

Long Term Capital Management had only $3.6 billion under management and their collapse almost brought down the entire financial system.

The Russian bailout which led to LTCM's collapse was $22.6 billion. The Russians devalued the ruble to 21 rubles to the USD and that led to LTCM going under.


Today, due to sanctions, the ruble has collapsed to less than one US penny.

It's not the principal which matters, it's all the derivatives connected to it's collapse. If the 2008 subprime bubble collapse had just been about people defaulting on their home loans, we could have survived it. However, there were trillions of dollars of derivatives all over the world piled on top of subprime loans all over the planet.

That's why I almost never refer to that period as a subprime bubble. It was a global derivatives bubble.

So...yeah. I'm very worried.

 

[g5000]

Casinos buy jackpot insurance all the time.

DURRRRR

That is not what Mattress Mack does.

 

[westwall]

That is not what Mattress Mack does.

Yeah, but he CAN.

DUUURRRRRR

 

[Fort Fun Indiana]

Yeah, but he CAN.

DUUURRRRRR

He can buy insurance against gambling losses?

Fuck man. What has happened to you? I specifically remember you not being this stupid and delusional when I first arrived on this board.

 

[g5000]

Yeah, but he CAN.

DUUURRRRRR

Here is what you said:

No, what he does is buy insurance for the possibility of a loss.

Gosh, you are truly stupid.


It is pathetic you are such a hack that you can't admit you were wrong. I guess we know who is truly stupid.



.