Thursday, May 05, 2005

Unregulated Derivatives Total $220 Trillion

While the financial media have their microscopes on Federal Reserve language like "measured", statements like these are practically ignored. "The rapid proliferation of derivatives products inevitably means that some will not have been adequately tested by market stress."

"Over-the-counter derivatives traded privately between investors are largely unregulated. The global over-the-counter derivatives market is estimated to have a value of $220 trillion, Greenspan said." You shouldn't need any coffee after that comment.

"Concerns about potential market disruptions posed by the two mortgage giants 'will remain valid until the vast leveraged portfolios of mortgage assets held by Fannie and Freddie are reduced and the associated concentrations of market risk and risk-management responsibilities are correspondingly diminished.'"

"The Fed continues to be concerned that the relatively small number of institutions that act as dealers in derivatives markets may pose risks. In particular, the Fed worries what would happen if a large dealer suddenly had to exit the market."

10 Comments:

At 8:41 AM, Anonymous powerpuffgirl said...

"associated concentrations of market risk and risk-management responsibilities are correspondingly diminished"

My question is: If they offload these "assets" and risks, who is going to be taking them on? Countrywide? Somebody else?

The RE optimists (apologists) say private companies will absorb all of this mess, keeping the cash flowing and making sure the RE industry never misses a beat. Is this even possible, or is it just wishful thinking?

 
At 8:49 AM, Blogger deb said...

Sometimes I think our economy is one big Enron waiting to happen.

 
At 9:05 AM, Blogger Ben Jones said...

PPG,
Nobody can support this system should it crack. AG could hang off the capitol in a toga made out of a flag and scream about this problem and the press would want to know if rates are going up a quarter point.

Countrywide can only float $500 million at a time. Even one trillion of those derivative could sink the boat.

 
At 9:18 AM, Anonymous Anonymous said...

Better keep buying that gold.

Forget all other assets.

 
At 9:41 AM, Anonymous BoyInTheBubble said...

A couple of minutes ago, GM just got cut to junk.

Just came across our Bloomberg terminal.

 
At 9:49 AM, Blogger Melody said...

I believe the case for gold is stronger now than it has ever been. The recent setback provides a buying opportunity. Why is it only in investing that people want to buy high and sell low? It is because they get comfort in doing what the crowd is doing, but most of the crowd has not the slightest idea about the impending economic and financial disasters. Gold is your protection in these very difficult times.

Investment in well-managed junior gold mining shares is recommended, because these companies are growing their gold resources, whereas the producers are depleting theirs.

 
At 10:10 AM, Anonymous Anonymous said...

2 hedge funds have blown up in Canada now. Portus and Norshield. The Portus funds disappear offshore. Norshield has stopped allowing withdrawals.

 
At 10:57 AM, Anonymous Anonymous said...

Melody,

I agree that gold mining stocks are a good place to be, BUT I would also add that one should invest an equal amount in physical gold and silver bullion. Don't buy any certificates or pool ownership, and please don't buy GLD, and other similar products.

The way to drive up the price of our mining stocks is to BUY and hold physical gold and silver.

 
At 3:15 PM, Anonymous Anonymous said...

"Don't buy any certificates or pool ownership, and please don't buy GLD, and other similar products."

Could you elaborate why its not a good idea to invest in GLD, IAU? Isn't the investment backed by physical gold held by the fund?

 
At 4:16 PM, Anonymous Anonymous said...

Anon 10:57,

Is that like driving up the price of housing by BUYing and holding physical houses?

 

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