"Commercial bank derivatives activity is concentrated in the four largest dealers, which now hold 94% of all contracts. The five banks with the most derivatives activity hold 96% of all derivatives, while the largest 25 banks account for nearly 100% of all contracts."
Given the amount of leverage, with $200 trillion in derivatives outstanding at the end of 2008, is there anything that really can be done to gracefully unwind the leverage?
How long before we'll be calling DOW 6000 a suckers rally?
I just don't see relaxing M2M, loaning $$ to hedge funds to buy toxic assets, etc. is going to do enough to unwind the leverage without major upheaval.
The top 10 banks as of May 2008 (http://www.infoplease.com/ipa/A0763206.html) had $8 trillion in assets. Four of these have $200+ trillion in derivatives. That's 25x leverage of assets to derivatives, not even factoring in their non-derivative leverage.
I'm hoping I'm missing something here, but can someone can explain how this can unwind without continuing to effectively print money at our current rate of trillions per quarter?
If we slow the rate of printing money, it seems like credit will stop completely -- with so many companies with obscenely upside-down balance sheets, this seems like a sure-fire recipe for a heavy duty long term recession / depression.
You got it right--The issue is manipulation of the markets with governmental intervention..Free Markets were designed to punish bad policy and or decisions--not reward them with bailouts and favors....The Government of the United States is now at the mercy of THE FED--by design and is paying the FED 3 billion dollars a day in interest...Too Bad THE FED is not even a branch of the United States--We would not have to pay interest on the capital created out of thin air....
There is only $750 billion dollars of actual physical currency in the United states. There is $10 trillion in money supply when you count CDS and savings accounts. So far a complete collapse of the derivative market seems to have been averted. If the gov. didn't do TARP banks wouldn't have been able to pay other banks and they would all go bankrupt like dominos.