Saturday, June 30, 2007

Derivitives spread risk (like a virus)

Has this cheap money bubble finally croaked?

None of this would need to cause trouble beyond a mere house-price crash and consumer slump – if only it weren't for the credit derivatives issued against so much of the world's outstanding housing debt. Running up debt – a promise to pay in the future – can only last as long as the promise comes good. Squaring that promise by issuing a derivative against it only increases the chance – and the cost – of it failing.

Posted by ticktock @ 04:38 PM (514 views)
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One thought on “Derivitives spread risk (like a virus)

  • Stillthinking says:

    Before this falls off the bottom of the flagged for interest list, am I right in that when these credit derivatives schemes collapse they are essentially the hidden equivalent of a bank failure. The UK gov. actually prints the notes, so that reserve requirements can be enforced on normal lending. However, with these credit derivatives they are essentially the good old days of the goldsmith issuing as many promissary notes as he can get away with, as banks don’t need printed notes. So when the financial press talks about ‘repackaged credit derivatives’, the repackaged part means promissary note? So everything is OK as long as confidence is maintained, but now there is no confidence anymore so bust.
    But given the amount of press coverage about sub-prime everyone does know, including me, so why hasn’t there been a massive rush out, the matching part of the final morning opening hours of a bank during the run. ??? Or the collapse would be extremely fast but where is it, as it should be here now.
    So, ?????!!!!????? Whats wrong with this line of reasoning?

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