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D-Day -- Derivatives or Detonate.



October 09, 2008 – Comments (7)

Market Ticker is a blog on my read list.  Sometime I have true appreciate for the use of language, and I picked up the title here from a line in his post today.

I never heard of a derivative until about 2 years ago when I learned there was about 20 times the total of the US economy in these things...  TWENTY FREAKING TIMES!  And if that wasn't bad enough, they esculated to about 50 times the US economy.  To me this was stop what you are doing and try to learn something about these things because this can't possibly be good...

According to Karl:

"This has the potential to be a big "nothingburger", a minor tremor, or a 250' high tsunami that washes over Lower Manhattan (and the City) tomorrow.  There's no good way to know in advance which outcome will manifest, since nobody (at present) knows what the true netted-out open interest is.  This is one of the problems with not having a public exchange; lack of knowledge. 

The bright light of reality will shine tomorrow......"

Tomorrow is now today...

I am still very concerned about these things and as Karl said, we just don't know...


7 Comments – Post Your Own

#1) On October 09, 2008 at 9:54 AM, dwot (29.28) wrote:

Worth reading:

Greenspan's legacy

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#2) On October 09, 2008 at 10:26 AM, abitare (30.20) wrote:


Why did you not short the market? You have been right on most of these issue and the market?

How are your students? Did you tell them you are Top Fool?

My Mom keeps trying to lecture me on the Market. I tell her I am #2 in CAPS (via Points), so I do not need market advice. (at this moment in time, anyways)

#2 in CAPS, at least I have that going for me.... ;) 

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#3) On October 09, 2008 at 10:40 AM, ckfinance2003 (< 20) wrote:

I have to say I'm amazed that some intelligent (I thought) people continue to defend these instruments.  

I have to admit I initially fell for the crowd that was decrying the "mark to market" rule and thought this should be done away with.  But when I had it really explained, I'm thinking this is more of a "shift the blame" for this mess.  First it was "the short sellers killed financials," then we had the ban and financials still dropped.  

Today I heard again that we must get rid of mark to market because they shouldn't have to write down assets that have value.

If there is no market for them, and no one will buy them in a private deal, methinks they have no value right now!  The idea that this will pass and eventually they "may have some value" hardly seems to be a good excuse to consider them a legitimate asset on the balance sheet used to loan more against! 

And why exactly should I trust the people making bad loans to accurately price the derivatives rather than assuming they will just puff up their balance sheets.  Fool me once shame on you, fool me twice shame on me.

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#4) On October 09, 2008 at 11:10 AM, kdakota630 (29.15) wrote:

I'm surprised you hadn't heard of derivatives until just 2 years ago.  The first time I heard of them was about 20 years ago when they were blamed for bankrupting Orange County, California.

I didn't understand them then, and I still don't understand them now except for my Frankensteinian definition:  derivatives bad.

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#5) On October 09, 2008 at 11:11 AM, lquadland10 (< 20) wrote:

Hello to all. Why don't they do this dowt is pure and simple they don't want to. They want tank the economy to control the country.

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#6) On October 09, 2008 at 12:44 PM, DemonDoug (31.17) wrote:

kdakota: Calls and puts are derivatives.  Not all are bad, IMO.  It's the credit default swaps that are the real radioactive waste (also, MBS's, CDO's, CLO's, ABCP's - all of these are derivatives technically.  But it's the CDS's that are the biggies.)

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#7) On October 09, 2008 at 2:16 PM, downwithpumpers (99.28) wrote:

With the ownership of stock, bonds, or real estate, wealth can be created or destroyed. If a house burns down, or property is flooded, wealth disappears.

That is not  true for derivatives. They're a zero-sum game. Wealth is only transferred from one entity to another.

It's very simplistic to blame derivatives for our current financial problems. For every loser in the derivative market, there's a winner; for every winner, there's a loser.


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