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Interest Rate Derivatives

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April 22, 2010 – Comments (2)

It has been about three and half years since I first learned the word "derivatives" as applied to financial markets.  At the time when I asked around no one I knew had heard of them or had any idea as to what they were and searches on the internet on them yield few results.

At the time there was around $400-500 trillion dollars of them.  The sheer number simply changed my focus.  That number simply stands like a tower next to an ant in terms of the real economy and begs the question, how can a "fake" economy be worth so much and what does this mean to the real economy.  I could not see how it could possibly be good.  A small portion of it has exploded with huge implications to tax payers, but what of the rest of these of these things?

As in this post on Naked Capitalism, I have thought they are a ticking time bomb.  I think the wealthy and pensions are in for another huge hit.

2 Comments – Post Your Own

#1) On April 22, 2010 at 8:07 AM, dwot (97.03) wrote:

Ho, ho, ho, when I was thinking through what was happening I figured interest rates would end up going up.  So far they haven't.  There is nothing built into low interest rates for risk.  Here's a post on interest rates, and if this guy is right, what a mess those interest rate derivaties are going to be.  Companies and individuals are so much into short term low variable rate debt, and in debt to the point that perfect execution of any plan is required, this could get so ugly...

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#2) On April 22, 2010 at 9:32 AM, dwot (97.03) wrote:

Hmmm, Greece is doing what I expected....  Not specifically about Greece, but that interest rates would go up. 

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