[quote=Allan from Fallbrook]Breezhnev: Here’s my problem with your various posts: Using polemical language like “oligarchy” and “looting” doesn’t encourage anything in terms of a useful debate.
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Oligarchy isn’t my term. That comes from the former Chief Economist of the IMF. I image that he’s seen and dealt with many more financial oligarchies than you, so I’ll stick with his view of what constitutes a financial oligarchy, thanks.
And the term ‘looting’ is used by several bloggers who have a ton more credibility than you, me, or any other random Internet poster.
[quote=Allan from Fallbrook]
As to knowing the full scope of the problem: I don’t think anyone knows the complete picture and that is part of the problem. You and I have disagreed previously regarding the size of the derivatives market. I pointed out that the NOTIONAL (and that word is key) value is approx. $600Trn. Your response is that the number isn’t useful because the various contracts cancel each other out. That’s where I disagree. I don’t think that’s the case at all. I don’t think anyone has a clue as to how interrelated the various portfolios are, how much potential liability exists, or what would happen if things went south. Recall that in 1998 Long-Term Capital Management (LTCM) nearly blew a hole in the market when their various derivative positions unwound and LTCM was microscopic compared to the size of the present day derivatives market.
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CDS are just contracts. The government should just void them all. If I started a company tomorrow and that company wrote a $10 trillion CDS on the happening of some event, and then my company went bankrupt the following day, the bankruptcy court would just nullify the CDS. My guess is the only reason this hasn’t been done is some members of the financial oligarchy (like Goldman) wound up on the right sides of these things. The many former Goldman employees in Obama’s administration don’t want to do anything to hurt their future employer.
[quote=Allan from Fallbrook]
Here’s the key point regarding derivatives and, in a larger sense, the various “too big too fail” institutions: If there is a disorderly unwinding encompassing these institutions that occurs simultaneously or nearly simultaneously, then we are looking at a worldwide systemic collapse. That’s a Game Over scenario.
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Says you. There’s no way to know what would happen because the government has provided us with 0 transparency.
And I gots some news for you. That systemic risk didn’t just disappear. Instead, it got transferred to the government.
