SDR: Bubba99 makes the point I was getting at relative to the FED doing everything in it’s power to head this event off.
Daniel’s presumption of equally balanced positions is erroneous in that quite a few of these hedge funds, and equity funds and investment banks have little to no understanding of how the derivatives will function in the event of a full-blown crisis (in point of fact, no one knows because it hasn’t happened). So, it will be a very interesting six months to year coming up. The FED and the ECB are pushing considerable liquidity into the market, and the response to date has been muted.
If you are interested in a pair of good books on the subject, read “A Demon of Our Design” and “Traders, Guns and Money”. The first is on hedge funds, and the second is on derivatives. Both are well-written and equally alarming in their own way.
I agree with you regarding not being a Chicken Little, but there is significant concern out there, and for very good reason. I penned a recollection of mine on another thread about being approached in 1994 to purchase derivative products. I was CFO of an insurance brokerage in Orange County, and these were all the rage after the OC Comptroller (Citron) had bought in. I was absolutely baffled during the presentation, as was my boss (the CEO). He was a former Bear Stearns guy, and an MBA from Ohio State, and equally confused. Very arcane stuff, and if the Chairman of the FED requires a remedial course…
