Jim Sinclair’s Prescient Commentary on OTC Derivatives (2007)

James Sinclair ^ | August 22, 2007 | James Sinclair

[dennisw]

Jim Sinclair’s Commentary
August 22, 2007

Behind the curtain of silence the subprime loan problem, better described as a global meltdown of credit and default derivatives, continues. The reason for this condition is an attempt to value that for which there is no value. It is spreading globally as you have seen.


Keep in mind that over the counter derivatives generally have the following characteristics.


1. Without regulation.
2. Without listing on public exchanges.
3. Without standards.
4. Therefore not in the least bit transparent.
5. Therefore without an open market of the bid/ask type.
6. Dealt in by private treaty negotiations.
7. Without a clearinghouse.
8. Unfunded without financial guarantee of any kind.
9. Functioning as contracts of specific performance.
10. Financial character or ability to perform is totally dependent on the balance sheet of the loser in the arrangement.
11. Evaluated by computer assumptions made by geek, non market experienced mathematicians who assume religiously that all markets return to their normal relationships regardless of disruptions.
12. Now in the credit and default category alone considered by accepted authorities as totalling hundreds of trillions in notional value.
13. Notional value becomes real value when the agreement is forced to find a real market for ending the obligation which is how one says sell it.