I WISH I was wrong...sincerely wish....but do the math.
“So if you assume that only 1% of derivatives are “at risk” (odds are it’s more) and 10% of that “at risk” money is lost, you’ve wiped out nearly 1/3 of the banks’ equity.
If 2% of these derivatives are “at risk” and 10% of those bets go bad, you’ve wiped out $400 billion or nearly HALF of the banks’ equity.
If 4% of derivatives are “at risk” and 10% of those bets go bad, you’ve wiped out ALL OF THESE BANKS’ EQUITY and they go to ZERO.
Remember, I’m only accounting for derivatives here… I’m not even including ON BALANCE sheet risks, mortgage backed securities, and all the other junk floating around.”
http://www.straightstocks.com/market-commentary/is-your-bank-a-failure-waiting-to-happen/
You cannot escape mathematical reality...as much as each of us desires. We’re embarking now on QE2...while the Fed may WANT to inflate...it doesn’t mean it can...especially as that requires co-operation from our creditors...which cannot happen. They will NOT cooperate with the debasement of their investment. In fact one of my personal concerns is that Congress represents our creditors’ concerns far more effectively than those of We the People. If that is true-I doubt any inflation is realistically possible.
What does "at risk" mean?
“So if you assume that only 1% of derivatives are “at risk” (odds are it’s more) and 10% of that “at risk” money is lost, you’ve wiped out nearly 1/3 of the banks’ equity.”
Derivative players are generally well hedged. The total exposure is much greater than the “net” hedged exposure. I don’t think its appropriate to use too broad a brush in this situation: AIG was the exception rather than the rule of derivative players pursing an absolutely idiotic, unhedged position. The overall net exposure to derivatives is much smaller than you suggest. Let’s hope I’m right.
As for the interest of “our” creditors, everyone benefits from a reflation of collateral asset values, most notably in the real estate sector. If we can accomplish that without rekindling hyper-inflation, we can whistle past this graveyard and our creditors will applaud loudly on the sideline. Admittedly, this is a daunting prospect but one that I don’t think is beyond the realm of probability. Indeed, I think it is the most probable outcome, although we are likely to experience a high degree of volatility along the way.