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A little bump,to toss in a prognostication article on derivatives.
Inside the blog, is a partial explanation of the turmoil going in in JP Morgan, regarding it's recent request to move a portion of their derivatives into the customer account portion of their equity. (as the other major banks were allowed to do during the crisis).
JP Morgan is known to have a liquidity problem, which could lead to selling derivatives. This would cause a rush by other banks to cash in at rapacious rates, and likely cause a domino effect in the industry. At this point, JP Morgan is holding on to the derivatives to avoid this. If the problems continue, the FED will likely bail out JP Morgan.
It also outlines the problems with the Dodd-Frank bill, whereby the derivatives market itself could be bailed out by the Federal Reserve.
According to the blog, the derivatives held by banks is 200 Trillion, 3 times the size of the global economy. A bailout of the derivatives market would be on the backs of the US taxpayer. Shelia Bair's warning None of this is reaching Page 1. You can draw your own conclusions.
............................................ Yes, unthinkable and so the dangers disappear from the news. We know this is unlikely to happen, but the question remains, how will this scenario be avoided.
