Thursday, February 5, 2009

It's only worth what someone is willing to pay for it.

Pop Quiz. The International Bank of Derivatives and Paper Promises just went broke. You're now left with the counter-party risk. What happens when notional value must be reconciled with real value? Can there be genuine price exploration? Can you rely upon mark-to-market accounting?

And what if, per the BIS, the notional value is approximately $1.144 quadrillion dollars in outstanding derivatives, a total greater than the entire wealth of the planet?

Default or devalue.

The latter is a more respectable way of accomplishing the former. Both options are merely two sides of the same clipped and debased coin.

98% of derivatives are owned by the largest seven banks. Assuming these banks are financially sound and will be forever, then we have nothing to worry about.

I'm dreaming dreams...
I'm scheming schemes.....

I'm forever blowing bubbles,
Pretty bubbles in the air.
They fly so high,
Nearly reach the sky,
Then like my dreams,
They fade and die.
Fortune's always hiding,
I've looked everywhere,
I'm forever blowing bubbles,
Pretty bubbles in the air.

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