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Remember that the "subslime" problem wasn't so much that bad loans were made. That happens all the time. It was that people lied about the leverage they were carrying with those loans, in that they had alleged "swaps" that would make them good even if they defaulted, and thus were carrying little or nothing in reserve against them. When the swaps become imperiled and capital calls came, there was no money to meet them.

For some reason I keep suspecting that the large banks, brokerages, commodity houses ect are all broke and it is just accounting sleight of hand that is keeping them all going. Somehow I suspect that they are all doing the 'high finance' equivalent of kiting checks to stay afloat.

When I couple that with the fact that there are 800 trillion in derivatives out there I just can't see a good end. Hell, %1 of that is 8 trillion, so if 1% comes up missing pretty much everything goes poof. For some reason I keep imagining that many fianacial institutions are both short and long on the same asset via derivates and got that way because they could skim some transaction fee on both transactions. I suspect that the logic is that if you are long and short the same instrument then you don't need any collateral because they offset. Well, what happens if you owe on the long contract and can't collect on the short one? BOOM...

So much off-balance sheet and unregualted makes me very nervous.

Flap

2012-07-15 15:05:30


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