Very true, but imagine for a second horrific scenario where a hundred or so of LTCMs would need resque at the same time.
Why does it matter? Must the books balance? Is it possible to bust the transactions that may start a chain reaction of bank defaults? Is it possible to just look the other way? Do all banks have the same fractional reserve requirements? Are some banks not required to hold reserves?
with govt bailout, there is no risk. Thats why you can take whatever risks you want. Monster risk and your right == genius (you only need 1 good year to make enough so you can retire anyway) monster risk and wrong == "too big to fail", govt bailout no biggie. its russian roulette on a grander scale, your failure rate might be 1%, but then your dead/"fired" but you've taken out enough in the up years cause your a genius. So, its a riskless trade!
This is one aspect that bothers me. Every broker in the brokerage food chain is doing this. Never mind that the stock they hold for clients doesn't belong to them in the first place. When things go sour, it won't matter how many billions a trader makes from his trades. He won't be able to take out any money since it'll be tied up by these shady practices. I fear we're headed for a replay of REFCO, only 100 times larger in magnitude. No wonder Marty Schwartz keeps his Bullion at home.
I read the 10k for Bac. Looks like the total derivatives portfolio is 200 times stock holder equity. They've assigned what looks like a .11% credit risk for the derivatives- 30 mill to cover 27 billion.