That's the value that an exchange brings. That's their business model. Enhanced transparency and everyone can trade better. For the exchange it's good because they take no risk and can generate more volume. But the grocery store doesn't benefit from that model because they take the risk of spoiled milk. The bank takes risk of not off loading their risk.
That's just "nifty". The problem is that there is no honor amongst thieves. Just because someone has the means to write CDS's with another counter-party, doesn't mean that when TSHTF, they will honor their commitment. As you alluded to earlier in this thread, the actual at risk of the 154 trillion in derivatives is misleading due to the large percentage of Swaps, etc. Fine, but if that is the case, then having a central clearing standard shouldn't impede too greatly on all the various counter-parties engaged in this stuff. Keeping this stuff in the "shadow" system is simply inexcusable at this late stage of the game. And once again, we see just why and how the repeal of Glass-Steagall has doomed our financial economy. Having the capacity to transfer at risk derivatives from one entity to the other and crying uncle about depositors at risk is flat out bullshit, with a capital B. There is no legitimate way of spinning this kind of crap.
When have you ever heard Warren Buffett say something *three times in a row*? I noticed something when Buffett was on Charlie Rose last week. First Charlie says, "You (Buffett) talk to the President?" At first Buffett tries to mislead - "I've never called the President". Then Charlie says, "But you talk to him?" Buffett says, "Occasionally, OCCASIONALLY, occasionally". In these conversations, Buffett never talked with the President about the finances of U.S. lynchpin, Bank of America? Never talked with the President about BofA when, later, he's trying to subtly mislead about his conversations with the President - (and Buffett always takes an opportunity to play with your expectations)? Buffet's on the horn with the President, and then he's making investments in Goldman Sachs and Bank of America. Later we find that taxpayers have been secretly forced to support these financial institutions. Warren Buffett insider trading - that's what it is. "Material, non-public information." Occupy Wall Street should have a petition to have Buffet investigated by the DOJ. In fact, I'm going to go there and suggest that now. But don't forget, ol' Uncle Warren is your best buddy.
Doesn't this mean that it's impossible for BAC to go under? Every time BAC needs to face the consequences of their bad decisions, the government bails out them and their billionaire shareholders.
If you don't honor the contract, you will be in default. It's a contract like anything else. I agree there should be a central clearing authority for swaps and bonds. It's retarded that these products can only be traded OTC. They should be allowed to be traded OTC as well (just like the equity derivatives markets). And there is a lot of shadiness that happens in the OTC markets. I do not believe Glass-Steagall was the reason for the crash. If it were Wachovia, Wamu, the 500 regional banks, AIG, Goldman Sachs, Lehman, Countrywide, Fannie/Freddie, MER and GM would not have gone bankrupt. Instead it would have just been JPM, BAC, and C. BAC would have been fine if they didn't buy Countrywide and Merril (both of which were not products of the repeal of Glass Steagal). The debate that started between Citi and Goldman has been resolved. The universal banking model works better.
I questioned this 4 years ago, now its finally unwinding! http://www.elitetrader.com/vb/showthread.php?s=&postid=1403212&highlight=Derivatives#post1403212 http://www.elitetrader.com/vb/showthread.php?s=&postid=2582997&highlight=Derivatives#post2582997
Huh? Forget about 2008, it's not relevant to this debate. How is this not a glaring argument for Glass-Steagall's wall between deposit banking and investment banking? This transfer could not have happened under Glass-Steagall.
This is absolutely appalling, and is criminal, in my estimation. Bernanke (FED) and Wall Street should be brought up on charges here. I guess Dodd/Frank has some loopholes too. This makes me sick to my stomach.
How is having a derivatives funded by deposits different than a mortgage (most banks) or credit card debt (capital one). The reason the universal banks survived in 2008 was because they had solid funding (through deposits) and scale that came from both operations. Finance is a scale game. Rather than repealing glass steagal they should enforce more regulation. The whole point of all this is to prevent too big to fail and government bailouts. If a bank wants to engage in trading with deposits they should have much higher capital requirements. But the diversification of earnings and stabilty of funding makes them more stable institutions.