Fannie Mae Files $15.8 Billion in Claims in Lehman Brothers Bankruptcy
Now we are getting more information on the OTC derivative market and the different liabilities that the different players had with their counter-parties. The more I am reading about these products (got a nice book on the subject that was written in 1993) and the more I read the more derivatives sound like insurance.
You know what that means? It means they should be regulated like an insurance product and that means the companies issuing this insurance needs strict capital requirements and their capital can only be invested in the safest financial instruments which we used to call “AAA” before the quality rating became a backroom Wall Street joke.
Popularity: 1%
U.S. bill would restrict over-the-counter (OTC) derivatives with new regulations
This is much needed. In no way can we have financial instruments that equal ten times the globe’s GDP and not have it under strict regulation. The reason is because these paper contracts were used to get more leverage which is fine when everything is stable but can be a total disaster when the economy goes south or the firms that have written these go bust and causes them to go to “full performance”.
These should not be on any off-balance-sheet transaction and any company holding them should have strict capital requirements just like any other form of insurance that protect the policyholder against the institution from defaulting. If you read a book called “The New Monetarism” it has an interesting chart that shows an inverted pyramid with real assets at the bottom and OTC derivatives at the top and that represents global liquidity. In this chart, these derivative instruments represented 75% of all the liquidity in the system.
News (Reuters):
U.S. financial regulators would gain the power to restrict holdings of over-the-counter derivatives under legislation to be considered this fall, the chairmen of two House committees said on Thursday.
Popularity: 1%
Derivatives market trades on Sunday to cut Lehman Brothers counter-party risk
Unprecedented, this must be a signal that things are worse than most people think. Opening a Sunday session for Smart money to unwind their derivative position. This week should be a rollercoaster ride.
News Release:
Major players in the $455 trillion global derivatives market rushed Sunday to scale back exposure to a potential bankruptcy filing by investment bank Lehman Brothers in a rare emergency trading session. Trading took place as U.S. regulators and bankers were making last-ditch efforts to prevent toxic assets from ailing Lehman Brothers spilling into global markets and rupturing investor faith in the international financial system.
Popularity: 1%