Sunday, October 26, 2008

Huffington Post on leverage

Huffington Post, Mort Zuckerman: "Much of this debt takes the form of securities and derivatives that remain on their balance sheets. In fact, another systemic risk and one that cannot be measured is based on the opacity and complexity of these exotic securities, mainly credit default swaps and derivatives that remain mainly on unknown financial balance sheets in amounts that exceed $50 trillion. The financial risk and exposure to loss is misunderstood and underestimated even by the credit agencies so the ensuing financial damage could be of a magnitude that could threaten the financial system.

AIG is a classic example of the inability to estimate the exposure. Management first estimated they would need $40 billion to get past their financial crisis; the government increased this to $85 billion; and within thirty days the cost had soared to $121 billion. Lehman is another example. When it went bankrupt, they had to unwind the credit insurance on Lehman, at a cost that has just been revealed to exceed $360 billion, an amount unrecognized by the Treasury when Lehman went under. These kinds of staggering losses could be multiplied many times over by defaults in cascading derivatives."

Leverage, it's called.


Seven Star Hand said...

Hello Doc,

So, why should all of humanity be forced to suffer and struggle any longer, now that the entire global financial system has been exposed as a mind-boggling deception, within many other deceptions? No one in their right mind would continue to be enslaved by a proven deception, which is also proven to be undeniable slavery-by-proxy !!!

The derivatives scams alone have grown to more than 10-times the entire global GDP (at last counting) and are now failing because the scam/pyramid scheme broke and exposed the deception for all to see. A significant portion of global wealth and power was created and propped-up using these and other now-proven smoke and mirrors and house of cards illusions and delusions.

These deceptions have grown many times larger than the rest of the entire world economy. Consequently, there is no way that all of the world's governments combined, who themselves borrow so-called "money" from other central-bank smoke and mirror deceptions, can solve this debacle, by using more smoke and mirrors money scams. The only solutions they are offering will take centuries to repay, if ever.

Here is Wisdom...

DocRichard said...

Hi Seven Star
"The only solutions they offer will take centuries to pay" you say. Which would be totally wrong. But debts built up by illegal scams do not require payment. They can be repudiated and invalidated. That is what must be done to these smoke and mirrors. So will you join in the calls for the legality of derivatives to be tested in court?