Rammy Blue said:Very diplomatically put, metalblue, or as I usually say, "spoken like a true banker..." ;-)
My own opinion, and one that I am sure is shared by millions of people out there, is that the whole "point" of the banking system is to make it as complicated as is feasibly possible so that manipulation of figures is easy in order to post false profits and ensure maximum bonus payments, hence the exact reason all this shit is hitting the fan now about Barclays and the libor as well as the one to come out soon about the interest rate swaps.
More important, and one that will make everyone's toes curl, is when the derivatives timebomb explodes - I'd love to hear your views on that one....iirc the derivatives market was last estimated at approx $700 trillion, and that's one hell of a lot of fresh air when the ponzi scheme collapses.
blueinsa said:Rammy Blue said:Very diplomatically put, metalblue, or as I usually say, "spoken like a true banker..." ;-)
My own opinion, and one that I am sure is shared by millions of people out there, is that the whole "point" of the banking system is to make it as complicated as is feasibly possible so that manipulation of figures is easy in order to post false profits and ensure maximum bonus payments, hence the exact reason all this shit is hitting the fan now about Barclays and the libor as well as the one to come out soon about the interest rate swaps.
More important, and one that will make everyone's toes curl, is when the derivatives timebomb explodes - I'd love to hear your views on that one....iirc the derivatives market was last estimated at approx $700 trillion, and that's one hell of a lot of fresh air when the ponzi scheme collapses.
Just spent 10 mins reading up on this and all i can say is wow!
If just one of the big 5 banks up to its neck in these goes tits up, there is not enough capital out there to cover it!
metalblue said:blueinsa said:Rammy Blue said:Very diplomatically put, metalblue, or as I usually say, "spoken like a true banker..." ;-)
My own opinion, and one that I am sure is shared by millions of people out there, is that the whole "point" of the banking system is to make it as complicated as is feasibly possible so that manipulation of figures is easy in order to post false profits and ensure maximum bonus payments, hence the exact reason all this shit is hitting the fan now about Barclays and the libor as well as the one to come out soon about the interest rate swaps.
More important, and one that will make everyone's toes curl, is when the derivatives timebomb explodes - I'd love to hear your views on that one....iirc the derivatives market was last estimated at approx $700 trillion, and that's one hell of a lot of fresh air when the ponzi scheme collapses.
Just spent 10 mins reading up on this and all i can say is wow!
If just one of the big 5 banks up to its neck in these goes tits up, there is not enough capital out there to cover it!
You'll be looking at the notional value rather than the at risk number
Example:
I buy 1 lot of copper (25 metric tonnes) at $7,400 per mt then my notional value is 25x7400=$185,000 and the person who sold it has the same notional value...so right now 1 lot of copper has created notional of $370,000 (depending on how calculated) and around 20,000 lots were traded in copper today alone. So what is at risk, well we can all agree the chances of copper going to a value of zero is nil so it is something less than the notional...what the exchange does is take a view on the potential move of copper, they will start by saying for my 1 lot I have to pay $3,000 and so does the other side (this is the initial margin) then each day the exchange will calculate a new risk (typically referred to as span margin) and you pay this and the profit/loss on the trade and this risk and the initial margin (this new risk number is based on a worst case scenario for the following day and if you don't pay the exchange liquidate the trade - the logic is that it is very reactive to market moves and global events).
All that said I do have some reservations about one of the metrics used but how it is used to other models rather than exchange margining. Now this is very basic summary and very quick as i am out bowling so probably has a few errors (and I'll review it later) but you get the idea and we have off exchange contracts that use cash and credit but banks apply strict risk limits and it may surprise you but banks want to stay in business so these risks are well managed.
Rammy Blue said:metalblue said:blueinsa said:Just spent 10 mins reading up on this and all i can say is wow!
If just one of the big 5 banks up to its neck in these goes tits up, there is not enough capital out there to cover it!
You'll be looking at the notional value rather than the at risk number
Example:
I buy 1 lot of copper (25 metric tonnes) at $7,400 per mt then my notional value is 25x7400=$185,000 and the person who sold it has the same notional value...so right now 1 lot of copper has created notional of $370,000 (depending on how calculated) and around 20,000 lots were traded in copper today alone. So what is at risk, well we can all agree the chances of copper going to a value of zero is nil so it is something less than the notional...what the exchange does is take a view on the potential move of copper, they will start by saying for my 1 lot I have to pay $3,000 and so does the other side (this is the initial margin) then each day the exchange will calculate a new risk (typically referred to as span margin) and you pay this and the profit/loss on the trade and this risk and the initial margin (this new risk number is based on a worst case scenario for the following day and if you don't pay the exchange liquidate the trade - the logic is that it is very reactive to market moves and global events).
All that said I do have some reservations about one of the metrics used but how it is used to other models rather than exchange margining. Now this is very basic summary and very quick as i am out bowling so probably has a few errors (and I'll review it later) but you get the idea and we have off exchange contracts that use cash and credit but banks apply strict risk limits and it may surprise you but banks want to stay in business so these risks are well managed.
Your technical knowledge is obviously far superior to mine although JP's few billion loss recently due to derivatives trading was, imo, the tip of the iceberg.
What I will say though is that even a 5% loss on the notional value would be equal to $35trillion which is approximately 50% of the whole world's GDP, still wouldn't be pretty I'm sure you'll agree....
No6 said:The current financial crisis was not caused by Government expenditure on things like healthcare, education, pensions etc, despite what Cockbadger Cameron would like us to think. The GLOBAL financial crisis was caused by the much vaunted financial "markets" imploding under their own greed.
blueinsa said:Rammy Blue said:metalblue said:You'll be looking at the notional value rather than the at risk number
Example:
I buy 1 lot of copper (25 metric tonnes) at $7,400 per mt then my notional value is 25x7400=$185,000 and the person who sold it has the same notional value...so right now 1 lot of copper has created notional of $370,000 (depending on how calculated) and around 20,000 lots were traded in copper today alone. So what is at risk, well we can all agree the chances of copper going to a value of zero is nil so it is something less than the notional...what the exchange does is take a view on the potential move of copper, they will start by saying for my 1 lot I have to pay $3,000 and so does the other side (this is the initial margin) then each day the exchange will calculate a new risk (typically referred to as span margin) and you pay this and the profit/loss on the trade and this risk and the initial margin (this new risk number is based on a worst case scenario for the following day and if you don't pay the exchange liquidate the trade - the logic is that it is very reactive to market moves and global events).
All that said I do have some reservations about one of the metrics used but how it is used to other models rather than exchange margining. Now this is very basic summary and very quick as i am out bowling so probably has a few errors (and I'll review it later) but you get the idea and we have off exchange contracts that use cash and credit but banks apply strict risk limits and it may surprise you but banks want to stay in business so these risks are well managed.
Your technical knowledge is obviously far superior to mine although JP's few billion loss recently due to derivatives trading was, imo, the tip of the iceberg.
What I will say though is that even a 5% loss on the notional value would be equal to $35trillion which is approximately 50% of the whole world's GDP, still wouldn't be pretty I'm sure you'll agree....
I will add that strict risk limits and the assumption that they are well managed does not account for the odd so called "rogue trader" every now and then.
Thanks for the input MB and as Rammy says, your knowledge far out ways anything i can hope to add as i just speak as an interested and worried layman.