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[RT] Derivative mess.


  • To: <Undisclosed-Recipient:;>
  • Subject: [RT] Derivative mess.
  • From: "Ira" <mr.ira@xxxxxxxxxxxxx>
  • Date: Mon, 24 Mar 2008 16:44:48 -0700

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I have no idea if these numbers are even close to being correct, but it certainly gives cause for a degree of concern. 
 

Bear Stearns just imploded under a mountain of debt. It goes to show that when a firm is leveraged 34:1, even a small loss in the underlying assets can wipe out the entire capital position.

So, how do you feel knowing that JPMorgan Chase, the company that took over Bear, is leveraged 74:1? Does that inspire confidence in the financial system?

JPM has $74 in derivatives contracts on its books for every $1 the bank has in capital. These financial instruments are so complex that Fed Chair Ben Bernanke recently needed a face-to-face refresher course from hedge fund managers. Buffett calls derivatives ?financial weapons of mass destruction?.

And according to the Comptroller of the Currency Report, JPMorgan has $91 trillion worth on its books. Yes, you read that right... $91 TRILLION.

Let me put that into perspective...

  • The entire annual U.S. gross domestic product is about $15 trillion

  • The entire world?s GDP is approximately $50 trillion

  • Total value of the world's real estate is roughly $75 trillion

Derivatives used to be for hedging only... a way to offset risk. But leave it to Wall Street. They have now been turned into a lucrative source of fees and investment gains, ballooning from $100 trillion to more than $500 TRILLION in just the last FIVE years.

If you think the subprime mortgage mess has caused turmoil, you don?t even want to consider what will happen when just a sliver of the derivatives market begins to unravel.

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