More deleveraging to come!
Crosscurrents December 2008 by Alan M Newman December 9, 2008 "... The most striking aspect of the Office of the Comptrollerof the Currency's (OCC) first quarter report on derivatives (see below)is the first decline in notional values since the stats were first reportedin 1991, more evidence that the era of paper is undergoing a radical transformation. Through last year, annualized growth in notional values came to over 21%. Since it is very difficult to imagine what 21% for 16 years means, if theDow Industrial averages had risen by a like amount, the index would haveended last year at nearly 68,300.
Below, check out this chart versus the one presented
in our April 21st issue. Bank America's credit exposure as a percentage
of risk based capital has nearly doubled and has risen over 65% for HSBC. Although we are not especially negative on either company, we can only stress that today's exposures for all those pictured are ludicrous. No matter how you package and re-package bonds, securities or other entities, risk cannot be removed from the system and remains constant throughout the system. Typically, constructed financial products perform as forecast. And because they do, reliance on the formulae or models increases to infinite.
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