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Ticking Financial Nukes (OTC Derivatives)Karl Denninger Oh, this is not good. Go read the latest AIG Ticker again. Specifically, this paragraph:
Now consider this. There is some gross "notional" (or face) value of $683.7 trillion dollars outstanding as of the end of June 08 (last data available.) The lions share of those are not "CDS" on individual names or CDOs like what is going on here with AIG. They are instead interest-rate and/or FX products of one sort or another; $458 trillion worth. If even a couple of percent of those swaps are in fact "private lettered" out in the fashion that AIG is alleged to have done with their CDS... (Hint: This is how "notional" amounts end up becoming realized losses!) Our Congress had better dig into this hornets nest right damn now because if in fact there is any material amount of this crap going on in the OTC derivative market the $170+ billion blown on AIG trying to cover it up will be a mosquito on an elephant's ass in comparison to what's about to happen to the world's economy and banking system. If, in fact, it cannot be proved that this is not the case, given the extraordinary lengths that both government and private parties have gone to in order to cover up what IRA alleges AIG was actually up to, we must ring-fence and cut off any part of the financial system impacted by a potential detonation of that market right now, including the US Federal Government, as such a detonation will, if it occurs, destroy any part of the financial system it infests at the time the unwind occurs. No I'm not kidding. This really is that serious and the extreme measures taken to attempt to hide this, assuming the IRA article is correct, implies strongly that there is a lot more of this going on that we're simply unaware of. Yet. Apr 2, 2009 Karl Denninger's Market
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