Replies

jwh_Denver, thanks for the link!

http://www.jsmineset.com/home.asp

Posted On: Friday, August 24, 2007, 6:53:00 PM EST

A Letter To Chairman Bernanke

Author: Jim Sinclair

Dear Chairman Bernanke,

This is a problem based on the revelation that over the counter derivatives on credit and defaults are:

Without regulation.
Without listing on public exchanges.
Without standards.
Therefore not in the least bit transparent.
Therefore without an open market of the bid/ask type.
Dealt in by private treaty negotiations.
Without a clearinghouse.
Unfunded without financial guarantee of any kind.
Functioning as contracts of specific performance.
Financial character or ability to perform is totally dependent on the balance sheet of the loser in the arrangement.
Evaluated by computer assumptions made by geek, non market experienced mathematicians who assume religiously that all markets return to their normal relationships regardless of disruptions.
Now in the credit and default category alone considered by accepted authorities as totaling more than USD$20 trillion in notional value.
Notional value becomes real value when the agreement is forced to find a real market for ending the obligation which is how one says sell it.
Interest rate adjustment will not replace the necessary act of providing liquidity in proportion to the problem. When the Fed was initiated, its prime legal directive was to provide liquidity in periods of disruptive credit problems.

Adjustments of interest rates can only hope to hide the problem for a time, causing a global extension of liquidity at unprecedented levels. Good luck, but your academic approach is unlikely to do much and will only lose precious time.

Sincerely,
Jim Sinclair

Now in the credit and default category alone considered by accepted authorities as totaling more than USD$20 trillion in notional value.

Sounds scary! So what?

Notional value becomes real value when the agreement is forced to find a real market for ending the obligation which is how one says sell it.

Huh? Exchanging a fixed interest rate on $1,000,000 for an adjustable rate on $1,000,000 does not mean the derivative contract is worth $2,000,000.

For each winner, there is a loser.