To: DeaconBenjamin
The doom mongers see an article which discusses the notional value of outstanding derivatives and they go into hysterics. They don't understand
the amount at risk is much smaller than the notional value. My example from another thread works.
The Cubs beat the Dodgers yesterday, 4-1. Forbes estimates the Cubs are worth $592 million and the Dodgers are worth $431 million.
You can pretend that a $10 bet on yesterdays game put $1 billion at risk, because the performance of your bet was derived from the performance of $1 billion in underlying assets, but you really know it's only a $10 bet.
103 posted on
03/24/2008 8:49:24 AM PDT by
Toddsterpatriot
(NAFTA opponents are an odd coalition of the no-deodorant Left and the toothless-and-tinfoil right.)
To: Toddsterpatriot
Dumb analogy. A better analogy would be that someone set up a trading company to swap the market value of sports clubs to provide insurance against the drop in the club's value created by winning and losing baseball games. The Cubs increasing in value by $300M would offset the Yankees dropping $300M . What if the cubs go into bankruptcy and cannot pay the $300M they owe, and which you owe the Yankees.
You have the $50M in your pocket which would have made you rich, but now you owe $300 to the Yankees, because the Cubs have defaulted.
To: Toddsterpatriot
“The doom mongers see an article which discusses the notional value of outstanding derivatives and they go into hysterics. They don’t understand the amount at risk is much smaller than the notional value. My example from another thread works. “
This is a real good one! Must be why the world financial system in the shape its in.
143 posted on
10/10/2008 7:57:04 PM PDT by
FightThePower!
(Fight the powers that be!)
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