Quote Originally Posted by Firn View Post
I think it is worth to point out that much of the economic discussion comes with an US point of view, rather similar to recent military matters. In both cases great resources and stable&strong institutions in law, economy and politics are almost taken as given. Add to that the dominance of the dollar in the world economy and you have a rather unique case. In short some central banks have more freedom of action then others. (A old wise local proverb concerning wealth and card games says that it is easy to stink with the trousers full of ****)
Wow! Almost spilled my beer when I read that one.

Well, the beauty of SWJ/a free market of ideas/the inter-webs is that anyone is able to take a position and advance/defend it if they can, everybody learns something in the process, and hopefully the, uh, cream rises to the top.

So, as we watch the slo-mo bank-run and hear the whooshing sound of big money running to the hoped for safety of Bunds and Treasuries I am wondering how all this recent activity impacts the monstrously large, global over the counter derivatives market (~ 600 trillion USD in the second half of 2010 keeping in mind that the combined GDP of the EU was in the neighborhood of 16 trillion USD in 2010) beyond further politicizing the regulatory frameworks? BIS says that interest rate swaps are the largest component of this market, JP Morgan has recently been in the news in this arena, and I wonder who is next...

OTC derivatives market activity in the second half of 2010, Monetary and Economic Department, May 2011, http://www.bis.org/publ/otc_hy1105.pdf

After contracting by 4% in the first half of 2010, total notional amounts outstanding of over- the-counter (OTC) derivatives rose by 3% in the second half, reaching $601 trillion by the end of December 2010 (Graph 1, left-hand panel, and Table 1). Notional amounts outstanding of credit default swaps (CDS) continued to contract, falling by 1% after the 7% decline in the first half, while outstanding equity-linked contracts shrank by 10%. Gross market values1 of all OTC contracts went down by 14%, driven mainly by the 17% decline in the market value of interest rate contracts. CDS market values fell by 19%. Overall gross credit exposure2 dropped by 7% to $3.3 trillion, compared with a 2% increase in the first half of 2010.
J.P. Morgan’s losses reveal market chaos, By David Weidner, MarketWatch, May 11, 2012, 3:16 p.m. EDT, http://www.marketwatch.com/story/jp-...aos-2012-05-10

Already two alternate narratives are making their way into the media. The first is that J.P. Morgan’s $2 billion trading loss and $800 million or more blow to earnings is the result of some rogue in England known in the markets as the London Whale. See MarketWatch report on J.P. Morgan loss.

The second narrative is one told by The Financial Times in the aftermath: that this loss is inconsequential.

“So far the numbers are not enough to dent J.P. Morgan’s balance sheet, nor its capital-adequacy ratios much, nor its ability to return money to shareholders,” the publication said in its “Lex” column, adding that it would only serve to give “ammo” to bank critics.