Derivative risk

October 2, 2011 § Leave a comment

This is truly scary:

It looks pretty sure that Germany won’t play along. And it’s hard to see from where I’m sitting how the intricacies are lined up exactly, but seeing as Morgan Stanley has $56 trillion in derivatives outstanding, much of which will of necessity be on European sovereign and bank debt, and knowing that JPMorgan and BofA have even larger derivatives portfolio‘s, that 10.47% Morgan Stanley loss on Friday looks like a harbinger of things to come.

How the European Rot Entered Wall Street

The risk in the system is not only Greek debt, but its leveraged implications for insurance swaps written to cover banks that own it. There is no ring-fencing Greece. Wall St is as exposed to European problems as the Europeans are themselves. European banks are the new subprime.

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