Thesis Abortion Pros And Cons

1000 Alitalia in one shot: so 'strong' Amerikan sti .... (II)

I Apologize for Being so verbose, But while I am writing Also Trying to clear my mind of many ITS confusions. Because NFA is a blog read by many people, I am Also Trying to make the argument at least Partially understandable to readers not trained in formal economic theory. A machine translation into the Italian language is available (click the flag), which I hope to turn into readable, instead of laughable, Italian tomorrow.

Back to Earth

I ended the first part with a puzzle that seemed unsolvable. This was just to make sure I could keep your attention, because things are not nearly as bad as I made them appear; at least they are not nearly as bad when financial markets function "properly" and "normally". Here's why. As Filippo noted , the notional amounts are seldom if ever paid: they are used only to calculate the actual payments taking place between the two counterparts. Consider the case of a simple interest rate swap on a notional amount of $100 million. Neither party expects to ever have to pay $100 million to the other; instead A will pay to B the difference (0.7%, say) between the fixed and the floating rate in the reference period, time $100 million, that is $700K, which is a lot less than the notional. Also, many derivatives often expire without any payment or only a few payments taking place, other are balanced by the issuing of similar derivatives with the opposite sign, and so on. Further, for derivatives traded in organized markets (e.g. futures ) on top of the fact that at settlement one must pay only the net loss (receive the net gain), the organized exchanges ask for margin deposits that are proportional to the open positions and force their closure whenever those margins cannot be reasonably met. In other words, I wanted to scare my readers a bit ... to drive home a point that Warren Buffet has repeated a number of times and to which everyone, including financial economists, have paid little attention.

The OTC derivatives market allows for the establishment of contractual obligations between financial institutions that may be impossible to satisfy, even in principle. In particular, OTC derivatives allow for the creation of a "pyramid" of financial promises that cannot possibly be satisfied because the amount to be paid, in certain states of the world, is larger than the value of total world wealth in those same states of the world. Call this point 1.

In models where individual portfolios are fully observable, beliefs over future states of the world are common (or, at least, they have a common support) and markets are dynamically complete, the situation conjectured in point 1 is impossible. This is because either B, before beginning to tango, will be able to correctly assess A's creditworthiness in all future states of the world and make sure it holds enough net real assets to back its promises to pay, or the rising costs that A faces in financing its portfolio positions will force it to diversify away its risk until the previous condition is in fact met, i.e. A has enough real equities to pay for its derivative commitments in case those come due and X (i.e. shit, for those that just tuned in) happens. Because economic theorists studying financial markets almost always assume these conditions to be satisfied, the fear that point 1 raises in the layman was not shared, until now, by financial economists.

Which begs the next question: along which dimensions did actual US financial markets violate the assumptions above? How about "all, and then some"? While I believe that "some" is the key, let me go through "all" first.

Earth is, indeed, different from the standard model

We teach that financial markets serve two purposes. They allow society to transfer resources from those who did the saving to those that would like to do the investing, which is good. We also teach that financial markets arrange transactions shifting the bearing of risks from those who do not want them to those who want them, in exchange for a fee. The latter function is considered of the utmost importance by financial economists, who spend a large amount of time showing how risk-bearing is reduced as financial markets become more "complete" - i.e. more independent securities are created; derivatives have been shown to be able to play a key role in this beneficial process - and economic allocations more efficient, in the sense of Pareto. An important caveat here is that we assume that there are two kinds of risks: the individual or diversifiable one (I gain, you lose) and the aggregate or undiversifiable one (we lose, or gain, together). While financial markets are magically capable of "dissolving" the first kind of risk, they cannot do the same for the second. The second is just shifted from one person to another in exchange for a fee, but the grand total remains constant independently of how many fancy securities there are out there. Let's keep this in mind.

We never teach that financial markets can be used to take bets, but this is what the second function implies. If A transfers some aggregate risk to B, then A may believe to be safer because B is now bearing its burden. But this is not really true unless B is capable, and willing, to cover the risk by means of actual equities, should the downside event take place. Hence, as before in point 1, risk-shifting is bounded by the total amount of resources available at any given point in time and, specifically, is bounded by the amount of actual equities the seller of insurance owns relative to the insurance it promised through derivative contracts. If you think of it this way, the whole thing becomes quite obvious, no? That's why, traditionally, we (i.e. the regulators and independent overseers that are supposed to act on behalf of citizens) make sure that insurance companies own lots of big and fancy buildings, good land, safe stock, oil fields, and so on ... pretty much like AIG did, right? Let us keep also this in mind.

Now, let me go back to my old example of A, B, C, etc. and make it a bit closer to what we are talking about. In the updated story B is a bank, holding a mortgage of $100 on a house with a market value of $111. B may have purchased that mortgage from someone else, which originated that mortgage by assessing incorrectly the risk that the borrower may default ... or which may have made a small - and for sure unintentional - mistake when typing in the income of the borrower in the loan application form (say, $70 instead of $50, which makes a big difference for the implied probability of defaulting ...). This does not matter at this point: clearly LOTS of things like these happened in the US mortgage market between 2000 and 2006, but our focus here is on the continuation. Hence, B values the mortgage at $100 on the asset side of its books, posting $100 in own capital on the other side, and nothing else. The banker running B feels there is a 50% probability that the borrower will default, in which case, via the foreclosure process, it would end up receiving only $50. B does not like to hold this risk, as it means that its net capital is really only $75 (i.e. $100 - 50x0.5), while the shareholders will approve the banker's hefty bonus of $15 only if net capital is at least $90. Hence B goes to A and buys insurance, say in the form of a CDS , promising to pay $90 no matter what in exchange for the proceedings from the mortgage. You may ask if A is stupid or something, and the short answer is "no". Clearly, something is happening here that is creating a profit, for B, of $15 out of thin air: the mortgage has an expected value of $75, so why should A promise B $90 for sure? There are various explanations for this, all of which I believe apply to the US 2000-2008. Here they are:

1. A assigns only a probability of 20% to the default event. People make random mistakes, we assume, so there are equally as many As assigning a probability of 80% to the default event. But these two groups do not cancel out because the first will sell insurance whereas the second will do nothing. Think of this kind of As as comprising all the "dumb/unlucky guys" that are always around financial markets but become particularly frequent when the market is bully.

2. B intentionally packages the mortgage in some "vehicle" that is confusing enough to lead A to believe it is better than it is. Indeed, this is what private information means, in this world! Think of these As as those guys that said "oops, we did not know what we had purchased", like UBS or SG.

3. A's own capital is only $4, which it will not mind losing should the default occur: 10/2 -4/2 = 3, which means a positive expected profits. Assume A is an investment bank, or an insurer, and pick your name among the now famous ones.

4. A is "betting" by taking up risk that cannot be diversified because it goes always the same way. For example, it may be purchasing very many of these mortgages (at a price of $90) by borrowing on the money market or issuing bonds. A (or should I call it F&F ?) pays very low interest rates because markets perceive the Federal Government is backing A's liabilities.

5. The interbank market is flooded with liquidity at a very low nominal rate, say 1.5%. A cannot find any liquid security paying a decent return, while these deals on mortgages are liquid and seem to be paying a hefty return as long as the borrowers do not default. Call A Countriwide.

6. There is another character, called A', from which A plans to buy insurance against the risk of losing $40 in case of default. The character called A' satisfies one or more of the characteristics 1.-5. and charges $8 for this.

7. Repeat 6. as many times as you please, because the OTC derivatives market, which is neither regulated nor centrally organized, allows you to do so. All you need is that S&P, Moodys and friends keep saying you are a great credit. You pay their fees, so chances are they will.

Let me take home my second point.

Actual financial markets are much more imperfect than our theoretical models, whose crucial assumptions are often violated. This is well known, and things have always been like this, hence per se this is not big deal. What the existence of an unregulated OTC derivatives market plagued by private information allows is to leverage these common "frictions" dozens of time, creating, under the appropriate circumstances, a snowball that is, indeed quite big. Call this point 2.

All assumptions are violated, and then some

Let me conclude for today with the "some" that, in my opinion, happens to be the crucial one. That is: if point 3, coming next, had not been true the fact that points 1 and 2 were would have created some problems, but not the disaster we are apparently facing. It would have been, in other words, business as usual on Wall Street.

The key thing is that the probability of default on nominal loans with variable rates (and mortgages are nominal loans with, in recent years, very variable rates) is endogenous. It depends, first and foremost, on the nominal interest rate applied to the loan, which, in turn, depends on the nominal interest rate clearing the short term interbank markets that, in turn, is controlled by the Federal Funds rate. When those rates are low the rates on mortgages are low and liquidity is abundant: very many mortgages are issued and, if one has reasons to believe that the short term rates will stay low for quite a while, it is reasonable to expect the default rates will remain low. When those nominal rates increase, and nominal incomes do not increase likewise, the probability of default on those mortgages increases. This is what happened in the US during the 2001-2007 period due to the Federal Reserve "countercyclical" monetary policy.

Now, this is pretty normal and if those mortgages were held by the banks that had issued them and the latter had not yet "taken profits" on those mortgages, they would have set aside capital reserves to cover those losses. This is what is currently happening in Spain that has also seen a gigantic (in fact, proportionally much bigger than the US one) real estate boom (1997-2006) followed by a bust in the last two years. In Spain default rates on mortgages have tripled and interest rates have increased but, because (a) most mortgages are held by the banks that issued them, and neither (b) have been heavily securitized through derivatives nor, (c) have the "nominal profits" on those derivatives been cashed-in (either in the form of dividends or gigantic bonuses to the investment bankers) the financial system is very far from coming apart. In fact, it posted record profits even during the first semester of 2008, which I find rather surprising. In other words, for reasons that should by now be clear, the "nominal profits from derivatives issuing and trading" were not "taken" but set aside till the end of the life of the underlying mortgages. The opposite happened in the US.

What happened in the US, then? Simple: a derivative is a contract that involves a sequence of payments over a period of time. If you make real profits or not from a given derivative contract can be decided only once the derivative expires and the whole sequence of implied payments has been settled. But the current functioning of the OTC derivative market allows something different to happen. Using our simple example, here's the story. A mortgage is issued that, at current nominal rates, has a low probability of default. Insuring it is cheap and, by securitizing it, profits can be taken right away as the financing of the security is obtained at low nominal rates, insurance is cheap and the mortgage is off our hands in three days. This is quite fine, if the probability of default on that mortgage does not change due to altered (by the Fed's actions) conditions in the borrowing and lending markets. Should conditions remain constant, those initial profits would correspond to actual profits also at expiration. But in the meanwhile interest rates increase and default rates raise accordingly. This means that the derivative security linked to the underlying mortgage is actually loosing value and its prices should drop. But you have it in the book for 100 and writing it down to 80 is a problem, so for a while you borrow on the money market to finance the payments that, for example, the CDS you signed on forces you to. The opacity of the OTC markets allows you to do so, maybe by entering in even more derivative contracts. This goes on as long as you appear to be credit worthy to the counterparts, which is not forever. In the meanwhile pseudo profits are made, dividends are paid (these are peanuts) and bonuses are also paid to you (these are not peanuts). From the point of view of the theory this is money that should "stay in" (in the form of capital reserves of the investment bank or the insurer underwriting the CDS) to cover (via its capitalization at risk-adjusted market rates) for possible future losses. But this is not what happened: the capital reserves to cover future losses did not "stay in", they went out to the mansion in the Hamptons. Call this point 3.

When shit hits the fan, oops X happens, you have no capital reserves, hence you are not credit worthy, hence no one lend to you and you are maybe insolvent and certainly illiquid. Hence you go the way of Bear Sterns or Lehman Brothers ...

To quote, with a small [alteration], Robert Solow :

[...] the hedge-fund operators [read: investment bankers] and others [fill in the name of your preferred banker] may earn perfectly enormous incomes. (Margaret Blair of the Brookings Institution was one of the first to point this out.) If they are clever enough, and they are, they can arrange their compensation packages so that they batten on profits and are shielded from losses.

This is because, in the actual financial environment of USA 2001-2008, (pseudo) profits from derivatives came earlier - when interest rates were low, hence expected default rates were low - and (very real) losses came later - when interest rates increased, hence actual default rates also did - and had to be absorbed by the little capital left in the firm, which was not enough. The actual capital reserves had been taken out by calling them "profits". This is point 3 again, only shortened.

Because it is late, I hope it is now clear why it took the convergence of all three contingencies, summarized as points 1, 2 and 3 , for this disaster to happen. Any two of them without the third would have not, I believe, caused the big mess we are currently into.

In this sense this is an "exceptional event", and it needs not imply the "end of capitalism". But, in an another sense, it is and was a perfectly predictable event: various people wiser than myself (e.g. Mr. Warren Buffett) had pretty much predicted it a few years back. We, the academic economists, were blind to the facts and did not see it happening because we assumed the deviations of reality from our "standard model" to be quantitatively small. We were mostly wrong, and a few wiser people were right. More than anything, though, I believe we did not see that the particular nature of derivative contracts (their being "zero sum games, if no one cheats") together with the private information that plagues the OTC derivative markets allowed for gigantic (pseudo) profits-taking of funds that were, according to the theory and should have been in fact, capital reserves that had to be "left in the firm" to serve until the life of the derivative contract. But derivative contracts, these misterious zero net supply securities, allow for redistributing wealth from B to A at points in time that preceed their expiration, and redistributing to oneself very large sums of money (in a perfectly "legal" way) is a temptation no one can easily resist. Investment bankers may not be wizards, as they often portray themselves, but they are certainly humans.

Quite correctly bygones are bygones and, in the unlikely event this analysis will be found convincing, it still does not tell us what to do NOW given the current circumstances. In particular, should we go the way that Bernanke and Paulson are pushing us to go? Is there another and better way? I am not sure, but I believe a narrow but clear other way can be found on the basis of this analysis and similar ones developed by other. To the issue of "WHAT TO DO NOW "I hope to soon turn into the third part of These thoughts.

Small Bunnies For Sale

1000 Alitalia in one shot: so 'strong' Amerikan sti ... (I)

Equities and Derivatives

As we will discuss" financial assets "and" derivatives ", let me begin with an introduction, for those not familiar with this terminology, what are these things. A financial asset gives, in general, entitled to a future (and uncertain) stream of payments, which comes from some "source" and that occurs in "certain circumstances". The specification of the type of "source" helps us to distinguish between two types of financial assets, based on the nature of their "source." Let's call the first "securities positive net supply "and the second" no net supply securities "or, in short," actions "and" derivatives. "Obviously, the actions in the strict sense and the classical derivatives (eg options) are special cases of this I call here "actions" and "derivatives".

Why we can speak of "actions " there must be some real investment (a tree, a horse, a house, an oil field, a society, and so etc.) on which income (uncertain) the owner is entitled to a right of action. These investments are "real" and actions should reflect its value, hence the definition of title to positive net supply. Note that, although not there is slavery, the existence of intellectual property rights and other contractual instruments makes it possible for operations give legitimate rights to the fruits (uncertain) of someone else's work, through the ownership of the company where that someone is working, and so on. I emphasize this point to make clear that a lot of "things" can be held through some kind of action. In fact, many are, and, theoretically at least, everything that has some potential for productive investment is a material whose possession can be structured through actions. As the annual flow of goods and services which we call GDP (in reality is much more of this, but never mind the details) is the product of physical investment existing and shareholder value is nothing than the present discounted value of the fruits (uncertain) products from some real investment, we obtain the following simple implication, that is relevant to understanding the mess we find ourselves.

The market value of all the "action" is the same as (ie, where the possession of all the productive investment was represented by shares) to the discounted present value of all future GDP (expected) and investment existing can produce. In other words, the market value of all shares of a country (or world, if you like to think big) is upper bound to a multiple of current GDP (the country, the world).

To give an idea of \u200b\u200bthe numbers involved, follow me in these calculations. Currently estimated U.S. GDP for 2008 to around 15 trillion dollars and my friend Ellen McGrattan (these numbers knows them well) estimates that the stock of U.S. capital (including buildings) is about 4 times as much (Ellen, I of-thumb). That is about 60 trillion dollars. Now, this calculation is a bit 'distorted, given that the GNP also contains the fruits of labor, and labor are taken into account in the stock of capital in the form of shares, only very, very partially. So, wanting to adhere strictly to the theory, to 60 trillion must be added the value (implicit) capitalized labor and human capital, bringing the number to around 150 trillion dollars - to do so, given that the capital gain is just over 1 / 3 of GDP and assume that the return on human capital and labor in terms of GNP is about the same as what economists call "physical capital". If you add this value (implied) of all the other things produced but not traded on the market (your dinner, cooked for the party, or your shirt clean and ironed if you do it alone, or the market value of do or not do other things, more pleasant to read, et cetera) you may get an even bigger number, and I have no idea how it can be. Let's say 300 trillion dollars: what matters is that it is a finite number.

Now, we move to derivatives: financial securities to net supply anything. Instead of action, which, to exist, it only requires one person and a single investment, a derivative looks a bit 'to a tango it takes two (people) to do it, but the real investment is not strictly necessary. How it works. Mr. A says to Mrs. B: "if X event happens on a designated day D, I'll give you $ 100, otherwise you do nothing, what are you willing to give me today in exchange for my word on this promise?". If B says: "I give P-dollars" and A says, "ok", was born a derivative. Obviously what A tells B may be very complicated and can involve a lot of different circumstances (ie if X happens to date, I pay 100, but if we expect Y to D 'where, if X happens', then pay 40, but if it happens Y' then promissory notes 3 and if it happens Z 'then expect D'', et cetera). The things that can happen is all those conceivable and observable - or rather, anything that A and B will observe the date on which they agree when they dance together (oops, when they create a derivative). And once they get to D, who knows ... it is relevant to our reasoning, but do not make me jump too far ahead - and the payments going in both directions. In any case, when A and B create a derivative agree on a price P> 0, which is paid, say, from B to A. At this point we are in the hands of Fortuna : B D in hopes that the good to happen (at least for her) in the event and hopes to keep the word, or rather, is able to maintain it and pay.

Now, note this is: a derivative is not, in this sense that I hope is clear, nothing to do with real investment and with their product, at least in principle. Of course, many derivatives are constructed in relation to the behavior of some real underlying investments, or at least, such actions (see here for more technical details) but this is not necessary. When you bet $ 10 with your friends that it will rain tomorrow in San Francisco have created a derivative, and so when you purchase some form of insurance for your car, or when you buy a lottery ticket: everyone is trading in derivatives since ancient times and we do it, not c 'you need to have a PhD in physics or go to the Chicago Board of Trade to do it! For this reason, the number and, more importantly, the existing potential value of the derivatives at any moment is endless ...! Well, actually not, because if it were properly priced and if things were done properly, their value should always be 0: no titles in net cash, or "zero-sum games, if no coffin, "as I like to call them. To summarize: (i) an unlimited number of derivatives can be created, irrespective of investimeti productive" real "(II) if" properly priced "and if all players play correctly , the total net value of the complex derivatives created is still zero, (III) derivatives are instruments or to make or to bet, since the two things in fact the same sign to invert (IV) derivatives are securities re-distribution They are not associated with the creation of new productive investment (which is the role of actions in the broadest sense), but to redistribute wealth from A to B or from B to A based on the outcomes of random events over which players are previously granted, these events that they believe they can observe and whose probability can be estimated.

How, theoretically, the derivatives markets

Among other things, the facts listed so far imply that, when the markets are working "properly", a change in the value of a derivative may, in itself, not mean nothing to the value of the total real investment and vice versa. A change in the real value of an investment will be reflected by a change in value of representing him. The change in value of derivative that may have been written "about" that action (real investment) only determines who among our people A and B, will gain from the change in value of real and who will lose. Moreover, the facts listed above imply that when the underlying investment value (action) change of △, the secondary member can produce gains (losses) for A (B) equal to many times △!

Since this is very important, let me develop it using the simplest example given before. Let's say you offer $ 50 B to A, in exchange for a promise that "if the event X occurs at the time D I pay you $ 100, otherwise you do not pay anything," and to accept, so that they can dance the tango. Well. We have to believe that - for whatever reason, I have no intention This article getting into how people construct their expectations, talk De Finetti (or with my friend Paolo Siconolfi that, contrary to De Finetti, is still alive and doing very well) - that there is 10% chance that X will happen to date, and 90% will not happen. If A does nothing (A) is taking a risk: true, there is only one case out of 10 X which occur in D, but if it happens, $ 100 to A to B and B has given him only 50. Because, to put it simply, D is tomorrow and missing five minutes to midnight, no interest accrues on those $ 50. So either (i) A has its own funds to cover the 50 missing when bad luck would (pardon, X happened) or (ii) To make sure that I will tell you as soon, or (iii) is planning to cheat, which is to say that A is taking a risk: the risk of failing on its promise (the daughter) to B . Before you follow the paths in the dark forest of modern finance on Wall Street that (iii) it opens, let me follow (ii) for a moment, that is the way that books usually teach finance and financial markets should be adequately regulated and normal follow.

In "normal and well-regulated financial markets" adhering to (ii), one of the following (and essentially equivalent) should things happen. A regulator - no need to be the government, could be a reliable third party who is vigilant about A to B and that it is really impartial (ie not as S & P or Moodys ...) and who has the power to enforce its rules - somehow will force A to put aside $ 50 or more (more than 50 A has just received from B) or whatever a good father would consider worth $ 50, to take precautions when X happens. This can be done in a lot of ways: for example, A can ask to look a lot (N) of people like B, enter into such derivatives with them until the law of large numbers can realistically keep. Suppose N = 100 is enough because the law applies. Then A has received $ 5000 and could having to pay 10000 if X happens. Since the probability that X happens 100 times in D is infinitely small (as is likely to happen 99, 98 ,..., 51 times), A (and many B) are not in danger of failing. Not occur until more than 50 X in D, A has funds to pay for that which he owes to B-designate. There are other ways in which a well-regulated market can achieve the same result. For example, you may ask A to "reassure" its risk with C, which has the necessary funds for the case in which X occurs more than 50 times, or it can be asked to sell some of the other derivatives that has types of C that can cover their payments, and so on. Notice how, in all this, many other derivatives are created from the original, and because the process of selling the same bet (or bets on the original bet, or bets on bets on bets ...) can be repeated an infinite number of times, the value Notional complex derivatives originated from that initial simple contract between the first A and first B can become very, very, very big.

In all these cases, however, if the theoretical mechanism was working correctly, the (many) A bet that they would be able to honor their commitment if X happens. To understand this, imagine that the event X in the original contract was "the market price of your (ie B) house to fall by $ 10. "The house is a physical and bell'investimento B owns it entirely (the argument does not require loans, for now ...) but decided to" superassicurarsi. "Which is good, and derivatives allow him. The point is that the fall in the value of real investment is only $ 10 for the economy as a whole, and B is that the bear and this is why the (super) insurance. A must now $ 100 to B and, although there is a very long chain derivatives of A and B, from B to C. .. up to Z "," until you collect $ 100 (As these derivatives are satisfied ) and they end up in the hands of A, A to B can pay as the must. To achieve this requires three things: (1) an amount of at least $ 100 in money or "credit" should be available in the system, (2) none of the individuals involved coffin or is unable to take the money and pass it to the person Next in the chain, and, last but not least, (3) 100 dollars of product present, real and consumable (GNP), are available for delivery to B in exchange for his $ 100 nominal. These three conditions are crucial, but (3) it is even more: if there are $ 100 for the actual product and consumer, but only $ 100 of paper is consumed, prices will rise in proportion (perhaps those with long and variable lag of Milton) and B do not actually receive $ 100. You will receive only written down pieces of green paper inflated.

Sometimes strange things happen

emphasize that in our circumstances, the fact that (3) is not achieved is closely related to the occurrence of (iii) (not (ii), (iii)). At the moment this seems to be the way we (oh my God, not me: the Fed, the U.S. Treasury and all the other guys Powerful) claim that (ii) is happening when, in fact, (iii) come true. Before you get there, however, I need to analyze two other steps. First you need to get an idea of \u200b\u200bwhat the total value of derivatives in the U.S. today, so to talk about real numbers. Then, we must understand why neither (i) or (ii) are successful, and (iii) yes and no (none?) He's realized until the other day. The first part I do it now, the second, which is longer, you will have to wait until tomorrow or after tomorrow. The third section will discuss why the "solution" that we are pursuing would seem to be anything but a solution. This better be a solution for the lucky few to, but not for the many unfortunate B. Derivatives, remember, are redistributive mechanisms and is a (huge) redistribution of income and wealth that is spoken in recent days.

few numbers and a puzzle

for tonight let me end with the estimates I promised. How big can be the notional value of derivatives, as a whole? Certainly very great. Remember, using the precise estimates of my friend Ellen, I had inaccurately estimated the total value of U.S. real capital around 300 trillion dollars. In the Wikipedia page linked below read:

Over-the-counter (OTC) derivatives are contracts That are traded (and privately Negotiated) Directly Between two parties, without going through an exchange or other intermediary. Products Such as swaps, forward rate agreements , and exotic options are almost always traded in this way. The OTC derivative market is the largest market for derivatives, and is unregulated. According to the Bank for International Settlements , the total outstanding notional amount is $596 trillion (as of December 2007) ^[1] . Of this total notional amount, 66% are interest rate contracts , 10% are credit default swaps (CDS) , 9% are foreign exchange contracts, 2% are commodity contracts, 1% are equity contracts, and 12% are other. OTC derivatives are largely subject to counterparty risk, as the validity of a contract depends on the counterparty's solvency and ability to honor its Obligations.

"the over-the-counter (OTC) derivatives are contracts (privately negotiated) directly between 2 parties, without the services of other intermediaries. Products such as swaps, FRAs and exotic options are traded almost seems that way. The market OTC derivatives market is the largest, and is not regulated. According to the BIS, the notional amount outstanding is 596 trillion dollars (December 2007). In this notional amount, 66% are IRS, CDS 10%, 9% FEC, 2% are commodity contracts, 1% in shares and 12% other. OTC derivatives are largely subject to counterparty risk, since the validity of a contract depends the counterparty's solvency and its ability to meet its obligations. "

That is, only the OTC market (which, as you'll see is our main concern in this saga) has a notional amount which is double of my esteem "courageous" of the total value of the shares of any type, which also included those that do not exist because, for example, and for good reasons, slavery is prohibited. If we stare at what I have announced as an estimate of what Ellen is the outstanding capital stock of the United States, the ratio is 10 (ten). To these should be added that OTC derivatives traded on regulated markets, that the IBS estimated to be around to 400 trillion in 2006. Now these numbers are for the whole world, but even if assumessimo that those "on the U.S. economy" is only 20% of the total (and more), we'd be talking about 200 trillion in notional value of derivatives, against a capital stock that is currently around 1 / 4 and a GNP that is ... 5 trillion less than 1 / 10 of that amount. So the puzzle

: if only 1 / 10 derivatives "should be paid" (what does this mean and who should pay whom, we'll see him in the second part of the trilogy) where the hell would find the money? Even cramming the entire GNP of the United States in the gardens of the lucky winners of the "tango game", B call them, we not only hungry ... but we do not even 5 trillion. Peanuts, right?

Fine, but do not have the Fed and the Treasury two printers, one for dollars and one for the debt? Of course you do! Stay in line

Cleaning A Camper Trailer

Model 1, with my homemade Laser Scanner

Here is my first laser model home scanner. You can interact with it in www.gavle.es / calabera_casa.htm (I know it's skull with "V", but it will be) paraRotar: mouse. To zoom: Shift + Mouse. To move: Control + Mouse.

is 1 and is clearly improved, still I hope you enjoy.



http://www.gavle.es/
GAVLE: Graphic Documentation pedro
heritage.



A greeting.



.

What Colour Shirt And Tie To Wear With Grey Suit

The pain and the beauty of art

In pain? Take one masterpiece, three times a day
18 September 2008

THE power of art to heal emotional wounds is well known, but could contemplating a beautiful painting have the same effect on physical pain?
To investigate, Marina de Tommaso and a team from the University of Bari in Italy asked 12 men and women to pick the 20 paintings they considered most ugly and most beautiful from a selection of 300 works by artists such as da Vinci and Botticelli.
They were then asked to contemplate either the beautiful paintings, or the ugly painting, or a blank panel while the team zapped a short laser pulse at their hand, creating a pricking sensation.

The subjects rated the pain as being a third less intense while they were viewing the beautiful paintings, compared with contemplating the ugly paintings or the blank panel. Electrodes measuring the brain's electrical activity suggested a reduced response to the pain when the subject looked at beautiful paintings (Consciousness and Cognition, DOI: 10.1016/j.concog.2008.07.002 ).

While distractions are known to reduce pain in hospital patients, de Tommaso says this is the first result to show that beauty plays a part. "Hospitals have been designed to be functional, but we think that their aesthetic aspects should be taken into account too," she says.
The Human Brain - With one hundred billion nerve cells, the complexity is mind-boggling. Learn more in our cutting edge special report .

From issue 2674 of New Scientist magazine, 18 September 2008, page 14
link: http://www.newscientist.com/article/mg19926744.900-in-pain-take-one-masterpiece-three-times-a-day.html

Cold Weather Tight Mens Nike

This summary is not available. Please click here to view the post.

Where To Get Calamari

Let's do because 'life wins

Alex Zanotelli - August 26, 2008

the heart of this hot summer and this region of Calabria, working with

young people in the cooperatives of the Bishop Brig (Locride) and the Ark of Noah

(Cosenza), I come like a bolt from the blue, the news that the government

Berlusconi confirms the privatization of water.

In fact, the Italian Parliament on August 5 voted to Rule 23 bis of

decree law number 112 of the Minister G. Tremonti and the paragraph 1 states that

management of water services should be subject to the rules of the economy

capitalist. All this with the support of the opposition, particularly the

Pd, in the person of its fee-shadow minister Lanzillotta. (A

decision that angered me, but I am not surprised, given the response by Mr.

Veltroni water to the letter I had sent him during the elections!)

So the Berlusconi government, with the consent of ' opposition, has decreed that '

Italy is among the countries for which the water is a commodity.

After these years of struggle against the privatization of water with many

friends, local and regional committees, with the Forum and the World Contract

water, these stories are for me a punch in the stomach, it hurts.

This is a betrayal by all the parties! Even more serious is the

fact, highlighted by his friends Rosario Lembo and Riccardo Petrella, the

"Decree amending the nature of the state and communities

territorial. Municipalities, in particular, are no longer of public

territorial leaders of the commons, but they become the subjects

property owners in a competitive logic of private interests, for which

their first duty is to ensure that the dividends of the company are as

high interest of municipal finances. "

We are doing also destroy our constitution!

Concretely, what does this mean? This is revealed by the dramatic

news we receive from Aprilia (Latina) showing us what happens

when the water ends up in private hands. Acqualatina (Veolia, the largest

multinational water has 46.5 percent of shares) that manages the water

Aprilia, decided in 2005 to increase the bills of 300per cent! In addition

four thousand families from that year, they refuse to pay the bills to

Acqualatina, paying instead for the Municipality. A long, hard struggle of resistance

their friends against the Aprilia Acqualatina! Now in the middle of summer,

Acqualatina sends its teams of armed vigilantes and policemen for

off the counters or reduce the water flow. All this with the backing

the City and the province of Latina! The goal? Forcing those who dispute

Acqualatina to go to the counter to pay.

It 's a heroic resistance and learn this in April: the people feel

left to itself. We can not leave them alone!

's summer also brings bad news from my Naples and the region

Campania.

The Councillor for the Budget of the City of Naples, a proposal which throws Cardillo

become operational in January 2009. The Arin, the municipal water of

City of Naples, will become a multi-services that include Napoligas and

company for renewable energy. To digest the pill, Cardillo

promised a Robintax "for the poor (lowest rates for the underprivileged classes).

With the privatization of water will necessarily create a serious public

A (the rich) and series B (the poor), as claimed by the economist M. Florio 's

University of Milan.

these are bad news for the whole movement from Naples in 2006

had forced 136 municipalities of ATO 2 to retrace their steps and proclaim

water as a common good. Instead of public water, the assessor is Cardillo

perhaps preparing a nice treat for A2A (the multi-Brescia and

Milan) or Veolia, if you touch Waste Management

bell? It would be a great triumph at the Naples economic-financial potentates.

To this we must add the serious news in Castellammare di Stabia (a

City of a hundred thousand inhabitants in the province of Naples), 67 000 people

received, for the first time, the bills from Gori, (one of which 46 per SPA

cent of the shares is owned by ACEA, Rome). This in spite of the

decisions of the City Council and the citizens who are fighting for years against

the Gori , now put your hands on the 76 municipalities Vesuvius (from Nola in

Sorrento).

"You do not pay water bills!" Is the invitation of the local Committee to

families of Castellammare. It will also be here a long and difficult struggle, as

to Aprilia. I feel deeply hurt and betrayed by this news

I receive a little 'everywhere.

bitter I wonder: But where is the big push against

water privatization that led to the collection of 400,000 signatures

support for the law of popular initiative on water? But what happens in

our country? Why are we so still? Why is it so hard

make common cause with all the local struggles, confining our

territories? Why does not Water Forum launches campaign on the internet, for

send thousands of solicitations to the Environment Committee of the House where

sleeping of the Law on People's Initiative ' water?

It is time to appeal to the parliamentarians of all parties to

to through Parliament a framework law on water?

We must give us all a move to realize the dream with us and

say that water is a fundamental human right that must be managed by

local communities with total public capital at the lowest possible cost to the '

user, without SPA.

"Water belongs to everyone and no one can be granted to appropriate

to draw "illegal" profit-wrote the Archbishop Emeritus of Messina G.

Marra. Therefore, calls to be handled exclusively by the municipalities

organized public company, which have always been a duty to ensure

distribution for all at the lowest cost possible. "

When you hear words like the Italian Bishops' Conference?

When does take a position on an issue that means life or death for

our classes, but especially weak for the impoverished of the world? (We will

million deaths from thirst!)

E 'as stated in the middle of this summer, July 16, Pope

Benedict XVI: "With regard to water rights, it must be emphasized also

it is a right that has its basis in human dignity. From

this perspective we must carefully examine the attitudes of those

who consider and treat water only as an economic good. "

When is that our bishops will gain the necessary consequences for our

country and involve all the parishes in a large movement to defend

water?

Water is life. "Water is sacred, not only because it's precious gift of the Creator-

recently wrote the bishop of Caserta, Nogaro - but because it is sacred every

person, any man, every woman on earth in the image of God from '

existence draws water, energy and life. "

Waterfront we play everything!

Starting from the bottom, the fighting in defense of water at the local level,

we share in a great movement that our obligations to Parliament

proclaim that water is not a commodity but a right for all.

Let's get the win for life!