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Reply #95: It's not good...but not as bad as that [View All]

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econoclast Donating Member (259 posts) Send PM | Profile | Ignore Wed Oct-19-11 11:34 AM
Response to Reply #74
95. It's not good...but not as bad as that
Edited on Wed Oct-19-11 11:36 AM by econoclast
The FDIC insures DEPOSITORS up to something like 250,000 per accountholder

So the FDIC Would be on the hook for that and nothing more even in a worst case scenario. The FDIC insures the deposits not the bank.

Other points. The giant multiple trillion dollar number is hokum. It is the "notional value" of the derivatives NOT the potential risk. Easy example. Options are derivatives. Suppose I buy a call option on 1,000,000 Greek bonds. I think I'll profit if Greece doesn't default. I pay 1,000 dollars for the option. OK. What is my risk? The 1,000 I paid for the option. If the market doesn't go my way the options expire worthless and I lost 1,000 dollars. But what is the @notional value " of this derivative contract ? 1,000,000. The value of the securities underlying the derivative.

So the "notional value" is really a meaningless number that conveys ZERO information about the actual risk.

Which is not to say the risk is small. We just don't know and the "notional value" number dies nothing to make the picture any clearer.
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