Are hedge funds moving to a blowout?

This commentary was called to my attention, so I am passing it on to y'all. Mish's Global Economic Trend Analysis

The Bank for International Settlements (BIS) is reporting Derivatives traded on exchanges surged 27 percent to a record $681 trillion in the third quarter.


Already banks no longer trust each other and/or are so capital impaired they cannot or will not lend to each other overnight. Washington Mutual is the latest casualty in that regard. See WaMu Cuts Dividend and Jobs, and Prices Preferred Stock in response.


I have a failsafe prediction: Several hedge funds are going to get carted out on a stretcher all at once and cause a cascade of defaults. Many hedges are in place that are based on other counterparty hedges paying off in the event of "an event". When "the" event comes, those hedges will prove to be worthless.

Long Term Capital Management (LTCM) will look like a picnic in the park compared to the derivatives mess we are currently building up.

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