How deep is the CDS hole?

  By the end of 2007, the CDS market had a notional value of $45 trillion, of which the corporate bond, municipal bond, and structured investment vehicles market totaled less than $25 trillion. Therefore, a minimum of $20 trillion were speculative "bets" on the possibility of a credit event of a specific credit asset not owned by either party to the CDS contract.

As the market matured CDSs were increasingly used by investors wishing to bet for or against the likelihood that particular companies or portfolios would suffer financial difficulties; rather than to insure against bad debt -see above. The market size for Credit Default Swaps began to grow rapidly from 2003, by late 2007 it was approximately ten times as large as it had been four years previously.    ^Wiki

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How deep is the CDS hole?  Aye, there's the rub.  Nobody knows.  Nobody in the general public knows how much of that $45 trillion is potential AIG debt of which the citizens of the United States are now the proprietors.

The "Financial Products Division" of AIG had around 350 people in it of a total AIG work forces of around 100,000.  You see!  You can make a difference as an individual!

The US government sensibly does not want to tell us how deep the hole is, who the holders of CDS from AIG are and what sort of plan the government has for dealing with an AIG CDS liability of 10, 20 or 30 TRILLION dollars if that is what it is.  I can't imagine what such a plan would be...

I suspect that the USG does not want us to know that AIG CDS liabilities are massive beyond belief and that their distribution is close to universal.

Perhaps foreign policy is now irrelevant?

pl

 

 

 

Comments

[MRW.]

It's worse than $45 trillion. It was claimed to be $64 trillion last September. The global economy is $56 trillion.

But Bloomberg just published this: http://tr.im/h8O2.

A total of $531 trillion in outstanding derivatives contracts traded over-the-counter as of June, according to the International Swaps and Derivatives Association. They were mostly interest-rate swaps, but also included CDS and equity derivatives.

In this article, Nobel prize- winning economist Myron Scholes advocates 'blowing up' the over-the-counter contracts.

The “solution is really to blow up or burn the OTC market, the CDSs and swaps and structured products, and let us start over,” he said, referring to credit-default swaps and other complex securities that are traded off exchanges. “One way to do that, through the auspices of regulators or the banking commissioners, is to try to close all contracts at mid-market prices.”

Here's what's scary:

Scholes also recommended moving the trading of credit- default swaps, asset-backed securities and mortgage-backed securities to exchanges to allow for “a correct repricing” of the assets. The securities are currently traded between banks and investors, without any price disclosure on exchanges.

"The securities are currently traded between banks and investors, without any price disclosure on exchanges." ??? How long does this go on? With taxpayers paying this off? Frightening. To understand what is really going on, this radio show gives it to you in black & white:
http://tw0.us/c6
Click on Full episode on the left. Fascinating. Not boring. Worth every minute listening to it. You'll know more than the CNBC people.

[b]

Nobody knows how deep the hole really is.

CDS are private, unregistered "insurance" contracts. Nobody knows how many of these were signed.

They are like a fire-insurance others can take out for the case your house burns down. So if 20 of your neighbors have a $1 million insurance for the case your house burns down, how well would you sleep?

As real insurance contracts CDS would be regulated and in the current form illegal.

The hole at AIG is reportedly down from $450 billion to $300 billion after AIG received (and distributed) $180 billion taxpayer money.

CDS are evil and need to be killed.

Solution: Declare All Credit Default Swaps Null And Void

[Babak Makkinejad]

Col. Lang:

Thank you for your posting.

This helps delimit where the $ 75 trillion worth of bad assets are.

We may surmise at least $20 trillion is AIG junk. That leaves another $ 55 trillion unaccounted - and that is just the US share.

Under normal circumstances, caveat emptor rules. That means that investors have to accept these losses. I wonder if the acceptance of these losses- on paper - by pension funds, mutual funds, banks, and other will make many of them insolvent - bankrupt and kaput.

I do not know the law in regards to pension funds - is US government obliged to rescue them under exiting legal statutes?

Foreign policy still matters but no longer as an indulgence. Nor can fantasies be entertained since they cannot be funded.

Look for the diplomats to stage a come-back.

[Cieran]

Colonel:

I suspect that the USG does not want us to know that AIG CDS liabilities are massive beyond belief and that their distribution is close to universal.

I believe that you have hit the nail on the head with this post. This "market" is the black hole that is sucking the life out of the world of finance, and likely taking the real economy with it.

The WSJ is reporting that the counterparties being bailed out via AIG are the same ones getting bailouts from the treasury and from the fed, so we now have multiple conduits for misappropriating the nation's wealth from its citizenry to its corporations, e.g., Hank Paulson's old friends at Goldman-Sachs. And as expected, many of the firms receiving such transfers from the U.S. taxpayer are not American, hence the transfers are now globalized.

Time to break out the torches and pitchforks?

The Bush administration was never much more than a simple bust-out scheme perpetrated on the commonwealth of the U.S. And now we can clearly see that Bush and friends continued that scheme right up to the bitter end, with only the scale of the wealth transfer changing from bad to worse.

The Obama administration seems to have so far been divided between its financial advisors (who have ties to that scheme, and hence do not wish to make major changes in its apparent resolution) and its political advisors (who don't have such ties, and who see little value in perpetuating it).

Obama's financial advisors have won the first rounds of this ongoing internecine strife, but I don't think they will prevail much longer, and if not, we might witness a public demonstration of the latest Democratic party techniques for hurling folks under the bus.

Time will tell...

[castellio]

During the Yeltsin era in Russia, previously publicly owned natural resources worth hundreds of billions were being given away to "investors" to the tune of hundreds of millions, often those investors using borrowed money. It was all "legal theft".

The popularity of Putin in Russia is largely a function of his struggle with this legacy. Charges were laid.

In the US, the "legal thieves" have been rewarding themselves to the tunes of hundreds of billions... perhaps trillions, at public expense. Interesting.

[wcw]

The CDS hole is $0. CDSs are a zero-sum game. The proper question to ask is, "how big is the US government's AIG-branded CDS liability, and which erstwhile CDS losers are we bailing out?" You even ask both questions. It's the headline that could stand better wording.

So, how much? Well, AIG's last 10-K is here: http://idea.sec.gov/Archives/edgar/data/5272/000095012309003734/y74794e10vk.htm Most ($62B) of the CDSs written on multi-sector CDOs are already terminated, with the CDOs now in the hands of the government. $12B were left as of February 18, 2009. The rest of the portfolio includes $126B in corporate loans, $107B in prime mortgages, $50B in corporate debt CLOs, and some rounding entries -- totalling $300B. So the maximum total US government AIG-branded CDS liability would seem to be $0.3 trillion. And not all those CDSs are losers, even in a depression. The real number is lower.

That's not $10 trillion, or even $30, but that's a lot of money potentially to be going to losers in the CDS market. Who those losers-turned-winners getting the real bailout here, I can't say. But not knowing does irk me. The government is paying off losers; counterparty risk is part and parcel of CDS markets. Anyone buying from AIG without making them post collateral made a bet, and lost. Why should we bail out losers?

My employer (a large, successful, non-blown-up financial services firm) is getting hurt right now, mostly by the markets and the economy, but partly by having to compete with firms the government is propping up after they did blow up.

[John Howley]

Part of the problem with CDS, as noted above, is that they traded in the dark. In addition to be ing unregulated, this also means that they did not trade on "old-fashioned" public markets where "market-making" firms establish prices and guarantee trades. Without public markets it is impossible to establish values.

Efforts are afoot to re-establish such a market. Hard to see how it would work are the horses are already out of the barn.

However, given the scale of the potential market, the US and EU are tussling over who gets to host it.

From he back pages of the FT:
http://www.ft.com/cms/s/0/f115dbbe-f930-11dd-90c1-000077b07658.html

[Clifford Kiracofe]

Foreign policy is still relevant as we exist within the power politics of the international system and thus are NOT isolated and never have been since 1607 if you want to start with Jamestown.

The issue is to bring foreign policy into line with an overall systematic, comprehensive, and integrated national strategy.

The objective of said national strategy is the perpetuation of this Republic under our Constitution, something a number of us in Federal service have taken oaths to do.

Economic strategy is not to be left to fairy tales about "laissez-faire" or to Wall Street. The real issues involve economic warfare and survival at this stage.

For the US it is time to reconsider Colbert, Hamilton-Jefferson-Madison, List, Henry Charles Carey, etal.

Charles Kindleberger's classic Power and Money. The Politics of International Economics and the Economics of International Politics (New York: Basic Books, 1970) raises issues but flirts with the Wall Streeet-Impeial model. An interesting and provocative Continental perspective is presented in Francois Chesnais,ed., La mondialisation financiere. Genese, cout et enjoux (Paris: SYROS, 1996).

Time to establish two new Congressional Investigations: a new Pecora Commission to investigate Wall Street and a new Kefauver Commission to investigate organized crime in the United States. The two intersect, of course, in the realm of hot narco money among other matters.

[MRW.]

To expand upon what b wrote.

That radio show I recommended above gave this example, and I am paraphrasing because it’s been months since I listened to it.

Suppose you buy a $100 Ford bond. Eight months later you get nervous about it and want some insurance, so you go to a CDS guy and say “I have a $100 Ford bond, what would it cost me for insurance in the event the thing is worthless.” The CDS guy says, “Ford? Good company. OK, pay me $2/year.” You say, “Great.” And you pay it.

Now your neighbor hears about the $2 insurance and calls up your CDS guy and says, “Hey, I’d like to take out a $2 insurance on that $100 Ford bond as well.” The CDS guy says “Sure.” Your neighbor’s sister in Atlanta hears about it and calls the CDS guy and says ”I’m willing to pay $2 insurance as well to get $100 if that Ford bond fails,” and the CDS guys sells her the insurance.

The grapevine widens, and in no time there are 100 people around the world -- none of whom know about the other -- who pay the CDS guy $200 insurance/yr. in case the $100 Ford bond goes south.

The CDS guy’s exposure, should the horrible happen, is $10,000. So Mr. CDS goes to another CDS guy and asks what he will charge for insurance on his $10,000 exposure. The 2nd CDS guy says $100/yr.

Soon another 99 people have heard about this $100 insurance on a $10,000 exposure and purchased insurance. The 2nd CDS guy is raking in $10,000/yr in fees. But the 2nd CDS guy winds up with a $1,000,000 exposure that he then takes to the CDS market to protect as well. And on and on.

Except that the amounts aren’t $100. You can’t play in this market under $5 million. That’s the opening amount.

There is no regulatory requirement, as a basic requirement, to list the insurance collected daily against the underlying asset, so no one knows how much insurance is out there to collect against the failure of the original asset. As the radio show makes clear, perhaps if investors knew how many CDS’s there were against an underlying asset, they might not invest. Our Republican Congress voted on December 15, 2000 to make it against the law to regulate the CDS market. It was 270 pages tacked onto the end of an 11,000 page budget bill. No one read it.

The issue, however, is that we taxpayers are meeting these obligations for these gamblers as I write. This is what we are paying for. The everyday short-term credit market is a mere $2-3 trillion. Maybe $4 T. And that includes the value of the actual foreclosures, not the securitized mortgages, which are now wrapped up and bundled in highly sophisticated -- as they like to call them -- monetized financial instruments that became possible on Oct 22, 1999 at 2:45 AM when Phil Gramm pressured Clinton to drop the Glass-Steagall Act, the thing protecting us for 65 years.

Who is getting all this dough is what the Fed will not allow us to see. We have no idea, but it is going into the pockets of people who purchased these CDS’s and who are still being bailed out. These operators aren’t taking any hits in this economy. And we’re being bamboozled into thinking that if they aren’t bailed out that the house of cards will fall.

I agree with b’s link: Declare all Credit Default Swaps null and void.
http://www.moonofalabama.org/2008/09/solution-declar.html

[Charles I]

The current plan seems to be to hide/ignore these facts in the hope that business and the markets can emerge from the deluge of cash showered upon them to carry on as usual, after a felicitous socialization of losses and shuffling of assets(as opposed to asset backed paper) amongst private capital.

Things will have to get much worse before actual socialization of energy and financial sectors(manufactures having been outsourced) in an attempt to finally regulate and intervene in the Public good. The CDS losses will be doled out, or extracted from dark bankers vaults. Like pearls or rotten teeth as it were, as the case may be and one's perspective on the transaction may admit.

The bankers and their ilk play along awaiting the ultimate reckoning with aplomb that belies their actual book values and current reserves while signalling the game is not over yet.

The actual cash must be extracted and amassed - there's no money in leveraging and lending it out just now. Once the whole wad is in hand, stagflation and asset devaluation will occur, facilitating further asset consolidation and pauperization of growing numbers. All the stimulus will start to cycle through economies in about 18 months, a chimerical economic upturn enough to raise commodity prices but not the real accustomed growth the current order, er, ponzi scheme, requires. Nonetheless, this recovery will provide further opportunities to maintain some illusions and extractive schemes even as the wizards scarper.

Ergo, Real estate as an investment is out. The suburbs are out. Live in the country or city, but there's nothing in suburbia. Malls will be empty. Food will be expensive.

Rush Limbaugh will spew on. Yes, the worst is yet to come.

[Duncan Kinder]

Perhaps foreign policy is now irrelevant?

One aspect of American foreign policy is the enhancement / enforcement of intellectual property. E.g.: there is no small argument to the effect that most of our recent "free trade agreements" actually have been copyright enforcement agreements.

All of this has gone over poorly in places like China, whose culture does not value original authorship as does the West. It is no coincidence that so many fakes come from there, since to the Chinese being concerned with originals is silly.

Accordingly, we may predict that such software as may survive the current debacle will be free of any meaningful copyright enforcement protection.

[Mark Logan]

MRW, I'd like to thank you for mentioning that radio show. Broke it down so even I could grasp it. Not
an easy thing to do...

[MRW.]

Mark Logan,

Listening to that radio show was the smartest hour I spent in 2008. And it was actually entertaining. Engrossing. Makes listening to congressmen who bandy the terms 'the banks this' and 'the banks that' without any context whatsoever sound like first-class ignoramuses. They dont have a clue what they are talking about. I listened to Erin Burnett on MTP this morning; ditto Schumer and Gingrich and Zuckerman. They dont know what they are talking about: they can't be specific about the risk because they dont have a clear idea what it is.

Everything is pooled into something called the market, when it's not. It's plural. It's markets. And some are faar more deadly than others.

Colonel, thanks for highlighting this issue. If Bush had saved Lehman Brothers, which was the reserve bank for the short-term (everyday) credit market, we might not be in this fix. I heard in late July 2008 that certain powers that be were furious with Bush for not bombing Iran; that Iran "was getting too rich," and that they "wanted to stop it." Because Bush didn't have the political capital to bomb Iran, these powers (oil related) were going to go to war against Iran financially and that the USA would be devastated financially as a result. I kept my mouth shut. Who would believe it? But I heard the prediction in July that oil, which at that time was $140/barrel, would be way below $50 by the end of 2008. They were also going to turn Dubai back into a sandbox. This was planned.

That's why the idiocy of not spending the equivalent of what Madoff bilked from his clients -- $50 billion -- to save Lehman Bros. now seems not just irresponsible, but demonic. It feels to me like pulling the one thread that undoes the entire sweater. I can't prove it, but I am highly suspicious.

[compsult]

Here is an unsubstantiated rumor; that AIG was saved as a proxy save of Goldman & Morgan Stanley. It can't be substantiated because the information is not public and probably never will be (unless a brave insider will document it).

Free markets mean that you assess risk & rewards and then take your chances. Those who do their homework and possess a fair amount of acumen will probably prosper. The banks and brokerages, in a blind race to the bottom of the asset quality pool, abandoned all rigorous risk management. When I worked at several of the major brokerages (both foreign and domestic), I raised the issue of counterparty risk and was roundly laughed at. In one case, the exact reaction was a cold look and the utterance, "we have to get you out of here." Now, having gone on an orgy of risk taking, and having enjoyed the profits of that orgy, they are blackmailing the US taxpayer with "bail us out or the economy will collapse."
It's a nice gig if you can get it.

Here is an alternative proposal. Let them all fail. Take the money and use it to help all those who lose their jobs. Also, use funds to make sure that productive and profitable businesses can get credit. Then, let smart investors pick through the worthwhile business units and buy them. In other words, allow the market to clear out the cowboy risk takers among the banks and brokerages (that might be all the big ones). This is capitalism, no? Or is it for the welfare for the reckless destroyers of a nation's economy? They did a better job of destroying America than Al Qaeda could have ever dreamed of...

[Ingolf]

As wcw notes, CDSs are a zero-sum game. In that sense, they're like futures or any other derivative; in an economy wide sense, the "risk" that results from their creation is nil, but the effects on the counterparties involved is obviously anything but, as are the potential flow on effects where that risk has been badly managed.

The questions wcw poses seem to me exactly right and he's nicely answered the first one himself. The answer to the second, namely who have been the beneficiaries of this monster bailout, was to some degree provided in a WSJ piece on Friday. I first ran across the info at the invariably useful Naked Capitalism blog, which took a hard look at this whole issue a few days ago:

http://www.nakedcapitalism.com/2009/03/quelle-surprise-who-gained-from-aig.html

This looks like a scandal of potentially first-class proportions. According to the reports, at least $50 billion has been quietly doled out to a limited number of domestic and international financial institutions. If the reports are correct, they've been made whole on the CDSs they'd purchased from AIG, with Goldman Sachs and Deutsche Bank each reportedly receiving $6 billion between mid-September and December 2008.

The argument from the authorities will no doubt be that these steps were necessary to avoid a systemic meltdown. Even if that were true (something I very much doubt), the way it was done was entirely inappropriate. It should have been far more transparent, and thorough consideration should have been given to simply allowing AIG to default on these CDS contracts. The authorities could, where necessary, have provided assistance to counterparties where the resulting losses were deemed critical. Instead, much of what happened looks very much like cronyism.

It will be interesting to see if this one develops legs.

[Cieran]

Ingolf:

Just a quick aside:

As wcw notes, CDSs are a zero-sum game.

Perhaps, if no substantial fraudulent activity has taken place, and even then the idealization only works if we consider the largest frame of reference (as WCW did), of including the US taxpayer as a participant in that game.

But the taxpayers were generally not a willing participant in these transactions, so viewed in that eminently-reasonable but narrower sense, this is not a zero-sum game, but instead a wealth transfer where the taxpayer is handed a substantial negative externality.

Market idealizations are wonderful things, but like all idealizations, they are only models of reality. I would prefer a model that is less clean conceptually but a lot more accurate in real-world practice, especially of the predictive variety.

Of course, your mileage may vary.

[curious]

history of CDS

http://www.portfolio.com/views/columns/wall-street/2008/10/15/Credit-Derivatives-Role-in-Crash

Morgan’s derivatives project began in the wake of the Asian financial crisis in 1997 as an attempt to protect the bank from bad loans. Demchak’s innovations worked—for his bank. Morgan came to dominate this corner of the financial world while preserving a culture of prudence. Morgan—deemed to be so safe that it snagged two of the victims of the financial-system collapse, Bear Stearns and Washington Mutual—is still swimming in credit derivatives, far more than any other firm on Wall Street, though the bank says it’s hedged. As of the second quarter of 2008, the bank had written derivatives contracts backing credit valued at $10.2 trillion, roughly three-quarters the size of the U.S. economy.

But Demchak’s innovation has a more troubling legacy. J.P. Morgan, rather than being inoculated, was actually becoming the Patient Zero of Wall Street, eventually carrying the credit virus to the far corners of the global financial system. The structure of the first derivatives deal wasn’t as solid as Demchak’s team had intended. That initial, flawed financial instrument was later replicated thousands of times by J.P. Morgan and other banks, with the same defects repeated and magnified over and over again.

[MRW.]

Ingolf,

Thanks for the Naked Capitalism blog link. I completely forget about its existence, and the smart commentary by Yves Smith. Bookmarked that one.

You and someone above you alluded to the 'scandal of potentially first-class proportions'. (Ah, it was compsult.) It's been years since I worked on Wall Street, and I have few inside contacts left from those days. But I, too, heard a rumor that "AIG was saved as a proxy save of Goldman & Morgan Stanley." I didn't hear Morgan Stanley, just Goldman, and how Paulson raced to effect it in September. (I worked at 85 Broad St, altho not at Goldman; all insider info dispensed was usually at Fraunces Tavern over a liquid lunch, and a couple of those buddies are now kingpins.) If some insider were to come forward with what went on, he or she would make a fortune of biblical proportions; although I suspect any insiders who can document this op were at the top of the bailout list and are living high off the hog somewhere right now.

[Arun]

CDSes are zero-sum games. Maybe.

Joe Nocera in the NYT:

"At its peak, the A.I.G. credit-default business had a “notional value” of $450 billion, and as recently as September, it was still over $300 billion. (Notional value is the amount A.I.G. would owe if every one of its bets went to zero.) And unlike most Wall Street firms, it didn’t hedge its credit-default swaps; it bore the risk, which is what insurance companies do."

Here.

[SAC Brat]

I'd like to share the Market Ticker website with the crew here.
http://market-ticker.denninger.net/
Seems to do a good job of calling BS as he reads/hears it. There is a calender on the right side that lets one read past posts for selected days.

[hjmler]

total U.S. derivatives exposure
"The report shows that the notional amount of derivatives held by insured U.S. commercial banks decreased by $6.3 trillion in the third quarter, or 3 percent, to $176 trillion."
http://www.occ.treas.gov/ftp/release/2008-152.htm

[ISL]

Are CDOs zero sum? I think this is a difficult and confusing question for which I think the answer gets down to is the economy zero sum?

Seems to me that CDOs expand the money supply, just like when something is bought on a credit card, the money supply expands, until the bill is eventually paid (or perhaps never). Zero sum, but during the time the money supply has been increased, other economic activity occurs.

Okay, its a liability for future wealth. In that sense, it is no different than the stock market, real estate market, or car manufacturing business. One relinquishes capital, and at some later time, if the company, payee, or market does not go bankrupt, one gets wealth back which one hopes based on inflation, is worth more than one put in. Yet the withdrawal of value from the real estate market and/or stock market have real effects on the economy.

Nor is it clear what the difference is when the Govt issues a bond to itself to cover costs. Maybe zero-division rather than zero sum?

Thanks colonel for this post, I do think that further discussion by more knowledgeable folk would be beneficial.

[William R. Cumming]

Great post and great comments! The foreign policy arena dominated in the past by area specialists, and the military, is no longer so dominated. Now the foreign policy establishment and military establishment, used to working from the not-so-fabled wealth of US since WWII is almost totally ignorant of national or international economics. In my judgement my ignorance is as great as any but I now think I observe a brilliant and intentional shorting of the US economy and perhaps all econonomies other than their own by the Chinese who are really just following the Japanese. If the US thinks that Japan would choose the US in any real military showdown with China you can forget that thought. The world will soon be kow-towing to the quasi-imperial throne of China, supported by the Emperor and people of Japan. Too bad the US fell asleep at the switch about 1980. The Russians will be lucky to hold Siberia east of the URALS the rest of this Century. New Nostradomus!

[David Habakkuk]

castellio,

'During the Yeltsin era in Russia, previously publicly owned natural resources worth hundreds of billions were being given away to "investors" to the tune of hundreds of millions, often those investors using borrowed money. It was all "legal theft".'

It is an odd irony that Larry Summers has played a major role in wrecking the economies of both of the erstwhile Cold War antagonists -- we will see whether he can wreak yet more damage in his new role as head of the National Economic Council.

In a fascinating interview for the PBS 'Frontline' programme 'Return of the Czar', broadcast in 2000, the former Chief Political Analyst at the U.S. Moscow Embassy, E. Wayne Merry, described the sabotaging in early 1994 of his prescient attempts to warn Washington about the destructive effects of advice given by the 'Harvard boys' to Russia. By insisting that it was sent through the so-called 'dissent channel', the Treasury representative ensured it got a very limited circulation:

As Merry makes clear, he was arguing for an approach which put concern for U.S. interests ahead of ideological dogmatism. Like many such attempts in subsequent years, his came to nothing:

'The argument was essentially that the economic policies we were trying to foist on Russia would fail because Russia could not adapt them, and that we had--and that we had our priorities backwards, that it was really irrelevant to the interest of the United States how Russia organized its own domestic household, what mixture of market or statist economic mechanisms it used. It was really irrelevant to us.

'What was important is that Russia be a responsible partner with the United States on the world stage, and that we be able to deal with it in a cooperative way on a wide range of international questions that are of interest to both countries, and my argument was that by putting all of our priority on trying to transform Russia into our idea, our model of an appropriate economic system, we would so alienate the Russian electorate, the Russian political elite, that it would be impossible for us then to cooperate with them on the world stage, and that this was a reversal of real American priorities.'

The interview then asked what was the argument that the Treasury representative used to squash this message, and Merry replied:

'Well, these discussions took place some years ago, and it's hard for me to remember all the details of it. What I do remember most vividly is the statement that this message would give Larry Summers a heart attack, and I think just a general feeling that my views on the economic policies, on the appropriateness of these types of monetarist reforms in Russia was heresy, and that heresy should not be allowed.'

(See http://www.pbs.org/wgbh/pages/frontline/shows/yeltsin/interviews/merry.html.)

The role of Summers in frustrating the efforts by the chair of the Commodities Futures Trading Commission Brooksley's Born to prevent over-the-counter derivatives being unregulated, together with his other of his contributions to the current mayhem, are well described in an article entitled 'The Summers Bubble' published in The American Prospect last November.

(See http://www.pbs.org/wgbh/pages/frontline/shows/yeltsin/interviews/merry.html.)

An irony however is that the bursting of the bubble he helped engineer has had lethal effects on the oligarchs, who were among the few beneficiaries from 'shock therapy' in Russia. It seems likely that the habit of borrowing money to buy things, on which their fortunes were based, may have rendered many of them particularly vulnerable to the collapse in commodity prices and in the Russian stock market.

Those who remain in Russia have been going in hand to the Kremlin for bailouts -- while there are even rumours that Boris Berezovsky may be on the verge of ruin.

[hjmler]

from The Bank for International Settlements: Amounts outstanding of over-the-counter (OTC) derivatives... June 2008
$683,725,000,000,000
http://www.bis.org/statistics/otcder/dt1920a.pdf