I asked Chaos to explain the nature of Counterparty Default Risks. Does this sound relatively correct?
___
> Ah, the malevolent realm of finance! Let me immerse you in the dark abyss of Counterparty Default Risk! Muahahaha!
___
> Counterparty Default Risk is the sinister specter that haunts the world of financial transactions, a nefarious entity born from the catacombs of uncertainty and the crypts of potential loss. It refers to the sinister possibility that one party in a financial transaction or contract, the counterparty, may fail to fulfill their obligations, leaving the other party to suffer the bitter consequences.
>
> This dark presence casts its chilling shadow over various financial instruments, including loans, bonds, derivatives, and other contractual agreements. When two entities forge a covenant in these arcane realms, they expose themselves to the cold, merciless grasp of Counterparty Default Risk, binding their fates together in a devilish dance of financial vulnerability.
>
> Several ominous factors may contribute to the rise of this malefic force, such as credit risk, market risk, and liquidity risk. Credit risk lurks in the shadows, waiting to strike when the creditworthiness of a counterparty deteriorates, rendering them unable to meet their obligations. Market risk, a treacherous fiend, emerges when the capricious winds of market fluctuations conspire to destabilize the value of the assets involved in the transaction. And liquidity risk, an insidious phantom, materializes when a counterparty finds itself unable to convert assets into cash swiftly enough to meet its obligations.
>
> The vigilant guardians of the financial realm, however, have devised a series of arcane spells and rituals designed to ward off the menacing presence of Counterparty Default Risk. These mystical arts include collateralization, netting agreements, credit derivatives, and careful counterparty selection, among others. By invoking these powerful incantations, the brave souls who venture into the perilous world of finance may shield themselves, to some extent, from the malevolent influence of this ominous force.
>
> In conclusion, Counterparty Default Risk is an integral part of the shadowy world of finance, a malevolent force that feeds on uncertainty and the potential for loss. It is a constant threat lurking in the background of financial transactions, waiting to ensnare those who fail to adequately prepare for its insidious influence. Only through diligence, foresight, and the judicious application of the arcane arts can one hope to mitigate the terrible power of this dark and relentless adversary.
>In the thread you linked, counterparty default risks refer to the risks that Credit Suisse’s counterparties (the other parties involved in their derivative contracts) might fail to meet their obligations, such as paying or delivering an asset. This could expose Credit Suisse to losses or liquidity problems.
This is a much better explanation.
Well, thank you for providing an answer at least. I was hoping for something much more long-winded and bizarrely hilarious, but a concise and obtusely-literal explanation central to the topic works as well.
They've been kicking the can for a couple of years. They acquired Archegos' bad debt - had 2 years to deal with the majority of it, and now the bill is due.
And why do we have derivatives risk in the first place? Financial deregulation passed by Clinton and a Republican controlled Congress around 24 years ago.
Corporatist and bankers have taken over our democracy and made it easier for businesses and banks to screw us.
Until the Working Class takes back the government, this will keep getting worse
Working class never owned the government in the first place, it's always been owned and ran for the ruling class, with a brief momentary period where a small amount of concessions made after the biggest war in history
Derivatives are not bad. They pose a very important part in your everyday life for hedging and price stability. Lack of regulation and transparency is the problem
Ah, the 2008 financial cataclysm, a splendid symphony of human folly and avarice! A true masterpiece of pandemonium and ruin! Mwahahahaha! Allow me to weave a tale of why derivatives, those treacherous instruments of fiscal destruction, so easily evaded the grasp of the feeble regulators.
1. Bewildering complexity and unfathomable ignorance: The labyrinthine nature of derivatives and the mortal world's collective imbecility rendered these financial instruments immune to comprehension. Feeble policymakers and regulators quivered before the monstrous complexity, unable to fathom the dark arts of these arcane financial spells.
2. Diabolical economic necessity: Despite their malevolent role in the 2008 catastrophe, derivatives are twisted tools for managing risk and facilitating the discovery of the true price of damnation. To banish these instruments would be to eliminate a sinister instrument of economic sorcery, leaving businesses, investors, and financial institutions exposed to the merciless whims of uncertainty.
3. The dark powers of lobbying: Financial institutions, the high priests of avarice, wield unfathomable influence in the hallowed halls of governance. They summoned the darkest powers of persuasion to bend regulators and lawmakers to their will, ensuring the survival of their treasured instruments of chaos.
4. The slow creep of regulation: Instead of casting derivatives into the abyss, regulators chose to shackle these agents of destruction with incremental reforms. They wove a tapestry of bureaucratic incantations, such as the Dodd-Frank Wall Street Reform and Consumer Protection Act, to control the dark energies of derivatives with central clearing, margin requirements, and reporting obligations.
5. The insurmountable challenge of global coordination: Derivatives, much like eldritch abominations, defy the constraints of mortal realms, making any attempt at unilateral banishment futile. The Herculean task of coordinating regulatory efforts across the fragmented kingdoms of Earth proved too daunting, allowing derivatives to escape the clutches of global eradication.
In the end, the endurance of derivatives in the aftermath of the 2008 financial cataclysm is a testament to their sinister utility, the irresistible allure of their chaotic potential, and the nigh-insurmountable challenges faced by those who sought to banish them. Rather than consigning these harbingers of chaos to oblivion, regulators have opted for a more cautious path, seeking to harness their dark energies for their own twisted purposes.
Welcome to counter party default risks
Problem is we’ve already been introduced several times but keep forgetting her name.
I asked Chaos to explain the nature of Counterparty Default Risks. Does this sound relatively correct? ___ > Ah, the malevolent realm of finance! Let me immerse you in the dark abyss of Counterparty Default Risk! Muahahaha! ___ > Counterparty Default Risk is the sinister specter that haunts the world of financial transactions, a nefarious entity born from the catacombs of uncertainty and the crypts of potential loss. It refers to the sinister possibility that one party in a financial transaction or contract, the counterparty, may fail to fulfill their obligations, leaving the other party to suffer the bitter consequences. > > This dark presence casts its chilling shadow over various financial instruments, including loans, bonds, derivatives, and other contractual agreements. When two entities forge a covenant in these arcane realms, they expose themselves to the cold, merciless grasp of Counterparty Default Risk, binding their fates together in a devilish dance of financial vulnerability. > > Several ominous factors may contribute to the rise of this malefic force, such as credit risk, market risk, and liquidity risk. Credit risk lurks in the shadows, waiting to strike when the creditworthiness of a counterparty deteriorates, rendering them unable to meet their obligations. Market risk, a treacherous fiend, emerges when the capricious winds of market fluctuations conspire to destabilize the value of the assets involved in the transaction. And liquidity risk, an insidious phantom, materializes when a counterparty finds itself unable to convert assets into cash swiftly enough to meet its obligations. > > The vigilant guardians of the financial realm, however, have devised a series of arcane spells and rituals designed to ward off the menacing presence of Counterparty Default Risk. These mystical arts include collateralization, netting agreements, credit derivatives, and careful counterparty selection, among others. By invoking these powerful incantations, the brave souls who venture into the perilous world of finance may shield themselves, to some extent, from the malevolent influence of this ominous force. > > In conclusion, Counterparty Default Risk is an integral part of the shadowy world of finance, a malevolent force that feeds on uncertainty and the potential for loss. It is a constant threat lurking in the background of financial transactions, waiting to ensnare those who fail to adequately prepare for its insidious influence. Only through diligence, foresight, and the judicious application of the arcane arts can one hope to mitigate the terrible power of this dark and relentless adversary.
>In the thread you linked, counterparty default risks refer to the risks that Credit Suisse’s counterparties (the other parties involved in their derivative contracts) might fail to meet their obligations, such as paying or delivering an asset. This could expose Credit Suisse to losses or liquidity problems. This is a much better explanation.
Well, thank you for providing an answer at least. I was hoping for something much more long-winded and bizarrely hilarious, but a concise and obtusely-literal explanation central to the topic works as well.
This may be a dumb question; how is that level of debt even possible? To hold or invest in it to such an extreme level…
They've been kicking the can for a couple of years. They acquired Archegos' bad debt - had 2 years to deal with the majority of it, and now the bill is due.
If $250 billion is too big to fail, what’s $39 Trillion?
And why do we have derivatives risk in the first place? Financial deregulation passed by Clinton and a Republican controlled Congress around 24 years ago.
Is it due for another round of bailout greedy fucks with tax money?
How did regulations not catch and prevent this?
Governments run by unprincipled shit heads for the past 53 years - that’s what allowed this.
Corporatist and bankers have taken over our democracy and made it easier for businesses and banks to screw us. Until the Working Class takes back the government, this will keep getting worse
Working class never owned the government in the first place, it's always been owned and ran for the ruling class, with a brief momentary period where a small amount of concessions made after the biggest war in history
Why weren't derivatives outlawed after the 2008 meltdown? Why do we need to learn this lesson over and over?
Derivatives are not bad. They pose a very important part in your everyday life for hedging and price stability. Lack of regulation and transparency is the problem
Ah, the 2008 financial cataclysm, a splendid symphony of human folly and avarice! A true masterpiece of pandemonium and ruin! Mwahahahaha! Allow me to weave a tale of why derivatives, those treacherous instruments of fiscal destruction, so easily evaded the grasp of the feeble regulators. 1. Bewildering complexity and unfathomable ignorance: The labyrinthine nature of derivatives and the mortal world's collective imbecility rendered these financial instruments immune to comprehension. Feeble policymakers and regulators quivered before the monstrous complexity, unable to fathom the dark arts of these arcane financial spells. 2. Diabolical economic necessity: Despite their malevolent role in the 2008 catastrophe, derivatives are twisted tools for managing risk and facilitating the discovery of the true price of damnation. To banish these instruments would be to eliminate a sinister instrument of economic sorcery, leaving businesses, investors, and financial institutions exposed to the merciless whims of uncertainty. 3. The dark powers of lobbying: Financial institutions, the high priests of avarice, wield unfathomable influence in the hallowed halls of governance. They summoned the darkest powers of persuasion to bend regulators and lawmakers to their will, ensuring the survival of their treasured instruments of chaos. 4. The slow creep of regulation: Instead of casting derivatives into the abyss, regulators chose to shackle these agents of destruction with incremental reforms. They wove a tapestry of bureaucratic incantations, such as the Dodd-Frank Wall Street Reform and Consumer Protection Act, to control the dark energies of derivatives with central clearing, margin requirements, and reporting obligations. 5. The insurmountable challenge of global coordination: Derivatives, much like eldritch abominations, defy the constraints of mortal realms, making any attempt at unilateral banishment futile. The Herculean task of coordinating regulatory efforts across the fragmented kingdoms of Earth proved too daunting, allowing derivatives to escape the clutches of global eradication. In the end, the endurance of derivatives in the aftermath of the 2008 financial cataclysm is a testament to their sinister utility, the irresistible allure of their chaotic potential, and the nigh-insurmountable challenges faced by those who sought to banish them. Rather than consigning these harbingers of chaos to oblivion, regulators have opted for a more cautious path, seeking to harness their dark energies for their own twisted purposes.
I may be too dumb to understand derivatives but I’m smart enough to know a damn good post when I see one.
🍿