why the bankster short position wont kill them, page-4

Hi there SaturnV

You have to be careful when you analyse elements of a complex derivative portfolio in isolation. I have seen an MTFX book that had AUD 800 million in mark to market losses on the USD flows, but AUD 850 million in mark to market profits on the AUD flows. It was a very profitable book, but if you looked at the USD side in isolation it looked to be down the toilet.

The "massive" gold derivative outstandings held by banks (and their relatively massive mark-to-market losses) are meaningless unless understood in relation to the equally massive swaps on the other side with producers who have equally massive inventories of gold in the ground.

In derivatives the face value outstandings are not the way risk is measured. Most of the market risk will be in the Futures-Swap mismatch, with relatively tiny unmatched portions at the edge. Under the APS 113, Australian banks are obliged to measure both the mismatch and open risk (using VaR) and set aside regulatory capital against potential losses. Similar controls exist for all banks in jurisdictions subscribing to the Basel Capital Accords.

Short assessment: In market risk terms, this is a non-issue.