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$700 TRILLION Stent

10/12/2014

Jim Fixx was never a great runner, but he was the father of the running movement during the 1970’s and 1980’s, with the release of his best-selling The Complete Book of Running.  Although he was a fairly good runner, with a lean runner’s physique, he nonetheless dropped dead from a heart attack during a normal daily run in 1984.  He had one fatal weakness, i.e., his heart.

The world financial system in general and the U.S. financial system in particular have been steadily improving since the global financial crisis.  This has allowed our economy to turn around and grow significantly.  However, even though our economy is running well, there is one fatal weakness, i.e., derivatives.

But, there is reason to celebrate . . . cautiously.  The International Swaps and Derivatives Association (ISDA) has just agreed with the 18 major banks dominating 90% of the worldwide derivatives trade to give regulators the power to suspend contracts for 48 hours.  I know, I know . . . it doesn’t sound like any big deal, and it may not be, but it just might give regulators enough time to hopefully preclude another collapse like Lehman Brothers in 2008, by temporarily de-linking the contracts from the institutions.

It is not a complete lifestyle change of diet and exercise.  It is just another stent in a weak heart, because it does nothing to shine sunlight on the level of contracts outstanding, nor who is holding what exposure to whom.  But, it is a welcome step in the right direction.  With it, the world of finance just got a little bit safer.

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