Seems like to me the only thing left to do is keeping moving right. Perhaps libertarianism?”

Life isn’t yin or yang; life is yin and yang. Europe, and the US, are “mixed” economies. (If the US were a purely capitalist economy, there would be no public schools, roads, parks, Social Security, MediCare, etc.)
For my money, nothing is going to work for everybody without population control and limits on personal wealth. Capitalism’s dependence on ever-expanding markets and cheap labor and raw materials is unsustainable. The social justice of socialism, (and environmental equilibrium,) is unattainable without limits on population. (How can you cater a party without knowing how many guests there are?) Social justice is also impossible when wealth is concentrated among a few individuals, yet the entreprenurial/creative spirit of human nature is essential to human progress.
Will we figure this all out before we kill ourselves? At the moment I’m doubtful. Tomorrow I might feel more optimistic.
BTW, Libertarianism is a philosophy, not an economic system.

Right now that’s all companies have to report generally–the net difference. There’s a whole lot more to it than that actually, but for the sake of example.

IMO,accounting rule #1 is that your balance sheet must balance. If I have to book a $45 liability, then what’s the other side of the transaction? And don’t say contra-equity account.

It’s a tough call–just like with the legal field, stuff falls in the grey areas with accounting rules all the time. Problem is, while the media will abstain from pretending like they’re experts on antitrust legislation or intellectual property laws or whatever, they sure do act like they’ve got a 5-year PhD in economics. And another one in corporate finance. And throw one in more in accounting and organizational behavior while you’re at it.

Actually, what do economists know? If they could just get better at predicting the future, then none of this would matter! Then we would know the true value of derivatives, and none of this would be an issue.

re: Requiring companies to post the notional value of derivatives contracts is absurd. Say I sell a CDS contract on the United States of America to Billy Bob, where Billy Bob agrees to pay me $50K a year, and I agree to pay Billy Bob $1 billion should the United States go bankrupt. Is that a $1 billion liability for me? Of course it’s not. The odds I will have to pay that out are very low, like 1%.

I am not sure I buy that. As a banker and an accountant rule #1 is that if there is a potential liability of $ 1 bn then it must be reported. The issue of ‘odds of liability being required’ is not the issue. When a banker assesses a balance sheet, the contingent liability is a liability.

We can debate the nature of reporting and whether its a direct liability as I believe or a reported liability within the financial statement comments but reported and recognised it must be.

I think the question boils down almost to a philosophical or even a political one. If not capitalism, then what? Communism has obviously failed. And socialism is not so great either (see: Europe). We just got done with a 2-year recession and 10% of our country is unemployed, so capitalism has obviously failed.

Seems like to me the only thing left to do is keeping moving right. Perhaps libertarianism?

And the federal government did not pay AIG 100% of the notional value of the CDS investments. This is a common misconception, which is what happens when a journalists think they have a good understanding of credit default swaps written on collateralized debt obligations. They paid the fair market value for the CDS contracts at the time, which was the difference between the CDS price and the underlying assets, here CDOs. Those CDOs have actually risen in value, so this turned out to be a great deal for the Fed and AIG. Goldman was indifferent actually since they had collateral in hand from AIG at the time, which they would have kept had AIG went bankrupt.

Requiring companies to post the notional value of derivatives contracts is absurd. Say I sell a CDS contract on the United States of America to Billy Bob, where Billy Bob agrees to pay me $50K a year, and I agree to pay Billy Bob $1 billion should the United States go bankrupt. Is that a $1 billion liability for me? Of course it’s not. The odds I will have to pay that out are very low, like 1%.

A better argument could be made requiring the banks to disclose both the asset and the liability portion of derivative contracts. That obviously would have no effect on the value of the company per se, since the company is already reporting the net difference between the two (i.e., the fair value of the derivative). However, it would change the leverage ratio, and it would give a better idea of a firm’s risk, which could be important when the fit hits the shan.

I think this article makes a good point in that more more stringent disclosure is definitely needed by the banks on derivative positions. However, it’s highly unlikely we will see Congress do this–actually, they recently passed legislation requiring less disclosure from financial firms.

All I know is that derivatives were enough to bring down AIG so there is something to the worry about them.

In a recent confab of known names of folks commenting on the Financial Meltdown, a fellow by the name of Frank Partnoy claimed that the notional value should be used to discuss the obligations of the issuing counterparty–

Frank Partnoy on Off-Balance Sheet Transactions

And remember, AIG’s counterparties were paid off by the US Federal Government at 100 cents on the dollar, so the idea that the notional value is useless is not borne out by practice, at least in the $180B AIG debacle.

Moreover, if a $1B CDS can be “settled” for $1M, then why hasn’t that happened, making this world-wide trauma disappear. There are supposed to be $600+T (notional) in existence. Since most of this amount must be in “naked” CDSs, seems like settling 0 cents on the dollar would be another way to settle this mess in a real hurry.

I’m not an accountant and not in finance, but I don’t see how anyone can argue against this.

Probably viewing this.