Unregulated Derivatives Worry Some
Regarding Mark C. Brickell's "" (op-ed, May 14): Let me just address two aspects of the $464 trillion derivatives market. First, the size of the market is so huge compared to our $14 trillion gross domestic product that everyone should be worried and should demand transparency and regulation.</br></br>Another of the real dangers of interest-rate swaps is the floating interest end. Let's recall the Orange County, Calif., bankruptcy when it lost $2 billion because it was on the wrong end of inverse floaters. We are currently in a low interest rate environment, but it is very likely that we will see very high rates if the euro collapses or if China withdraws its money from the U.S. Then we will see disaster for all those on the floating end of these interest rate swaps ($400 trillion). It will be far worse than being on the wrong end of the subprime derivatives market ($1 trillion).</br></br>William Thayer</br></br>San Diego</br></br>In 20 years, Mr. Brickell tells us, these swaps have expanded 200-fold to $464 trillion (and someone made money writing every contract). This is seven times the GDP of the whole world.