there is indeed an argument that says that daily mark-to-market (with collateral reconciliation) nullifies all but the very wide tails of the distribution. So the 6-sigma risk is paradoxically increased on daily liquidity, because you&#x27;re sleepwalking into taking bigger risks, on which big sigmas are never materially manifested......until they are...<p>Basically - we&#x27;re erasing &quot;normal&quot; counterparty risk in derivatives, in so doing blinding us to big abnormalities. Imagine an ocean with zero waves (ie a pond), until the tidal wave hits. Wouldn&#x27;t it be better to have some fear of waves hitting you daily, so you&#x27;re (somewhat more) prepared for &quot;the big one&quot;?<p>Scarily, there are something like 70 trillion of swap contracts outstanding. Someone correct me if I am wrong (though I&#x27;d bet I&#x27;m underestimating).<p>There is a large and growing body of evidence that huge central bank involvement in markets is increasing exactly such risks and it is an extremely important point.<p>Still... if we consider that you wear the up-to-6 sigma risk with Treasuries (ie 99.999999% of the time - whatever the number of 9s is), but you are spared all but the 6-sigma risks in swaps, then it is probable (though I agree .. not certain), that you&#x27;re better off with the mark-to-market collateral protection that you get in swaps. Thus the article&#x27;s main point is erroneous.<p>It is clear that the idea pushed by Bloomberg here, that banks have somehow become better credit quality than the US government, is wrong, as can be seen by a simple look at their equivalent-maturity borrowing rates in the bond market (well above Treasuries). IE: not comparing apples with oranges.