Aug. 3, 2023
All swaps need to be transparent. Arguably the practice needs to be banned, because it magnifies the total risk of the financial system to a value that is greater than the value of the market itself. Swap risk should be calculated as if you have to pay the full amount, (not net), and this amount should not be able to be greater than average liquidity available at the firm. This means your swaps go [REDACTED], they can cover the full expense without having a fire sale on your assets. Once someone has a fire sale and decreases the price of assets, it imperils over-leveraged margin positions and then the system all comes down like a house of cards. [REDACTED] for everyone who uses stocks and bonds as their retirement.... Using swaps to manage risk is creates a convoluted system of whack mole that decreases the stability of financial system. Ensure positions are a manageable size and no one creates a billion small positions to hide a larger position