A derivative is a contract that derives its value and risk from a specific security (such as a stock or commodity), hence the name derivative. Derivatives are sometimes called secondary securities because they only exist as a result of primary securities such as stocks, bonds, and commodities.
The four main types of derivative contracts are options, forwards, futures and swaps.
Banks use derivatives for hedging, to reduce the risks involved in the bank’s operations. For example, a bank’s financial profile may make it vulnerable to losses from changes in interest rates. The bank could buy interest rate futures to hedge.
Derivatives are a high-risk instrument. The volatile nature of derivatives can lead to large losses. In addition, the contracts are designed in such a way that it becomes very difficult for investors to value them.
Both Credit Suisse and Deutsche Bank are rumored to be on the brink of collapse.
They have 2.7 trillion in assets under management between them.
This could be our “Lehman” moment when shit REALLY breaks.
— Lark Davis (@TheCryptoLark) October 2, 2022
$600 billion: What Lehman Brothers had in assets when they crashed and took the economy with them.
$2.8 trillion: What Credit Suisse and Deutsche Bank control in AUM. 4.6 times more.
Credit Suisse is now at a “critical juncture,” says CEO.
What awaits the world?🧵 pic.twitter.com/VIaMU7dSLX
— Graham Stephan (@GrahamStephan) October 2, 2022
Worse than 2008: Big Short investor Michael Burry says current economic downturn could beat Great Recession
Famed investor Michael Burry delivered arguably his most dire warning about the current US economy yet on Thursday afternoon, suggesting he worries the ongoing downturn could be worse than the Great Recession.
Burry, the head of Scion Asset Management, noted that one of his market analysts called his comments “spooky” because he expressed concerns on Sept. 29, the anniversary of a 777.68 drop points in the Dow Jones Industrial Average in 2008 which ranked at the time as the largest single-day drop in history.
“I wondered out loud today if this could be worse than 2008,” Burry said in a now-deleted tweet. “What interest rates are doing, exchange rates globally, central banks seem reactionary and in [cover your a–] mode.”
The big crash is here. Mr. Bear Sterns Is Good In 2008 Jim Cramer Says Credit Suisse Is A Great Franchise As It Goes Up In Flames.
Credit Suisse, the current holder of Archego’s GME short positions, is on the brink of collapse. 48 billion in shorts they owe can’t close.
Cramer said the same about Bear Stearns pic.twitter.com/8sI394Ds0c
— Wolf of My Street🏡 (@Ryan__Rigg) October 3, 2022
House prices fell at the fastest rate since Lehman’s bankruptcy
‘Dr. Doom’ Nouriel Roubini says the debt crisis is here and a hard landing before the end of the year is now the default scenario
The global economy is showing signs of a rapid downward shift as it faces a series of shocks, some of them self-inflicted by policymakers, that increase the likelihood of another global recession and the danger of major financial disruptions.
Global debt will implode if we continue down this path
Liquidity call on the way pic.twitter.com/vMdiktBZZK
— 🅰🅻🅴🆂🆂🅸🅾 (@AlessioUrban) October 3, 2022
If you think this crisis will be driven by CS and DB, you’re a fucking doughnut. The AUM of the financial system is basically 60/40. The stock-bond correlation crisis that has been building for more than 40 years has finally arrived. This recession will take years and destroy many lives.
— Wifey (@WifeyAlpha) October 3, 2022
Credit Suisse credit default swaps far exceed the highs seen during the Great Financial Crisis. pic.twitter.com/hF46dR6GtY
— Markets and Mayhem (@Mayhem4Markets) October 4, 2022