Deutsche Bank AG (DB)

[fromtheuk]

The derivatives risk is a complex one, and i know the 49 trillion is a big big number, but its nots quite as big as its seems, or at least wasn't until now. That report is a few months old now, and the work the CEO has done may have reduced it a bit..

In essence a derivative is a two way bet. Party A thinks something is going to happen, and Party B believes the opposite. The bank operates as the casino, and takes the bet from both parties ( plus a small percentage ). The bank doesn't care which way it goes, it gets the commission either way. It pays the winner, and collects from the looser.

The bank has to make sure of a couple of things

1) it doesn’t over leverage in either direction. This can never be perfect, and it also makes it hard to wind down exposure, as each deal offsets another..

2) it needs to be sure both parties can pay should they lose. The bank MUST pay the winner, if the loser cant pay, the bank covers. So far this hasn't been an issue.

In truth for derivatives to go wrong in a really big way, something really big would be required where people ON MASS were unable to cover their losses. Something like a War or a World Wide Pandemic..

As long as neither of those happen DB will be fine.

Oh.... Shit....