>Can someone explain what this means? If the "NY financial institutions'
>derivatives' books had a net notional principal that was long the dollar to
>the tune of 3 trillion."
>
>If they did, and the dollar fell by, say, 25 %, would that mean their
>liabilities would rise by 25%? If so, how?
>
>Is there something good online that explains how these derivatives work?
>Seems complicated to me.
My pal Randall Dodd is running a Derivatives Study Center in DC. His links page is <http://www.econstrat.org/dsclinks.htm>.
But all that aside, no one really knows what the real risks are of a big move in the dollar. Derivatives are typically structured with the idea that markets move rationally, in small steps, that trading continues without interruption, and that price relationships between markets behave nicely. If you get sudden, big moves, or if liquidity dries up, or markets shut down, no one really knows what the effects would be. If, for example, you get panic selling in U.S. debt securities, and the riskier stuff gets hit harder than the solid stuff (e.g., the interest rate spread between Treasury and junk bonds gets really wide), strange things could happen. No one, not even Peter Fisher, really knows.
Doug