(Note to Wendy from the last post: it does now say "trillions" on the side.) If I understand this correctly, the idea of notional value is the amount that is controlled by a small payment. So, if I want to "buy insurance" that a certain bond fund will not go broke, I pay a little amount, and the total amount insured is the "notional" value. Some bets cancel out each other, like any good bookie knows. One person bets on one sports team to win and another bets on the other sports team to win. If those bets are the same, the bookie has no risk and gains the vigorish, or "transaction fee," as the financial institutions would call it. Unfortunately, at the time of the financial crash, there were no numbers to tell us whether bets cancelled each other out. That is, there was no regulation or even accounting of these bets against bonds or "credit default swaps" sold Over the Counter and not on any exchange. (Much of this lack of regulation is thanks to Wendy, probably just shilling for Enron, and of course the Clinton administration officials who wacked down Brooksley Born.) The other unfortunate aspect of "credit defalt swaps" is that that a bond can be bet against many times and people who have no financial interest in the bond can bet as well.
Republicans have consistently voted against the regulation of derivatives at every step and are now trying to water down the few regulations passed as part of Dodd-Frank. Is this not slightly sad and alarming?
