Via Calculated Risk,

“It’s a zero-sum game. If you put trades on that worked
so well that you bankrupt your counterparty, you will not collect on
those trades.”

-Jim Keegan, a senior vice president and portfolio manager at American Century Investments

I have a feeling counterparty risk is going to come up in conversation more and more lately as half a quadrillion dollars worth of derivatives that are all intertwined and interconnected gets marked to reality. It’s one thing to take a loss on a hedge or trade when what you were betting on never happened. It’s absolutely horrifying for that to happen when they it actually does. I believe this one event, just by occurring, will cause many people to “check” their counterparty either by unwinding their winning trades. I think then we will see more than a handful of less than stellar counterparties scattering about - kinda like cockroaches when you turn the light on.

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