Coming Soon: The 600 Trillion Derivatives Emergency Meeting

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Coming Soon: The 600 Trillion Derivatives Emergency Meeting

The Prudent Investor
October 13, 2008

http://seekingalpha.com/article/996...on-derivatives-emergency-meeting?source=email

Here is an update on the size of the derivatives market with the latest official figures (.pdf) from the Bank for International Settlements (BIS).

Hold your breath, as we are not anymore talking paltry billions but TRILLIONS of whichever fiat currency.

Current emergency meetings on banks and markets are still only in the stage where politicians and central bankers are bickering over how to create a few more hundred billions Euros and FRNs. But toxic MBS pale in comparison to the mushrooming growth of the derivatives market. According to figures released in the quarterly review of the BIS (pp A103) in September the total notional amount of outstanding derivatives in all categories rose 15% to a mindboggling $596 TRILLION as of December 2007.

Two thirds of contracts by volume or $393 TRILLION fell into the category of interest rate derivatives. Credit Default Swaps had a notional volume of $58 TRILLION, seeing the sharpest relative increase after a volume of $43 TRILLION a year earlier.

Currency derivatives reached a volume of $56 TRILLION.

Oh, and every grand balance sheet comes with a trash can. Unallocated derivatives with a notional amount of $71 TRILLION are looming over the heads of the disintegrating investment community too.

However You Look At It, This Is an Accident Waiting To Happen.

to continue go to link...

 

[Aussiejeff]

This can't be much of a problem, since World Leaders are already talking about how we are all going to be ok and pull through the "economic downturn" (no "R" word) together - as though the worst is already over an recovery is just around the corner.

Everything is under control.

Don't panic.

Buffett says "BUY"

OK?

 

[Martyn500]

Is that a bit like $596 TRILLION of bets placed on horses that might die before thend of the race?
No ones going to buy your option (or whatever derivative) from you for a collapsed company.
Surely the size of the derivitives market must have a limit? You cant have a derivitives market larger than the market that it dervives its value from. It has to have a stop point.
All very weird.

Coming Soon: The 600 Trillion Derivatives Emergency Meeting

The Prudent Investor
October 13, 2008

http://seekingalpha.com/article/996...on-derivatives-emergency-meeting?source=email

Here is an update on the size of the derivatives market with the latest official figures (.pdf) from the Bank for International Settlements (BIS).

Hold your breath, as we are not anymore talking paltry billions but TRILLIONS of whichever fiat currency.

Current emergency meetings on banks and markets are still only in the stage where politicians and central bankers are bickering over how to create a few more hundred billions Euros and FRNs. But toxic MBS pale in comparison to the mushrooming growth of the derivatives market. According to figures released in the quarterly review of the BIS (pp A103) in September the total notional amount of outstanding derivatives in all categories rose 15% to a mindboggling $596 TRILLION as of December 2007.

Two thirds of contracts by volume or $393 TRILLION fell into the category of interest rate derivatives. Credit Default Swaps had a notional volume of $58 TRILLION, seeing the sharpest relative increase after a volume of $43 TRILLION a year earlier.

Currency derivatives reached a volume of $56 TRILLION.

Oh, and every grand balance sheet comes with a trash can. Unallocated derivatives with a notional amount of $71 TRILLION are looming over the heads of the disintegrating investment community too.

However You Look At It, This Is an Accident Waiting To Happen.

to continue go to link...

 

[refined silver]

Surely the size of the derivitives market must have a limit? You cant have a derivitives market larger than the market that it dervives its value from. It has to have a stop point.
All very weird.

Thats the problem. The underlying market is going to have to expand greatly, hence the bailouts/fed loans ans swaps are now into trillions and not slowing down at all.

These are OTC derivatives. They don't have a clearinghouse, that means nobody guarantees the trades, and it means there is no margin unlike normal exchange traded futures and options, where the loser has to deposit money in at the end of every day. With these OTC derivatives, the losers have just been letting the losses mount and then avoiding 'mark to market' because it looks too ugly. (The market for many is actually zero. With Lehman Bros CDS they fetched 8c on the dollar, wonder how the other $57t are going?)

 

[Aussiejeff]

Thats the problem. The underlying market is going to have to expand greatly, hence the bailouts/fed loans ans swaps are now into trillions and not slowing down at all.

These are OTC derivatives. They don't have a clearinghouse, that means nobody guarantees the trades, and it means there is no margin unlike normal exchange traded futures and options, where the loser has to deposit money in at the end of every day. With these OTC derivatives, the losers have just been letting the losses mount and then avoiding 'mark to market' because it looks too ugly. (The market for many is actually zero. With Lehman Bros CDS they fetched 8c on the dollar, wonder how the other $57t are going?)

On the other hand, Guv-Mint$ seem to be doing a grand job of in effect issuing "promisory notes" to cover any amount the derivatives market might like to toss around.

Seems the share markets are happy enough with mere "promises" by Guv-Mint officials to inject $X to "cover everything". Make enough "promises" and the problem will go away - I think it's based on the Dumb Sheeple Theory.