$1.2 Quadrillion dollars

[RandomGuy]

That is 1,200 trillion for you, or a million billion, if you prefer.

Top Derivatives Expert Estimates Size of the Global Derivatives Market at $1,200 Trillion Dollars … 20 Times Larger than the Global Economy

"According to one of the world’s leading derivatives experts, Paul Wilmott, who holds a doctorate in applied mathematics from Oxford University (and whose speaking voice sounds eerily like John Lennon’s), $1.2 quadrillion is the so-called notional value of the worldwide derivatives market. To put that in perspective, the world’s annual gross domestic product is between $50 trillion and $60 trillion."



How Large Is the Derivatives Market?

Everyone paying attention knows that the size of the derivatives market dwarfs the global economy. But how big is it really?

For years, there have been rumors that there is over a quadrillion – one thousand trillion – dollars in notional value of outstanding derivatives. But no one really knew.

Even though the Bank of International Settlements regularly publishes tables showing the amounts of different types of derivatives, some of the categories are ambiguous, and so it has been hard to get a good handle on what’s really out there.

For example, one blogger wrote last year:

Estimates of the notional value of the worldwide derivatives market go from $600 trillion all the way up to $1.5 quadrillion.

Smart guys like bond trader Jeffrey Gundlach said last year that we’ve got a quadrillion dollar derivative overhang, the government hasn’t done anything to fix the basic problems in our economy, and so we’ll have another crash.

But I’ve now found an estimate from a top derivatives expert who confirms the claim.

http://www.washingtonsblog.com/2012/05/top-derivatives-expert-finally-gives-a-credible-estimate-of-the-size-of-the-global-derivatives-market.html



Anything else you might be concerned about... is a tempest in a teacup.

Free marketeers... assemble and find me a solution.

[boutons_deux]

"Free marketeers... assemble and find me a solution."

For free marketers, esp unregulated financial markets, there is no problem, so no solution needed.

[101A]

That is 1,200 trillion for you, or a million billion, if you prefer.

Top Derivatives Expert Estimates Size of the Global Derivatives Market at $1,200 Trillion Dollars … 20 Times Larger than the Global Economy

"According to one of the world’s leading derivatives experts, Paul Wilmott, who holds a doctorate in applied mathematics from Oxford University (and whose speaking voice sounds eerily like John Lennon’s), $1.2 quadrillion is the so-called notional value of the worldwide derivatives market. To put that in perspective, the world’s annual gross domestic product is between $50 trillion and $60 trillion."




http://www.washingtonsblog.com/2012/05/top-derivatives-expert-finally-gives-a-credible-estimate-of-the-size-of-the-global-derivatives-market.html



Anything else you might be concerned about... is a tempest in a teacup.

Free marketeers... assemble and find me a solution.


Help me here...who owns the derivatives? On whose balance sheet are they are red entry - generally speaking?

[boutons_deux]

"whose balance sheet are they are red entry - generally speaking?"

they are bets, casino style, on just about anything happening. how do you book a bet?

This insanity makes the objective of banks holding more liquidity in reserve look silly.

Who has equity in reserve to cover $T 1.2K in bets? AIG certainly didn't.

[Wild Cobra]

Looks like 64 bit processor will become obsolete.

[RandomGuy]

Help me here...who owns the derivatives? On whose balance sheet are they are red entry - generally speaking?

Generally the people who issue them. Large financial institutions.

Generally, they owe them to other large financial institutions.

Big bank -
Big bank +

Generally nets to zero.

Unfortunately, Big bank - has to sell actual assets to cover it's bets to big bank +

A large flood of assets being sold into a market does what exactly again?

[101A]

Generally the people who issue them. Large financial institutions.

Generally, they owe them to other large financial institutions.

Big bank -
Big bank +

Generally nets to zero.

Unfortunately, Big bank - has to sell actual assets to cover it's bets to big bank +

A large flood of assets being sold into a market does what exactly again?


How is public debt tied in? (Isn't it?)

[boutons_deux]

How is public debt tied in? (Isn't it?)

Sure, TARP hasn't been completely paid back, so taxpayers lost public money, so far.

And toxic mortgages, used to back securities, deriviaties, sold to F&F had to be covered by taxpayers.

[RandomGuy]

How is public debt tied in? (Isn't it?)

Depends.

Public debt, i.e. government debt is generally used as "backstop" capital in such institutions. Generally, because some hedge funds have no backstop requirements. This is what gets them into trouble.

When you get an investment fund, much like a bank, you can have "runs" when asset prices fall. This means your liabilities (requirements to give money back to the investors that gave you money in teh first place) have to be discharged by giving them cash. Unfortunately, your assets are investments like stocks. You get a nasty cycle when you get people starting to do this, because they are generally doing this in reaction to a stock market decline. People take money out of funds due to stock/investment market declines, funds sell stocks/investvments to give to people, further pushing the market to decline, makingpeople take money out of funds..... etc.

In such environments public debt is also in high demand, due to its perceived safety.

[Winehole23]

related: http://www.ritholtz.com/blog/2012/09/hedge-funds-pile-into-mbs-go-for-mortgage-gains/

[Winehole23]

"open ended" QE3 related: http://www.bloomberg.com/news/2012-09-13/fed-plans-to-buy-40-billion-in-mortgage-securities-each-month.html

[FuzzyLumpkins]

Anyone else expect to see a global financial collapse some point in their lifetime?

[boutons_deux]

global?

yes, probably, since capital and trading and the casino completely ignores borders, the entire financial system world-wide is interconnected.

[Winehole23]

thx, Fuzzy

[CosmicCowboy]

Depends.

Public debt, i.e. government debt is generally used as "backstop" capital in such institutions. Generally, because some hedge funds have no backstop requirements. This is what gets them into trouble.

When you get an investment fund, much like a bank, you can have "runs" when asset prices fall. This means your liabilities (requirements to give money back to the investors that gave you money in teh first place) have to be discharged by giving them cash. Unfortunately, your assets are investments like stocks. You get a nasty cycle when you get people starting to do this, because they are generally doing this in reaction to a stock market decline. People take money out of funds due to stock/investment market declines, funds sell stocks/investvments to give to people, further pushing the market to decline, makingpeople take money out of funds..... etc.

In such environments public debt is also in high demand, due to its perceived safety.

Very well said, sir.

[CosmicCowboy]

Anyone else expect to see a global financial collapse some point in their lifetime?

guns and bullets :hat

[Winehole23]

Berkshire-Hathaway lost millions unwinding a fairly straightforward position, in a robust market, with zero shenanigans alleged:

1143174038795083782

[ElNono]

Berkshire-Hathaway lost millions unwinding a fairly straightforward position, in a robust market, with zero shenanigans alleged:

1143174038795083782

AIG Securities Fraud

In October 2000, some Wall Street analysts questioned the decline in American International Group (AIG) loss reserves. In an effort to quell these concerns, AIG entered into two sham reinsurance transactions with Cologne Re Dublin, a subsidiary of General Reinsurance, that had no economic substance but were designed to add $500 million in phony loss reserves to AIG’s balance sheet in the fourth quarter of 2000 and first quarter of 2001.

In 2005, New York Attorney General Eliot Spitzer began an investigation into the two reinsurance transactions. Soon afterwards, AIG came under market pressure, and admitted it had undertaken what could be construed as securities fraud. The staff admitted that the two reinsurance transactions had inflated AIG’s balance sheet and propped up AIG’s stock price. In the resultant stock crash, investors lost $500 million in investments.

Cologne Re Dublin's CEO, John Houldsworth, agreed to turn state's witness for the Department of Justice (DOJ) and Securities and Exchange Commission, in agreement for a plea bargain. Houldsworth then pleaded guilty to conspiring to commit securities fraud, resultantly facing a sentence of up to five years in prison and $250,000 in fines. The final sentencing was placed on hold, subject to consequential SEC prosecutions.

The DOJ subsequently undertook successful prosecutions against four former Gen Re executives and one former AIG executive: CEO Ronald Ferguson was sentenced to two years in prison and fined $200,000; CFO Elizabeth Monrad was sentenced to 18 months in prison and fined $250,000; Senior Vice President Christopher Garand was sentenced to a year and a day in prison and fined $150,000; Senior Vice President and Assistant General Counsel Robert Graham was sentenced to a year and a day in prison and fined $100,000; AIG's Vice President Christian Milton was sentenced to four years in prison and fined $200,000.

In 2009, in front of U.S. District Judge Christopher Droney in Hartford, Houldsworth apologized. He was resultantly fined $5,000 and ordered to perform 400 hours of community service during a two-year probation period.

On August 1, 2011, the United States Court of Appeals for the Second Circuit vacated the five Gen Re and AIG defendants’ convictions and remanded the defendants for a new trial, holding that the reported drop in share prices could not be attributed to the two reinsurance deals.

Resolution

"In June 2012, the U.S. government agreed to not pursue any further legal action against the former Gen Re executives pursuant to deferred prosecution agreements that have since expired and are no longer in effect. As a result, the government matter is fully and finally resolved. Civil litigation related to the AIG matter has also been fully and finally resolved. The lead plaintiffs and Gen Re reached a settlement agreement which the court approved pursuant to a final order entered on September 11, 2013."

https://en.wikipedia.org/wiki/Gen_Re

[Winehole23]

In the wake of the financial panic of 2008-9, Obama/Holder let tens of thousands of jailhouse felonies run by the boards. Refused to prosecute so as not to roil the market.

And bailed em out with upfront money, interest arbitrage and repression of interest rates for a decade. A dozen of the thirteen biggest banks were insolvent. The system of payment almost failed.

Was it socialism that screwed us, or capitalism?

Or both?

[ElNono]

Slap in the wrist is the de-facto modus operandi in financial crimes that spanned both Republican and Democrat administrations for too big to fail players.

Par for the course.

[boutons_deux]

the oligarchy is impervious, untouchable, immune, all-powerful

[Winehole23]

Slap in the wrist is the de-facto modus operandi in financial crimes that spanned both Republican and Democrat administrations for too big to fail players.

Par for the course.As recently as the 1990s, insolvent banks got nationalized and reorganized by the FDIC.

it's not that hard to do, you just hire the the current bank employees to operate the bridge banks, separate and wind down money losing positions, and the consolidate the parts of the bank that do work, so that the whole lot can be sold back to private money.

Oh, and in the 1990s, 1000s of shady bank operators were convicted of felonies too. Not prosecuting white collar ceime is a political choice.

[boutons_deux]

"Not prosecuting white collar crime is a political choice."

so is not enforcing monopoly law

Under the Repugs (pro-business), the Saving & Loan corruption and the Keating Five (should have been Six, including McCain) were both prosecuted vigorously.

Unimaginable now.

[RandomGuy]

Berkshire-Hathaway lost millions unwinding a fairly straightforward position, in a robust market, with zero shenanigans alleged:

1143174038795083782

That literally made me pucker man.

[boutons_deux]

Unreasonable to assume that the next Capitalists/Bankers Great Depression will make 2009 look like a picnic?

Again, the non-oligarchy will be crushed, devastated, impoverished (still haven't fully recovered from 2009) and the oligarchy will survive wealthier (more powerful) than ever, just like 2009.