Oh... Hell... MUST SEE TV: $600 Trillion Of 'Dark Market Debt'/Dylan Ratigan On Martin Bashir Today

[WillyT]

Link (29 sec ad, then vid/3 min 33 sec long): http://www.msnbc.msn.com/id/21134540/vp/44630843#44630843

:mad:

:nuke:

:kick:

[TheWraith]

1. If anyone is asserting that there is a $600 trillion dollar debt somewhere, I think they're crazy.

That's ten times the gross domestic product of the ENTIRE PLANET.

[banned from Kos]

4. But its "dark debt" - hidden from all except the Dylan Ratigan Show!

(yes, the number is preposterous).

[marmar]

8. ........

Big Risk: $1.2 Quadrillion Derivatives Market Dwarfs World GDP
By Peter Cohan Posted 10:45AM 06/09/10 Economy, Investing, Investing Basics


One of the biggest risks to the world's financial health is the $1.2 quadrillion derivatives market. It's complex, it's unregulated, and it ought to be of concern to world leaders that its notional value is 20 times the size of the world economy. But traders rule the roost -- and as much as risk managers and regulators might want to limit that risk, they lack the power or knowledge to do so.

A quadrillion is a big number: 1,000 times a trillion. Yet 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.

To understand the concept of "notional value," it's useful to have an example. Let's say you borrow $1 million to buy an apartment and the interest rate on that loan gets reset every six months. Meanwhile, you turn around and rent that apartment out at a monthly fixed rate. If all your expenses including interest are less than the rent, you make money. But if the interest and expenses get bigger than the rent, you lose.

You might be able to hedge this risk of a spike in interest rates by swapping that variable rate of interest for a fixed one. To do that you'd need to find a counterparty who has an asset with a fixed rate of return who believed that interest rates were going to fall and was willing to swap his fixed rate for your variable one. ...........(more)

http://www.dailyfinance.com/2010/06/09/risk-quadrillion-derivatives-market-gdp/

[WillyT]

17. THANK YOU !!!

:yourock:

:hi:

:kick:

[TheWraith]

21. People need to learn the difference between VALUE and DEBT.

This is like the "news stories" that went around insisting that the Fed loaned six trillion dollars to major banks.

If you have 100 bonds worth $20, the actual debt represented is $2,000. If those bonds then change hands an average of 100 times, that "market" is "worth" $200,000. That doesn't make it a $200,000 debt.

The fact that derivatives trades hit a total of X trillion dollars doesn't mean that there is actual DEBT of that value, or even that amount of currency in circulation.

[girl gone mad]

10. "banned from Kos" is way more credible.

:eyes:

[WillyT]

11. Dana Houle... Is That You ???

:shrug:

[banned from Kos]

15. No - I honestly don't know who that is.

Lets face a fact here. The derivatives market is large for sure. But despite all these warnings since Brooksley Born in 1998 only one US company has failed because of them - AIG in 2008.

Now AIG was a big one for sure (largest insurer in the world).

Lets praise the Dodd-Frank Bill - which is supposed to clear derivatives in an open market.

So - complaint registered. Solution in process.

[WillyT]

6. Um... From Matt Taibbi...

As it neared the finish line, the Restoring American Financial Stability Act was almost unprecedentedly broad in scope, in some ways surpassing even the health care bill in size and societal impact. It would rein in $600 trillion in derivatives, create a giant new federal agency to protect financial consumers, open up the books of the Federal Reserve for the first time in history and perhaps even break up the so-called "Too Big to Fail" giants on Wall Street. The recent history of the U.S. Congress suggests that it was almost a given that they would fuck up this one real shot at slaying the dragon of corruption that has been slowly devouring not just our economy but our whole way of life over the past 20 years. Yet with just weeks left in the nearly year-long process at hammering out this huge new law, the bad guys were still on the run. Even the senators themselves seemed surprised at what assholes they weren't being. This new baby of theirs, finance reform, was going to be that one rare kid who made it out of the filth and the crime of the hood for everybody to be proud of.

Then reality set in.

Picture the Restoring American Financial Stability Act as a vast conflict being fought on multiple fronts, with the tiny but enormously influential Wall Street lobby on one side and pretty much everyone else on the planet on the other. To be precise, think World War II – with some battles won by long marches and brutal campaigns of attrition, others by blitzkrieg attacks, still more decided by espionage and clandestine movements. Time after time, at the last moment, the Wall Street axis has turned seemingly lost positions into surprise victories or, at worst, bitterly fought stalemates. The only way to accurately convey the scale of Wall Street's ingenious comeback is to sketch out all the crazy, last-minute shifts on each of the war's four major fronts.

Link: http://www.rollingstone.com/politics/news/wall-streets-war-20100526

:shrug:

[PA Democrat]

13. No, the people who are crazy are those who feel that derivatives don't need to be regulated.

Warren Buffett was warning about the massive "ticking time bomb" of derivatives years ago. People ignored him. Turned out he was right, and the problem still exists because derivatives are still largely unregulated. Note that the figures quoted in the article I linked are from 2007, so I have no doubt that the figures quoted by Dylan Ratigan are accurate.

http://www.marketwatch.com/story/derivatives-are-the-new-ticking-time-bomb

<snip>
Wall Street didn't listen to Buffett. Derivatives grew into a massive bubble, from about $100 trillion to $516 trillion by 2007.

To grasp how significant this five-fold bubble increase is, let's put that $516 trillion in the context of some other domestic and international monetary data:

•U.S. annual gross domestic product is about $15 trillion

•U.S. money supply is also about $15 trillion

•Current proposed U.S. federal budget is $3 trillion

[WillyT]

14. Yeah... But...

Link: http://www.google.com/#sclient=psy-ab&hl=en&source=hp&q=%24600+trillion+in+derivatives&pbx=1&oq=%24600+trillion+in+derivatives&aq=f&aqi=g1g-v1&aql=1&gs_sm=s&gs_upl=0l0l1l20884l0l0l0l0l0l0l0l0ll0l0&bav=on.2,or.r_gc.r_pw.&fp=a40aaa4620c02432&biw=1024&bih=679

:shrug:

[jannyk]

2. "600 trillion in credit default swaps..." Fuck!

[valerief]

3. I remember when it was only 66 trillion. nt

[jannyk]

5. yeah, but you're older than me

:rofl:

[valerief]

9. Hey, it was just two years ago! nt

[Turbineguy]

7. It's like peasant insurance

on people who don't exist.

Money that goes into trading these instruments is diverted from real investments.

[sam11111]

12. EXPLAIN this all to us Philosophy majors with one or two or three humanities degrees

Especially "credit swaps" or whatever they were.

GDP not a yardstick.

600 T very possible.

One can owe far more than one has or will get as yrly income. Lender jacks up %, and u could owe the entire universe to him soon.

[Turbineguy]

16. How about this?

http://www.economicshelp.org/blog/933/finance/credit-default-swaps-explained/

Notice that you can buy a CDS on debt that you do not own or have no stake in. It is these instruments that are traded based on what traders expect to happen. You can buy a CDS on Greece and if they default, you get paid. Since the market in these has become so large the actual default risk is distorted by market forces generated by the swaps. So when you see that Greece has a default risk of 98% it's because the demand for CDS's is high, not how much trouble the Greeks are actually in.

Nobody seems to know how much is out there. Let's say that there is $100 trillion (a wild guess) in CDS's on the $500 billion the Greeks owe. Will they be paid off if Greece defaults? Some of them will, until all the money available has been sucked out of the system and the whole world has been bankrupted. On the other hand, if the Germans give the Greeks $12 billion, a default will be staved off. In the mean time as the risk of default changes the CDS's are traded.

Let's say your neighbor has a $200,000 mortgage. In order to make some fast money, you buy default swaps. If he defaults, you get paid. You have to fork over some small premium for this. You now have a stake in his misfortune. Every month you sneak out to his mailbox and steal his mortgage check. You leave messages with his employer that he smokes crack and has sex with animals. Anything you can do to hasten his default can be money in your pocket. American investment banks advised the Greek government that got them in this mess.

We have a huge number of people who do nothing but invent new instruments for other people who also perform no useful function on this planet to trade in. As individuals they probably do not want to cause misery and death on a scale that would really impress all the Hitlers and Stalins who ever lived. But there are so many of them acting in concert they could very well cause it.

In the meantime, people who are actually looking to perform some useful function are unemployed.

[sam11111]

18. Turbine thank you! super explaination. What should we ask congress to do about CDSs?

Something to really get at the root of the mess and fix it thoroughly?

My guess- do what England did in 1947 - nationalize ALL banks

[Turbineguy]

23. The same thing they've talked about doing

in the commodity futures markets. People who are not involved in oil could not trade oil futures. Transport companies and the like could. Same thing with these Defaults. Only banks that make the loans need protection. In the same way that you would not need fire insurance on your neighbor's house.

[slipslidingaway]

20. "Money that goes into trading these instruments is diverted from real investments." ....

:thumbsup:

:thumbsup:

[slipslidingaway]

19. 600 Trillion Notional Value - Notional values and actual dollar values ...

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=103&topic_id=351988&mesg_id=352021

From February 2000

"Update Time...In fact, quite timely, really. Surely with the volatility in the bond market these days, it's high time we checked in on those wacky money center banks and their highly flammable derivatives exposure. All sarcasm aside, the reason we continue to update you each quarter on these numbers is that derivatives are part of "what's different this time". In 1990, the total notional value of derivatives outstanding "off" the balance sheet of the commercial banking system in the U.S. was $6.2 trillion. As of 3Q 1999 (the latest numbers released), the value has skyrocketed to over $35 trillion. Needless to say, the number is quite significant. See what we mean?

....Let's get one thing straight, one must draw a clear distinction between notional values and actual dollar values. The whole premise of derivatives transactions is that a few real dollars can be spent to control a large amount of notional dollars. Hence the leverage..."

September 1993

"...In futures trading, the ``notional principal amount'' refers to the value of the underlying assets in a futures contract. For example, in a corn futures contract to take future delivery of 5,000 bushels three months hence, the notional principal amount of the contract would be the price of a bushel of corn times 5,000. If the price of corn were, for example, $2.00, the notional principal value of the corn futures contract would be $10,000. But the actual price of the contract, however, is the margin set by the exchange; the CBOT, for example, requires $270 be paid to purchase a futures contract that on May 15 had a notional value of $11,637.50..."

Another snip...

"...With what are now called derivatives, we move from investment, and purchases and sales of hard commodities, to speculating on the future price or yield performance of what were once investments, and relatively simple, economically necessary transactions. It would be like going to the horse races to bet, not on the race, but on the size of the pot. Who would care about what's involved with getting the runners to the starting gate?..."


2008 ...

$596 Trillion! How can the derivatives market be worth more than the world's total financial assets?

http://www.slate.com/id/2202263/

"Iowa Sen. Tom Harkin issued a call on Tuesday for regulation of the "over the counter" derivatives market, which has an estimated size of about $596 trillion. By contrast, the value of the world's financial assets—including all stock, bonds, and bank deposits—was pegged at $167 trillion last year by McKinsey. How can the derivatives market be larger than the entire world's financial wealth? ..."


http://www.bis.org/statistics/otcder/dt1920a.pdf

"Table 19: Amounts outstanding of over-the-counter (OTC) derivatives

By risk category and instrument In billions of US dollars ..."

[reformist2]

22. It's basically insurance on each other's bonds - off the books, of course.

Most of it is hedged so that the net exposure of the financial system is far, far smaller, at least in theory. But there always seems to be a few suckers (e.g., AIG) that end up holding the bag. Of course, then comes the inevitable government bailout.