Skip to comments.$707,568,901,000,000: How (And Why) Banks Increased Total Outstanding Derivatives
Posted on 11/27/2011 8:16:41 PM PST by TigerClaws
While everyone was focused on the impending European collapse, the latest soon to be refuted rumors of a quick fix from the Welt am Sonntag notwithstanding, the Bank of International Settlements reported a number that quietly slipped through the cracks of the broader media. Which is paradoxical because it is the biggest ever reported in the financial world: the number in question is $707,568,901,000,000 and represents the latest total amount of all notional Over The Counter (read unregulated) outstanding derivatives reported by the world's financial institutions to the BIS for its semi-annual OTC derivatives report titled "OTC derivatives market activity in the first half of 2011." Indicatively, global GDP is about $63 trillion if one can trust any numbers released by modern governments. Said otherwise, for the six month period ended June 30, 2011, the total number of outstanding derivatives surged past the previous all time high of $673 trillion from June 2008, and is now firmly in 7-handle territory: the synthetic credit bubble has now been blown to a new all time high. Another way of looking at the data is that one of the key contributors to global growth and prosperity in the past 10 years was an increase in total derivatives from just under $100 trillion to $708 trillion in exactly one decade. And soon we have to pay the mean reversion price.
(Excerpt) Read more at zerohedge.com ...
707 trillions dollars?
We’re not getting out alive.
I guess all bets are just going to have to simultaneously be “off”.
Well the article may not mention it but the fed reserve (taxpayers) are holding the bag on about 60 trillion in derivatives. Banks handed them over to us. Add that to the national debt number.
Just putting the pedal to the metal to hold it together a while longer. They’ve thrown up their hands and despaired of repairing it and are getting theirs while they can.
its monopoly money - Derivatives by definition have no inherent value - who is going to break the bad news to these dumbbells?
What do they mean by notional?
I think you just hit the nail on the head. The country is being looted right now while you can convert the dollar into gold, silver, whatever. Once the system collapses, the looters will own everything.
Notional value is like debt? Great, tell me who loaned those banks $60 trillion? Thanks!
What's your source on that? Are you talking about derivatives still owned by U.S. banks where the banks are FDIC insured? And the bank would have to fail in order for the U.S. to pick up the assets.
Why do farmers use them to insure the values of their crops?
Great post and comments at the source (470 comments at ZH).
Basically, it means interpreted.
You have a classic car that you think is worth 60 000 dollars. However, I think your hunk of junk is worth only 1500 dollars.
The real value is what you end up agreeing to sell it for and what I’m willing to pay for it.
Just look at the Greek debt with its tiny fraction of derivatives on its debt: it was recently determined that nobody will have to pay out the derivative “insurance policies” that were purchased to protect bond holders for defaults. Under real pressure, those holding swaps are going to be flat out of luck.
It is analagous to all of the insurance companies deciding that they cant pay out on all of those insurance policies for which they’ve been collecting premiums for years.
The difference is that insurance companies actually hold assets as reserves against the policies.
Derivative issuers, however, just offset their risks/bets with bets made with others; others who also likely are not truly covered to make payouts. It is a ponzi scheme of unimagineable scale. Sure, there were mathematical models which made it all “work out” on paper, but not in the nonlinear real world in which things and economies can go south in a big way in a hurry.
Finance hasn’t been behaving responsibly or ultimately rationally for close to a decade. Business ethics are largely a thing of the past, and what government oversight there has been just added to the collusion and the ultimate scale of the debacle. I have a hard time believing that this was ever thought to be a successful longterm strategy.
Makes sense of certain captains of industry and former political figures securing their little hidey holes for themselves years ago. Convinced themselves that keeping order and peace in the face of a looming financial catastrophe was more important than coming clean and informing the populace while it could still be turned around. We’re past the point of no return now.
They have to give the bank an idea as to what the farmer thinks the crop will be worth, at harvesting and shipping, to be able to get a loan for their supplies.
The difference is that insurance companies actually hold assets as reserves against the policies."
So, please explain AIG.
Doctor Evil never held the world hostage for that much money!
Well, if interest on the debt were to rise above 9 percent, worldwide, the debt payments would exceed the entire worldwide GDP.
Maximum notional debt would be around 1260 Trillion, and would expand at 5x the increase in global GDP, assuming 5 percent on the debt.
Wow, no wonder the government is trying to keep interest as low as it is.
It would have been nice, if they had kept all national debts very low too.