Estimates are 1500 trillion. Since derivatives are traded in secret no none really knows the total amount. If 1500 trillion is an accurate number, the ENTIRE WORLD GDP is 60 trillion. If it collapses, all the nations of the world would run out of paper and ink just printing money to cover the losses. One small derivative office in JPM London office caused 2 billion in losses (new numbers indicate it can go as high as 17 billion. JPM is one of five large US banks and they are all involve in London (where there is no limit on how much you want to leverage your money) and each bank have more then one small derivative investment team. Secrecy and not knowing what is happening behind the scenes is the most dangerous aspect of derivatives. Since these bankers know they are too big to fail, will not stop them from taking high risks with US bailout money.
1,500 trillion? Good lord, that’s more money than I think God Himself has sitting around in his safe. Unbelievable.
I’d heard about the JPM 2 billion loss, but the 17 billion; wow. Hard to believe one little corner office in London can do that much damage.
From what I’ve read, in the City (the London financial district) derivatives can essentially be traded ad infinitum with no limit. There’s waaaayyyyyy too secrecy going on, and in the end, I get a feeling that this could end up as a financial Global Extinction Level Event, the monetary equivalent of a 500-mile diameter object splashing down in the Pacific or Atlantic oceans.
1500 trillion is way too large. Cut that by a factor of 10 and it’s still too large.
Regardless, you’re talking about a nominal number, not cash-at-risk. IF I buy a CDS on $10 million of debt, the nominal worth is $10 million. If there’s an approximate 0% chance the debt goes bad (i.e., US treasuries, where the debt will always be paid with paper we print), the CDS might cost me 10 bp, or 0.1%, so the actual worth of the CDS is $10,000.
Derivatives are all like that - they have a nominal, face value, and then the actual amount they’re really worth, which is usually much lower.
If you make a $10 bet on the Cubs game, the nominal value of your derivative is over $1 billion. If you lose your bet, does your bank need to start printing money?