$1 Quadrillion of Unregulated Debt At Core of Coming Derivatives Crisis

[Joanne98]

By John Tiffany

Counting one dollar per second, it would take 32 million years to count to one quadrillion.

Despite all the blather and swearing-on-the-Bible pronunciamentos from establishment “pundits,” our house-of-cards financial system is not fundamentally sound.

Expect such indices as the Dow to tumble even much lower when the Pandora’s box of derivatives is fully opened.

Believe it or not, the Dow is still not far from its all-time peaks, with a lot further to fall. The depression is still in its early stages. We are looking at $1 quadrillion of unregulated debt, with much of it at risk. (And we used to think $1 trillion was a lot.)

These are literally inconceivable sums. Counting one dollar per second, it would take 32 million years to count to one quadrillion.

The stock market in this era of the privately owned Federal Reserve Bank is a giant craps shoot. Much of it is quite unregulated, especially the invisible market of derivatives. The sub-prime mortgage market collapsed, which is now being followed by a giant credit crisis. Now we are looking at the possible collapse of the derivative market.

President Bush failed at every business he has been associated with. He has always had his dad to bail him out to avoid bankruptcy. But this time his dad and even Henry Paulson can’t keep Bush from facing the failure of his economic policies at the helm of the U.S. economy.

Read more

http://aotearoaawiderperspective.wordpress.com/2008/09/27/1-quadrillion-of-unregulated-debt-at-core-of-coming-derivatives-crisis/

I don't see how 700 billion is going to stop the monster from unwinding.

[Demeter]

1. The Derivatives and Credit Default Swaps Will Have to Be Repudiated

and a lot of people will have to lose their shirts...let's hope that the govt. decides to take the extra shirts of those who have many...

[RC]

3. Extra shirts? How about everything. Hand them welfare application forms.

Lend then a cheap ball point pen. Then send them to Good Will for some clothes.

[creeksneakers2]

2. There isn't that much money in the entire world

I think the figure is off.

[PA Democrat]

5. I've seen a lower estimated figure of $516 trillion, but no one knows

for sure because derivatives are completely unregulated. They have been described as a "shadow banking system".

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
U.S. government's maximum legal debt is $9 trillion
U.S. mutual fund companies manage about $12 trillion
World's GDPs for all nations is approximately $50 trillion
Unfunded Social Security and Medicare benefits $50 trillion to $65 trillion
Total value of the world's real estate is estimated at about $75 trillion
Total value of world's stock and bond markets is more than $100 trillion
BIS valuation of world's derivatives back in 2002 was about $100 trillion
BIS 2007 valuation of the world's derivatives is now a whopping $516 trillion


http://www.marketwatch.com/news/story/derivatives-new-ticking-time-bomb/story.aspx?guid=%7BB9E54A5D-4796-4D0D-AC9E-D9124B59D436%7D

[struggle4progress]

10. Since the financial services sector is based on promises to pay in the future, it always involves

non-existent money. People tend not to remember this fact, except immediately after crashes, when large amounts of mirage-cash have suddenly disappeared

[slipslidingaway]

4. What about the interest rate swaps, they are the largest line item

in this report and I'm just wondering what would cause a disruption in these instruments.

And this is only through 2007...
http://www.bis.org/statistics/otcder/dt1920a.pdf



http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=389&topic_id=4096283&mesg_id=4096283

Credit Derivatives Market Shrinks 12%, First Decline
http://www.bloomberg.com/apps/news?pid=20601087&sid=aYd...

By Shannon D. Harrington

Sept. 25 (Bloomberg) -- "Credit-default swap dealers reduced outstanding contracts for the first time amid efforts to cut risk by cleaning up the derivatives market.

The volume of trades in the worldwide market fell to $54.6 trillion from $62 trillion in the first half, the International Swaps and Derivatives Association said in a statement yesterday. It was the first decline since New York-based ISDA started surveying traders seven years ago.

Credit-default swaps grew 100-fold since 2001 as insurance companies, hedge funds and investors used the derivatives to protect against bond losses and speculate on companies' abilities to pay their debt. Traders are unwinding trades and protecting against losses after credit markets froze amid the worst U.S. housing crisis since the Great Depression. Regulators are starting to call for more oversight of the unregulated market following the bankruptcy of Lehman Brothers Holdings Inc...

...Other derivatives markets grew, ISDA said in its statement yesterday. The notional amount of derivatives used to hedge against changes in interest rates increased 22 percent during the first half of 2008 to $464.7 trillion. Contracts linked to equities grew by 19 percent to $11.9 trillion."

[gristy]

6. Not buying it. The same debt is being counted multiple times.

[TheMadMonk]

7. Which I think is exactly the problem.

Company A counts your entire debt to them as an asset. B counts A's debt to them as an asset and so on through X.

Y and Z which own A through X have through creative book keeping been counting each individual debt as an independent asset to them and have played the markets as if this were so.

Yes that number is a fiction, but because of the way the system has been restructured over the years, that fiction has assumed a frightening reality.


What I am really afraid of is that this "bail out" is a device to pump the last skerick of real liqudity into the bubble, and that in the end a market correction will cause Y and Z to take a paper loss of 96 cents on the dollar but still end up controlling 95 plus percent of real assets.

[clixtox]

8. Is one of the many unknowns... The magnitude, or not, of this multiple...

I hope the multiple number isn't 2 or even 4!

It's gotta be at least a 100 or we are surely doomed.

[dixiegrrrrl]

9. It's the Enron Way ....

'zactly what Enron did to pump up assets and hide debt. They just moved money around.
Enron is gone, technique remains.

[ixion]

12. I've always maintained that Enron was only the proving ground

and that they've now taken the model worldwide.

The end result will be the same. A handful at the top will profit handsomely, and the rest of us will lose it all.

[OakCliffDem]

11. Kick