Wait, the Derivatives market is worth $1,200 TRILLION dollars??? [View all]

[Zalatix]

That's 20 times the world's GDP. Wow, Sauron has been pretty gosh darned busy conjuring up all that imaginary money. Who's going to cover this mess if it goes belly-up?

On a side note: I'm going to have to go back to economics class just to understand some of what is being said here.

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

Big Risk: $1.2 Quadrillion Derivatives Market Dwarfs World GDP

By Peter Cohan
Posted 10:45AM 06/09/10
Posted under: 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.