$707 TRILLION: How Banks Increased Total OTC Derivatives By A Record $107 TRILLION in last 6 months

[stockholmer]

http://www.zerohedge.com/news/707568901000000-how-and-why-banks-increased-total-outstanding-derivatives-record-107-trillion-6

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." http://www.bis.org/publ/otc_hy1111.pdf 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.

What is probably just as disturbing is that in the first 6 months of 2011, the total outstanding notional of all derivatives rose from $601 trillion at December 31, 2010 to $708 trillion at June 30, 2011. A $107 trillion increase in notional in half a year. Needless to say this is the biggest increase in history. So why did the notional increase by such an incomprehensible amount? Simple: based on some widely accepted (and very much wrong) definitions of gross market value (not to be confused with gross notional), the value of outstanding derivatives actually declined in the first half of the year from $21.3 trillion to $19.5 trillion (a number still 33% greater than US GDP). Which means that in order to satisfy what likely threatened to become a self-feeding margin call as the (previously) $600 trillion derivatives market collapsed on itself, banks had to sell more, more, more derivatives in order to collect recurring and/or upfront premia and to pad their books with GAAP-endorsed delusions of future derivative based cash flows. Because derivatives in addition to a core source of trading desk P&L courtesy of wide bid/ask spreads (there is a reason banks want to keep them OTC and thus off standardization and margin-destroying exchanges) are also terrific annuities for the status quo. Just ask Buffett why he sold a multi-billion index put on the US stock market. The answer is simple - if he ever has to make good on it, it is too late.

Which brings us to the the chart showing total outstanding notional derivatives by 6 month period below. The shaded area is what that the BIS, the bank regulators, and the OCC urgently hope that the general public promptly forgets about and brushes under the carpet.

Try not to laugh. Or cry. Or gloss over, because when it comes to visualizing $708 trillion most really are incapable of doing so.



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Another thing to bear in mind, in 2008, the BIS, IMF, World Bank, US Fed, ECB, BoC, etc etc all switched from a 'market to market' model for calculating the values of derivatives to a 'mark to model' methodology. This allows the banksters to basically, in layman's terms, assign pretty much any value they want to derivatives through manipulation of the formulas involved in determining the underlying asset valuations and the systemic relation of the OTC derivative to that underlying asset.

http://www.bis.org/publ/bcbs148.pdf

Quite simply, the actual fair market total notional value for all outstanding OTC derivatives is NOT $707 trillion, but is probably 50 to 70% higher, around $1.1 to $1.3 QUADRILLION. Furthermore, with extreme amounts of leverage now used by the system (in some cases 50 to 1 or more), just a small percentage move in the underlying assets can instantly bankrupt a huge firm, just ask the criminal, Mr Corzine, and MF Global.

[Jackpine Radical]

1. I see no path to salvation except via taking all power from the bankers,

nationalizing the necessary banking functions, and just amusing the bankers by letting them play some sort of Second-Life, Fantasy Banking game that will keep them entertained humanely and harmlessly. Maybe they could generate power by pedaling exercise bikes hooked up to generators that keep their computers fed with juice & maybe feed a little excess into the grid.

[izquierdista]

3. Let them all play Monopoly

With plastic houses and hotels and fake money. Letting them play with the lives of real people hasn't turned out so well.

[valerief]

5. We aren't real to them. We're pests, like carpenter ants. nt

[Jackpine Radical]

8. Exactly.

I became so enamored of this idea that I also put it into an OP.

[girl gone mad]

12. Take away their license to print credit money..

and put money creation powers back into the hands of the public.

[roguevalley]

2. since this is Klingon to me. what does it mean for us peons?

Personally, they can eat it. they made the crime, THEY do the time. Oh wait ...

[stockholmer]

10. because the global, private banking cartel has ownership and indirect control of all the major

central banks and multinational institutions (the BIS is the capstone, it is the central bank's central bank), and because SOVEREIGN debts are completely tied to the bond markets, the credit default swaps, interest rate swaps, etc etc, the banksters can now bring entire nations to their knees, and strip true sovereignty away from the citizens. All one needs to do is to look at what is going on in the Eurozone to see this process.

If the people try to say no more, let the banks go under, the entire system, from the central banks on down will utilize multi-dimensional fiscal, political, and military (as a last resort) threats to crush any talk of debt repudiation. Iceland is the only nation so far to successfully fight off the sharks, but they are small, and in a unique position of self-sustainability.

Just go back and look at the bailouts in the USA in 2008. The House of Representatives voted the bailout plan down the first time, and then the combined weight of the Federal Reserve (Bernanke), the US Treasury Department (Hank Paulson), and the biggest private banksters (JP Morgan, Goldman Sachs, Citi, Wells fargo, Bank of America, etc) literally went on to the floor of the House and threatened martial law and global collapse if the banksters were not bailed out. Here is California Democratic Congressman Brad Sherman saying this very thing (on the House floor) http://www.youtube.com/watch?v=HaG9d_4zij8 . The $700 billion TARP programme was a sideshow, a distraction, as the real looting was well over $20 trillion in secret loans and giveaways (many times to foreign, non-US banks) that the Federal Reserve proceeded to do. See my post here http://journals.democraticunderground.com/stockholmer/30 for an account of $17 trillion in giveaways and sweetheart loans by the Fed, much of it uncovered by Senator Bernie Sanders in a PARTIAL audit of the programme.

Private profits are kept by the banksters, private losses are dumped onto the backs of the sovereign citizens. This is the essence of fascism. The wealth is extracted more and more, and funneled upwards to an ever-narrowing group of systemic controllers. The rest of the world is bound into multi-generational chattel debt slavery.

[roguevalley]

18. then the shooting starts sooner, not later. Thank you hon.

[valerief]

4. That means the 99% will suffer 707 trillion times more than the .01%. nt

[warrior1]

6. is number even real?

or is it just on paper.

[stockholmer]

14. It is both. Just like all the currencies (such as the US dollar) in the world.

All the worlds currencies are fiat, they are backed by nothing other than faith in the issuing entity. The US dollar was the last non-fiat currency, and that ended in 1971, when Richard Nixon ended gold convertibility for the dollar. This occurred with a week or two after France sent in warships to New York harbour and collected all its gold from the US Federal Reserve Bank of New York in exchange for its dollar holdings.

In 1980, the total M3 (the broadest measure of US dollar supply) was around $1 trillion in circulation and bank holdings. Today (the US stopped reporting M3 in 2006, http://www.kitco.com/ind/Turk/turk_mar262006.html citing national security among other reasons), the M3 is well over 30 trillion. This means that a 1980 dollar is worth 30 times (in nominal terms) what a 2011 dollar is. Due to systemic manipulation, the actual purchasing power of the 2011 dollar is not 30 times worse, but it is much much less than a 1980 dollar due to inflation in prices.

As for these derivatives, it is important to remember that this is notional value. In reality, if there is a another massive collapse, I foresee a 10% to 20% or so actual loss coming from the total notional value. If you look at the 2007-2008 collapse, in mark to market terms, the total notional value of OTC derivatives was reduced from 1.5 quadrillion to around 1 quadrillion dollars.

If you look at the total amount globally of central bank issued bailouts (true theft from the citizens of the world into the pockets of the banking overlords) you come up with a figure of around $50 trillion. This is around 10% of the notional value that was wiped off the books.

To further extrapolate out, it you now have $1.1 quadrillion in notional value today, and this collapses at the same rate as 2008, you are looking at a potential loss of around $100 trillion. This coincides rather well with this announcement from the World Economic Forum: "Over US$ 100 Trillion Additional Credit Needed to Support Global Growth" http://www.weforum.org/news/over-us-100-trillion-additional-credit-needed-support-global-growth


To sum it up, the banksters and their puppets in the global nation's governments systematically probe and push these paper debts unto the backs of the 99% through hyper-sophisticated geo-political and economic modeling. They push things right up to the breaking point in a country (ie Greece and its riots) then put into place a hand-picked government that will assume as much of the debt as possible. They then move on to the next country, the next trading sector, the next military war (all at once in millions of simultaneous global pressure points) and continue the process of wealth and power consolidation.

These schema are slow, grinding, un-halting, scientifically designed for billions of sociological, political, economic, military, global informational/surveillance grid, physical resource, etc etc variables.

Yes much of this is 'all on paper', BUT the moment that the debts/losses are monetized and dumped onto our backs then they enter the real world of human impact, as austerity, death, reduced standards of living, and tyranny quickly follows. Wealth and power flow up in greater and greater quantities, to fewer and fewer people, and we all suffer under this hideous regime.

[Turbineguy]

7. These derivatives are in fact worthless.

There's not enough money or assets to back them. It's like the number of atomic bombs that are out there. You can only destroy the world once.

[banned from Kos]

9. They will pay about 1/1000th of notional value.

How could Bank of America buy $75 trillion of derivatives with only $400 billion in cash?

Answer - they didn't.

[BrendaBrick]

11. Looks like the bulk of it

according to this graph is for "Interest Rate Contracts".

...sort of reminds me of this:

http://www.youtube.com/watch?v=bCPN3F9nVe0

[lonestarnot]

13. Wow. Just wow.

If something isn't sustainable, no threat of any kind, real or otherwise will make it sustainable. Let's roll.

[Huey P. Long]

15. occupy. -eom

[OnceUponTimeOnTheNet]

16. Quadrillion kick.

[woo me with science]

17. K&R

[Karenina]

19. BWHAHAHAHAHAHAHAHAHAHAHA!!!

:spray::rofl: Sorry, I couldn't help myself... :blush: