Have a look at his post number 21. My eyes are starting to get computer screen bleary but I draw the overall impression that it ain't good.
Posted on 03/07/2009 9:49:52 AM PST by Ernest_at_the_Beach
Derivative contracts total about three-quarters of a quadrillion dollars in "notional" amounts, according to the Bank for International Settlements. These contracts are tallied in notional values because no one really can say how much they are worth.
Compare any of these to the derivatives market and you can easily see that we are just closing the windows as a tsunami crashes to shore. The total value of all the stock markets in the world amounts to less than $50 trillion, according to the World Federation of Exchanges.
(Excerpt) Read more at marketwatch.com ...
June 2007
See page 10 for interesting charts on sub-prime Delinquency rates.....
Page 23 starts off with some charts under the Heading:
International bond and note issuance
From pag 24 Headings.....
Exchange-traded derivatives
Trading on the international derivatives exchanges accelerated in the first quarter of 2007. Combined turnover of interest rate, currency and stock index derivatives increased by 24% to $533 trillion between January and March, after declining by 7% in the previous quarter. 7 Activity was strong across risk categories with the exception of commodities. There turnover stagnated as higher activity in energy products (23%) and precious metals (32%) was offset by weaker trading in agricultural commodities (–20%).
Rapid trading during the turbulence in international financial markets in late February and March boosted growth in equity and foreign exchange contracts. Turnover in futures and options on stock indices increased by 33% to $60 trillion in the first quarter, the highest level on record. Trading volumes of listed FX derivatives rose by 26% to $6 trillion. The largest increases took place in currencies typically associated with carry trades (see below for a discussion of OTC derivatives in this context). For example, turnover in contracts on the New Zealand dollar more than doubled in March, while volumes in derivatives on the Australian dollar increased by 85% in that month. Rapid growth was also recorded in contracts denominated in the funding currencies, yen and Swiss franc, where turnover in March rose by 62% and 42%, respectively. Across all currencies, turnover in March was 37% higher than in February.
Turnover in exchange-traded interest rate derivatives increased by 22%, slightly more than the estimated seasonal increase. 8 Activity was buoyant across the curve and across currencies, although particularly rapid growth was recorded in derivatives denominated in Swedish kronor (100%) and sterling (58%). In Sweden, the Riksbank’s forecast of the path of future policy rates published in February took the market by surprise, as traders had anticipated rates to increase more rapidly than predicted by the monetary authority. This led to a spike in the turnover on short-term krona rates in that month. Similarly, trading in derivatives on short-term sterling rates soared after the hike by the Bank of England in early January, which had also not been widely anticipated.
Thanks. I searched the article using "700 trillion" instead of "three-quarters of a quadrillion".
It's interesting to note that as late as June 2006, OTC derivatives as listed by BIS had a value of a relatively smaller $370 trillion.
And we hope to keep the entire U.S. economy from collapsing, yet gross domestic product stands at $14.2 trillion.
.
Not we, Congress and this President are spending and taxing the entire U.S. economy into collapsing
See #21 and link there...report from 2007....
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OTC derivatives
Growth in the over-the-counter (OTC) derivatives market reverted to a pace in line with the long-term average in the second half of 2006. Notional amounts increased by 12% to $415 trillion at the end of December, after rising 24% in the first half of the year. 9 Growth remained very strong in the credit segment, but fell to rates in the range of 5–11% in other risk categories. Gross market values, which measure the cost of replacing all existing contracts and thus represent a better measure of the size of the exposures at a given point in time than notional amounts, remained roughly stable at $10 trillion at the end of December 2006. This reduces to $2 trillion if netting agreements are taken into account.
The market for credit default swaps (CDSs) continued to expand at a fast Rapid increase in CDS positions pace in the second half of 2006. At 42%, the rate of growth was only marginally below the 46% recorded in the first half of the year (Graph 5). With a cumulative volume of $1.7 trillion 10 between July and December, multilateral terminations of CDS contracts were of a similar volume as in the first half of the year and shaved approximately 8% off the rate of growth in this market. The currency breakdown of OTC foreign exchange derivatives provides Only mixed evidence for only very mixed support for an expansion of carry trades during the period increase in carry under review. 11 The notional amounts of contracts on the yen changed little trade activity over the period, suggesting that carry trades were not an important driver of activity in that market segment. By contrast, positions in the Swiss franc, widely considered to be the second funding currency behind the yen, increased by 10%, thus outpacing the growth of the market as a whole. Turning to potential target currencies, the volumes outstanding of contracts on sterling expanded by 17%, which may partly reflect carry trade activity. However, important caveats have to be borne in mind when using the BIS semiannual survey to track carry trade activity. First, the low frequency of the data and the coarse instrument breakdown make it difficult to separate carry trades from trades based on different motives. Second, the data are less than comprehensive for non-G10 currencies such as the Australian dollar, because local banks do not form part of the reporting population. In addition, some activity in non-G10 currencies might be captured under “other currencies” since reporting dealers do not have to identify positions in these currencies.
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I have no idea what this says
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Concentration in the OTC derivatives market appears to have increased since the survey was established in 1998, although it remains low on average (Graph 6). The Herfindahl indices (HIs) for FX and interest rate derivatives in the major currencies are in the range of 400 to 700, below the level that most economists would consider as indicating an oligopolistic market. For example, an HI of 500 would correspond to 13 dominant firms, assuming that the remaining reporting dealers shared equally the other 20% of the market. A market with nine dominant firms of equal size and a joint market share of 80% would have an HI of just over 700. However, while concentration tends to be low on average, it is quite high in some smaller markets. For example, the HI of forward rate agreements in yen increased from under 2,000 in the first half of the decade to almost 3,500, which would correspond to the case of three firms with equal market share accounting for 100% of the market. Nevertheless, not all small markets display such a high degree of concentration. For example, the HIs for interest rate swaps in Swedish kronor are the second lowest in the swaps segment behind the euro, and are much lower than those for swaps in Canadian dollars or Swiss francs, whose markets are of comparable size.
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Have a look at his post number 21. My eyes are starting to get computer screen bleary but I draw the overall impression that it ain't good.
You presume that the DemocRats currently in power, a far-left cabal entirely removed from the Hubert Humphreys, Scoop Jacksons and John Kennedys of our childhoods, aren’t cheerleading the economy’s implosion and doing everything they can to help it along. They dream of the day when, like a phoenix rising from the ashes, they can rebuild the nation and the world along their own Marxist blueprint.
It’s not cluelessness in the least. This is purposeful, targeted, carefully calibrated and entirely desired.
* New developments in clearing and settlement arrangements for OTC derivatives
CPSS Publications No 77 March 2007
Since the publication by the BIS in 1998 of a report on OTC derivatives: settlement procedures and counterparty risk management, the markets for OTC derivatives have continued to expand and develop rapidly, while risk management practices have evolved and significant changes in market infrastructures have occurred.
In early 2006, the CPSS set up a Working Group, comprising representatives of its member central banks and prudential supervisors of major derivatives dealers, to analyse existing arrangements and risk management practices in the broader OTC derivatives market and evaluate the potential for risks to be mitigated by greater use of, and enhancements to, market infrastructure. This project complemented an earlier supervisory initiative that at the time was focused primarily on confirmation backlogs in the credit derivatives markets.
The Working Group conducted interviews with some 35 major dealers in OTC derivatives in the G10 countries and Hong Kong SAR. It also met with industry groups and providers of post-trade processing services. Finally, upon completion of the report, it discussed its findings in a roundtable with these entities.
The report focuses on six issues, of which three had already been discussed in 1998 and three others have caught the Group's attention during its discussions with OTC derivatives dealers and service providers: (1) the risks created by delays in documenting and confirming transactions; (2) the implications of the rapidly expanding use of collateral to mitigate counterparty credit risks; (3) the potential for expanding the use of central counterparty (CCP) clearing to reduce counterparty risks; (4) the implications of OTC derivatives prime brokerage; (5) the risks associated with unauthorised novations of contracts; and (6) the potential for significant market disruptions from the closeout of OTC derivatives transactions following the default of a large market participant.
The report concludes that, since 1998, the clearing and settlement infrastructure of OTC derivatives markets has been significantly strengthened. But further progress is needed in some areas:
institutions need to extend the successful efforts to reduce confirmation backlogs in credit derivatives to other OTC derivative products, using automated systems whenever possible. To mitigate the risks of remaining backlogs, more systematic use of economic affirmations is appropriate and over time dealers should work toward daily portfolio reconciliations with their most active counterparties;
market participants should identify steps to mitigate the potential market impact of replacing contracts following the closeout of one or more major participants.
In addition, as the market infrastructure moves further in the direction of centralised processing of trades and post-trade events, several issues will assume greater importance:
providers of essential post-trade services for OTC derivatives should provide open access to their services and should aim to achieve convenient and efficient connectivity with other systems;
central banks and supervisors will need to consider whether certain existing standards for securities settlement systems, CCPs or systemically important payment systems should be applied to providers of clearing and settlement services for OTC derivatives that are not already subject to those standards.
Interested parties are welcome to send comments on the report to the CPSS Secretariat (cpss@bis.org ); please mention OTC derivatives in the subject line of your email. Comments will be made available on the website of the BIS.
Full text:
I'm not sure why everybody is citing the notional value when the gross value is only $20 trillion.
If you had the time and inclination to read my posts from before the election you would discover that I had been sounding the warning Claxton that Obama was a Manchurian Marxist for some time now.
With my limited knowledge of OTC Derivatives, I would guess that the $700 trillion figure cited by the author is an exageration of the OTC Derivative problem.
Ok, color me an idiot - what, exactly, is a derivative?
Your answer is in the second sentence...
These contracts are tallied in notional values because no one really can say how much they are worth.
So he's known what the problems were for some time now and he still has no answers on how to fix things.
Good show, Tim!
LOL?
Also the ratio of notional value to gross value of Interest Rate Contracts is much higher than all the other type of OTC derivative instruments.
Hmmmm....
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