The $700 trillion elephant (Gargantuan derivatives market weighs on all other issues)

Market Watch ^ | March 6, 2009 | THOMAS KOSTIGEN'S ETHICS MONITOR

[Ernest_at_the_Beach]

SANTA MONICA, Calif. (MarketWatch) -- There's a $700 trillion elephant in the room and it's time we found out how much it really weighs on the economy.

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.

But valuing them correctly is exactly what we should be doing because these comprise the viral disease that has infected the financial markets and the economies of the world.

Try as we might to salvage the residential real estate market, it's at best worth $23 trillion in the U.S. We're struggling to save the stock market, but that's valued at less than $15 trillion. And we hope to keep the entire U.S. economy from collapsing, yet gross domestic product stands at $14.2 trillion.

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.

To be sure, the derivatives market is international. But much of the trouble we're in began with contracts "derived" from the values associated with U.S. residential real estate market. These contracts were engineered based on the various assumptions tied to those values.

Few know what derivatives are worth. I spoke with one derivatives trader who manages billions of dollars and she said she couldn't even value her portfolio because "no one knows anymore who is on the other side of the trade."

[justiceseeker93]

According to former Reagan Administration economist Larry Kudlow, what’s really weighing down the markets are Obama’s inane tax increase proposals, especially re the corporation tax and the capital gains tax.

[blam]

"(Obama) Urges Americans not to 'stuff money in mattresses'... Developing... "

New 'Safe' Bed Allows Savers To Safely Store Their Cash Under The Mattress

Bed manufacturer Feather & Black is offering savers who have lost faith in the banks somewhere to keep their money safely – under the mattress in a concealed safe.

[BIGLOOK]

Yep.....but when the game starts and the blue chip is a quarter to buy in but worth a nickel at the game's end.....and the government is the cashier, the game is fixed.

Worries me, Ernest, that the whole value of the economy and property is headed for a precipitous fall into deflation.

Question is....Cui Bono?

[Candor7]

Agreed. I have been screaming the same for two yeras after analyzing Obama's work in Kenya, 2006/2007.

But one thing I did do. Moved ALL my investments off-shore in Nov. 2007. And I assure you that I will not lose a penny because of an insolvent banking system.

When you are right, and know it, its good to act on it.

And those who did not heed the warnings? Well I am not a gloater. I just feel sorry that I did not scream louder.

[Scanian]

Well, doesn’t that sound cozy!

[Ernest_at_the_Beach]

Thaanks./...I need a new mattress....LOL!

[Ernest_at_the_Beach]

Dropping a link to the Bank for International Settlements website....looking for most recent publications.....:

BIS

The Bank for International Settlements (BIS) is an international organisation which fosters international monetary and financial cooperation and serves as a bank for central banks.

[Ernest_at_the_Beach]

BIS Quarterly Review, March 2009

2 March 2009

Hot off the press.....

[JDoutrider]

marker

[tubebender]

You ever wonder how many different notes were traded for the same piece of property. It sounds like a thug getting your social security number and selling it to 100 wet backs or me taking out 40 full value loans on the same piece of property...

[MHGinTN]

Whomever was/is behind the placement of Barry Soetoro, aka Barack Obama into the presdiency aqnd is continuing to protect him from exposure has at fundamental a genius plan to bankrupt the entire capitalized world in order to establish a one-world economic central control. And they will not let this current poseur-in-chief be ousted because they would have to wait another hundred years to get such a malleable klown to sit atop the destruction with a smile on his face and $100/lb steak in his putrefacted commie mouth because We The People, if we do somehow wrest back our Republic from this bastard and his klown posse will not allow bread and circuses to dumb down our fellows any time soon, again. When the average voting schmoe can name the contestants on American Idol and cannot name the vice president though they voter for his boss, We The People are in the shitter trying to stop idiots from reaching for the flusher!

[tubebender]

Did you see this little bundle of joy... http://www.freerepublic.com/focus/f-news/2201386/posts

[Ernest_at_the_Beach]

Full text and statistical tables:

• Full text (PDF, 95 pages, 1454 kb)

• Statistical annex  (PDF, 116 pages, 728 kb)

 

Text by chapter:

International banking and financial market developments

1.	Overview: Investors ponder depth and duration of global recession
	Full text (PDF, 17 pages, 623 kb) PDFs also available in French, German, Italian, Spanish   includes box: Disentangling the drivers of recent shifts in break-even inflation rates Box also available in French, German, Italian, Spanish
2.	Highlights of international banking and financial market activity
	Full text (PDF, 10 pages, 94 kb) PDFs also available in French, German, Italian, Spanish   includes box: International issuance of mortgage-backed bonds Box also available in French, German, Italian, Spanish

 

Special features
	Assessing the risk of banking crises - revisited by Claudio Borio and Mathias Drehmann
	Abstract  (also available in French, German, Italian, Spanish)  Full text (PDF, 18 pages, 147 kb)
	The US dollar shortage in global banking by Patrick McGuire and Goetz von Peter
	Abstract  (also available in French, German, Italian, Spanish)  Full text (PDF, 17 pages, 265 kb)
	US dollar money market funds and non-US banks by Naohiko Baba, Robert N McCauley and Srichander Ramaswamy
	Abstract  (also available in French, German, Italian, Spanish)  Full text (PDF, 17 pages, 162 kb)   includes box: Money market funds
	Execution methods in foreign exchange markets by Paola Gallardo and Alexandra Heath
	Abstract (also available in French, German, Italian, Spanish)  Full text (PDF, 9 pages, 234 kb) ******************************** NOTE******************* I think I got most of the links to the English documents fixed...if I missed one ....just go to the web site....link at post #68....

[Ernest_at_the_Beach]

ROFL/....well that is one way to describe it....

[Marine_Uncle]

It has been floating about over the past few months as one of the underlining problems global credit markets are experiencing. One form of derivative is say a certificate of deposit security. Where a lending institution packaged questionable mortgage loans with other supposed Moody AAA rated securities and sold them to the banks of the world.
The idea I believe as have read in some postings here is the hope was to continue to get enough money flowing in to these institutions so that if we started to have a lot of home foreclosures they would have enough of cash to cover the ass.
Little did the world of finance that bought these worthless securities realize the bottom would fall out of the US housing market. And in short the securities they purchased would be worthless. The loaner never had adequate founds to cover all the default securities they sold.
Since there is no regulatory system in place to monitor this form of derivative market, things where able to get totally out of hand. AIG was one of the biggest marketer of these type derivatives I believe.

[Ernest_at_the_Beach]

Oh crap I have some money in there.

[patton]

But I have lots of debt - a million or so.

Why would anyone think that is worthless?

Never been late on a payment, even.

[cerberus]

Whose portfolios contain this kind of stuff, nobody I know unless it was done secretly.

It is likely a lot of these assets are in the portfolios of insurance and annuity companies. If they are unable to honor the policies they have issued, the man on the street will be hit hard. Basically it means we are living in a house of cards which is collapsing and will impact us in ways we cannot yet imagine.

[org.whodat]

Have posted another study, with about same conclusions many times, and each day you find someone that cannot read talking about butt-boy barney caused the melt down.

Link to other study: http://www.marketoracle.co.uk/Article6756.html

[org.whodat]

http://www.marketoracle.co.uk/Article6756.html