Skip to main content

View Diary: Fire Geithner (91 comments)

Comment Preferences

  •  CDS are not a problem at all.? Really? No, I (2+ / 0-)
    Recommended by:
    Pluto, Johnny Rapture

    mean, really?

    Maybe you should visit these two links

    a snip->

    According to various distinguished sources including the Bank for International Settlements (BIS) in Basel, Switzerland -- the central bankers' bank -- the amount of outstanding derivatives worldwide as of December 2007 crossed USD 1.144 Quadrillion, ie, USD 1,144 Trillion. The main categories of the USD 1.144 Quadrillion derivatives market were the following:

    1. Listed credit derivatives stood at USD 548 trillion;
    1. The Over-The-Counter (OTC) derivatives stood in notional or face value at USD 596 trillion and included:

    a. Interest Rate Derivatives at about USD 393+ trillion;

    b. Credit Default Swaps at about USD 58+ trillion;

    c. Foreign Exchange Derivatives at about USD 56+ trillion;

    d. Commodity Derivatives at about USD 9 trillion;

    e. Equity Linked Derivatives at about USD 8.5 trillion; and

    f. Unallocated Derivatives at about USD 71+ trillion.

    a snip->

    About $2 trillion in credit derivatives in 1989 jumped to $8 trillion in 1994 and skyrocketed to $100 trillion in 2002. Last year, the Bank for International Settlements, a consortium of the world's central banks based in Basel (the Fed chair, Ben Bernanke, sits on its board), reported the gross value of these commitments at $596 trillion. Some are due, and some will mature soon. Typically, they involve contracts of five years or less.

    Credit derivatives are breaking and will continue to break the world's financial system and cause an unending crisis of liquidity and gummed-up credit. Warren Buffett branded derivatives the "financial weapons of mass destruction." Felix Rohatyn, the investment banker who organized the bailout of New York a generation ago, called them "financial hydrogen bombs."

    Both are right. At almost $600 trillion, over-the-counter (OTC) derivatives dwarf the value of publicly traded equities on world exchanges, which totaled $62.5 trillion in the fall of 2007 and fell to $36.6 trillion a year later.

    The nice thing about public markets is that they act as canaries that give warnings as they did in 1929, 1987 (the program trading debacle), and 2001 (the dot-com bubble), so we can scramble out with our economic lives. But completely private and unregulated, the OTC derivatives trade is justly known as the "dark market."

    Counting one dollar per second, it would take 32 million years to count to one Quadrillion. A lot of derivatives...

    by 0hio on Wed Feb 11, 2009 at 10:08:59 PM PST

    [ Parent ]

    •  I know all that crap. Those are notional (0+ / 0-)

      balances and have little to nothing to do with actual exposure. VERY few banks did any CDS trades whatsoever. But they are all chock full of bad loans that are getting worse. There's a giant problem (loans) and a teensy one (CDS) in the banking sector, yet around here the meme is that it's all about CDS or CDOs, even though posters admit they don't understand them. No one wants to believe for some reason that they actually DO understand the crisis - that it is all about the loans. CDS is a problem, but for the investment banks and insurance cos., NOT the banks.

Subscribe or Donate to support Daily Kos.

Click here for the mobile view of the site