October 16th, 2008
OMG: The derivatives bubble = $190K per person on planet
This single statistic has boggled my mind because it puts into perspective the enormous size of the derivatives bubble. DK Matai, chairman of the ACTA Open in his article The Invisible One Quadrillion Dollar Equation — Asymmetric Leverage and Systemic Risk writes:
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 population of the whole planet is about 6 billion people. So the derivatives market alone represents about USD 190,000 per person on the planet.
The value of the derivatives market is 22 times the GDP of the entire world.
This financial crisis is not about sub-prime mortgages or credit swaps. The geniuses of Wall Street have managed to create a bubble that is way beyond any real values.
Consider this:
The real estate of the entire world is valued at about USD 75 trillion.
The world stock and bond markets are valued at about USD 100 trillion.
Add up all the real estate value in the world and all the value of all public businesses in the world and you get to $175 trillion. This is just 15 per cent of the value of the derivatives market.
What’s going to happen as this bubble unravels? What’s going to happen as the value of the underlying securities on which the derivatives are based upon devalue further?
You can’t bail this bubble out. There is not enough money in the world to bail this out. The US money supply is about $15 trillion, 1.3 per cent of the bubble. I don’t have figures for the rest of the world money supply but whatever it is it might add up to a whopping 10 per cent of the derivatives bubble.
Unbelievable. All of this was done in the shadow financial markets, completely unregulated.
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Please see DK Matai:
The Invisible One Quadrillion Dollar Equation — Asymmetric Leverage and Systemic Risk
Why are Markets still Falling? The Tsunami caused by Derivatives and Deleveraging
Tom Foremski reports on the business and culture of Silicon Valley at the intersection of technology and media. He also writes at Silicon Valley Watcher. See his full profile and disclosure of his industry affiliations.
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| 10/17/08
