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FINANCIAL IMPLOSION: Global Derivatives Market at $1,200 Trillion Dollars … 20 Times the World Economy

 
Blue Zeus
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05/20/2012 06:43 PM
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FINANCIAL IMPLOSION: Global Derivatives Market at $1,200 Trillion Dollars … 20 Times the World Economy
Nuff said....

[link to www.globalresearch.ca]

Derivatives Expert Estimates Size of the Global Derivatives Market at $1,200 Trillion Dollars … 20 Times Larger than the Global Economy

How Large Is the Derivatives Market?

Everyone paying attention knows that the size of the derivatives market dwarfs the global economy. But how big is it really?

For years, there have been rumors that there is over a quadrillion – one thousand trillion – dollars in notional value of outstanding derivatives. But no one really knew.

Even though the Bank of International Settlements regularly publishes tables showing the amounts of different types of derivatives, some of the categories are ambiguous, and so it has been hard to get a good handle on what’s really out there....

...Smart guys like bond trader Jeffrey Gundlach said last year that we’ve got a quadrillion dollar derivative overhang, the government hasn’t done anything to fix the basic problems in our economy, and so we’ll have another crash.

But I’ve now found an estimate from a top derivatives expert who confirms the claim.

Specifically, Paul Wilmott – who has written numerous books on the subject – estimated the number last year at $1.2 quadrillion:

The… derivatives market … is 20 times the size of the world economy....


...The global financial crisis three years ago was caused in part by the proliferation of derivative products tied to U.S. home loans that ceased performing, triggering hundreds of billions of dollars in writedowns and leading to the collapse of Lehman Brothers Holdings Inc. in September 2008.

Credit default swaps were largely responsible for bringing down Bear Stearns, AIG (and see this), WaMu and other mammoth corporations.

And unexpected changes in interest rates could cause a major bloodbath in interest rate derivatives.


[link to www.globalresearch.ca]

Last Edited by Blue Zeus on 05/20/2012 06:45 PM
Blue Zeus (OP)

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Re: FINANCIAL IMPLOSION: Global Derivatives Market at $1,200 Trillion Dollars … 20 Times the World Economy
[link to uk.news.yahoo.com]


SKY: Greece Crisis Threatens To 'Open Door To Hell'


Greece's former finance minister has told Sky News that if Greece reneges on its bailout deal with the EU and the IMF it will "open the door to hell".
Anonymous Coward
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05/20/2012 06:57 PM
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Re: FINANCIAL IMPLOSION: Global Derivatives Market at $1,200 Trillion Dollars … 20 Times the World Economy
Huh?

Zazz-tard is saying this is no big deal. Keep investing....
Anonymous Coward
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05/20/2012 06:58 PM
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Re: FINANCIAL IMPLOSION: Global Derivatives Market at $1,200 Trillion Dollars … 20 Times the World Economy
Down with the House of Rothschild

rockon
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Re: FINANCIAL IMPLOSION: Global Derivatives Market at $1,200 Trillion Dollars … 20 Times the World Economy
will it carsh already so I can buy sum stocks cheap.
yup all in
Blue Zeus (OP)

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Re: FINANCIAL IMPLOSION: Global Derivatives Market at $1,200 Trillion Dollars … 20 Times the World Economy

Derivatives – The $600 Trillion Time Bomb Set to Explode
Regulators have let this problem spiral out of control


Oct 14, 2011, 11:05 am EDT | By Keith Fitz-Gerald

Do you want to know the real reason banks aren’t lending and the PIIGS have control of the barnyard in Europe?

It’s because risk in the $600 trillion derivatives market isn’t evening out. To the contrary, it’s growing increasingly concentrated among a select few banks, especially here in the United States.

In 2009, five banks held 80% of derivatives in America.

Now, just four banks hold a staggering 95.9% of U.S. derivatives, according to a recent report from the Office of the Currency Comptroller.

The four banks in question are JPMorgan Chase (NYSE:JPM), Citigroup (NYSE:C), Bank of America (NYSE:BAC) and Goldman Sachs (NYSE:GS).


Tick…Tick…Tick

To be fair, the Bank for International Settlements (BIS) estimated the net notional value of uncollateralized derivatives risks is between $2 trillion and $8 trillion, which is still a staggering amount of money and well beyond the billions being talked about in Europe.

Imagine the fallout from a $600 trillion explosion if several banks went down at once. It would eclipse the collapse of Lehman Brothers in no uncertain terms.

Read more: [link to www.investorplace.com]

Last Edited by Blue Zeus on 05/20/2012 07:03 PM
Blue Zeus (OP)

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Re: FINANCIAL IMPLOSION: Global Derivatives Market at $1,200 Trillion Dollars … 20 Times the World Economy
Huh?

Zazz-tard is saying this is no big deal. Keep investing....
 Quoting: Anonymous Coward 2926765


Overdose of Tiger's Milk rots the brain - jmho
Blue Zeus (OP)

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Re: FINANCIAL IMPLOSION: Global Derivatives Market at $1,200 Trillion Dollars … 20 Times the World Economy
Add Morgan Stanley to the list, and IMHO, the next to announce major losses


Derivative Time Bomb: Five Banks Account For 96% Of The $250 Trillion In Outstanding US Derivative Exposure


- Five Banks Account For 96% Of The $250 Trillion In Outstanding US Derivative Exposure; Is Morgan Stanley Sitting On An FX Derivative Time Bomb? (ZeroHedge, Sep. 24, 2011):

The latest quarterly report from the Office Of the Currency Comptroller is out and as usual it presents in a crisp, clear and very much glaring format the fact that the top 4 banks in the US now account for a massively disproportionate amount of the derivative risk in the financial system.

Specifically, of the $250 trillion in gross notional amount of derivative contracts outstanding (consisting of Interest Rate, FX, Equity Contracts, Commodity and CDS) among the Top 25 commercial banks (a number that swells to $333 trillion when looking at the Top 25 Bank Holding Companies), a mere 5 banks (and really 4) account for 95.9% of all derivative exposure (HSBC replaced Wells as the Top 5th bank, which at $3.9 trillion in derivative exposure is a distant place from #4 Goldman with $47.7 trillion).

The top 4 banks: JPM with $78.1 trillion in exposure, Citi with $56 trillion, Bank of America with $53 trillion and Goldman with $48 trillion, account for 94.4% of total exposure.

As historically has been the case, the bulk of consolidated exposure is in Interest Rate swaps ($204.6 trillion), followed by FX ($26.5TR), CDS ($15.2 trillion), and Equity and Commodity with $1.6 and $1.4 trillion, respectively.

And that’s your definition of Too Big To Fail right there: the biggest banks are not only getting bigger, but their risk exposure is now at a new all time high and up $5.3 trillion from Q1 as they have to risk ever more in the derivatives market to generate that incremental penny of return.

[link to www.infiniteunknown.net]

ZEROHEDGE STORY FROM LAST SEPTEMBER:

Five Banks Account For 96% Of The $250 Trillion In Outstanding US Derivative Exposure; Is Morgan Stanley Sitting On An FX Derivative Time Bomb?

[link to www.zerohedge.com]

Last Edited by Blue Zeus on 05/20/2012 07:10 PM
Blue Zeus (OP)

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Re: FINANCIAL IMPLOSION: Global Derivatives Market at $1,200 Trillion Dollars … 20 Times the World Economy
"Margin" Stanley's exposure detailed:


Of particular note is that while virtually every single bank has a preponderance of its derivative exposure in the form of plain vanilla IR swaps (on average accounting for more than 80% of total), Morgan Stanley, and specifically its Utah-based commercial bank Morgan Stanley Bank NA, has almost exclusively all of its exposure tied in with the far riskier FX contracts, or 98.3% of the total $1.793 trillion.

For a bank with no deposit buffer, and which has massive exposure to European banks regardless of how hard management and various other banks scramble to defend Morgan Stanley, the fact that it has such an abnormal amount of exposure (but, but, it is “bilaterally netted” we can just hear Dick Bove screaming on Monday) to the ridiculously volatile FX space should perhaps raise some further eyebrows…

Crucial chart: [link to www.infiniteunknown.net]

Source: [link to www.infiniteunknown.net]
Blue Zeus (OP)

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Re: FINANCIAL IMPLOSION: Global Derivatives Market at $1,200 Trillion Dollars … 20 Times the World Economy
[link to www.forbes.com]

Morgan Stanley Is Having A Worse Week Than JPMorgan, Here's Why


5/16/2012 @ 4:01PM

JPMorgan Chase isn’t the only firm on the Street having a tough week. Morgan Stanley is having a worse one in terms of its stock performance.

So what’s behind the drop at Morgan Stanley ? Bank analyst Dick Bove says it’s all about Greece.

“It is definitely Europe. The belief is that the failure of Greece will bring down much of Europe and the hedges Morgan Stanley put in place will not work,” he says.

Unfortunately, MS was expecting to gain some relief from a successful FB IPO

Instead, Morgan Stanley had to spend millions to prop the price of FB above the 38 IPO, to prevent a debut debacle

Facebook Banker Morgan Stanley Bought A Humongous Amount Of Stock To Try Support To Price

[link to www.businessinsider.com]

Last Edited by Blue Zeus on 05/20/2012 07:18 PM
Blue Zeus (OP)

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Re: FINANCIAL IMPLOSION: Global Derivatives Market at $1,200 Trillion Dollars … 20 Times the World Economy
More mortgage pain for Europe, pressure builds on the banks, increasing the likelihood of spiraling losses for MS, JPM and banks we are not yet aware of

There is so much in the article below, charts, quotes, it cannot be summed in a few words, except to say that these developments are only feeding the building liquidity crisis


The Mortgage Crisis Hits France Front And Center: Are French Bank Nationalizations Imminent?


[link to www.zerohedge.com]


At the end of the day, Europe's main problem was, is and continues to be the active disappearance of any and all cash and money good assets, as well as collateral, as it is increasingly pledged (or re-pledged once repo mechanisms get involved) to other financial institutions, and primariliy to the ECB, in exchange for short-term funding (read loans, further explained here "Encumberance 101, Or Why Europe Is Running Out Of Assets").

And what it all boils down to is this: will Hollande, for all his pompous rhetoric, immediately do what the market expects him to, which is to unleash the French nationalization machine, first with CIFD, and soon, many other insolvent banks, or, will he stay true to his word, and watch as risk assets crash and burn all around him.

Perhaps the question is better posed to the French citizens: is their hatred of bank bailouts greater than the fear of facing the fair value of all assets absent central bank and sovereign backstops?
Blue Zeus (OP)

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05/20/2012 08:32 PM
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Re: FINANCIAL IMPLOSION: Global Derivatives Market at $1,200 Trillion Dollars … 20 Times the World Economy
If it hasn't happened by now, nothing will happen.

The laws of physics no longer apply.

You can gamble and suffer no consequences.
 Quoting: Walking Eagle



I learned from 2008, and the implosion of LEH, which had survived two world wars and the great depression, that you never say never

It isn't necessary for the TRN dollar derivatives market to be triggered...even a small liquidity crisis will do damage

In 2008, only the banks were insolvent

in 2012, we are facing sovereign insolvency, the World Bank and the IMF are running low on firepower and China has said it will not rescue Europe

We are , at the very least, in unchartered territory
Blue Zeus (OP)

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05/20/2012 11:50 PM
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Re: FINANCIAL IMPLOSION: Global Derivatives Market at $1,200 Trillion Dollars … 20 Times the World Economy
[link to money.cnn.com]

JPMorgan Chase loss only going to get worse

...Now as the overall market has worsened, it costs even more for JPMorgan Chase to sell protection against possible bankruptcies on corporate bonds.

Since JPMorgan Chase is basically the only one on its side of the bet, a worsening market makes it even more expensive to keep this position and more difficult to find other places to offset these losses.

JPMorgan Chase's main bet has been on an index, known as IG9, of 125 U.S. investment grade companies. Shares of three of the 125 companies -- retailer J.C. Penney (JCP, Fortune 500) and insurers MBIA (MBI) and Radian (RDN) -- have taken big hits since last week, driving up the cost of offering protection against a default.

Additionally, since Dimon's announcement, more hedge funds have piled into the index, further driving up the cost of selling protection.

"There will be a stare-fest between the hedge funds and JPMorgan," said James Rickards, former general counsel at Long-Term Capital Management, a hedge fund that required a $3.6 billion bailout from the Federal Reserve because of its massive losses from its trading activities.

"It will cost JPMorgan an unimaginable fortune to push the spread back in their direction," he added.

Blue Zeus (OP)

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05/20/2012 11:52 PM
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Re: FINANCIAL IMPLOSION: Global Derivatives Market at $1,200 Trillion Dollars … 20 Times the World Economy
Zerohedge tweet:


‏@zerohedge
JPM's DV01 on IG9 - 10 yr is about 200-250 MM. Do the math
Anonymous Coward
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05/20/2012 11:57 PM
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Re: FINANCIAL IMPLOSION: Global Derivatives Market at $1,200 Trillion Dollars … 20 Times the World Economy
morgan's the fuse for the derivatives time-bomb and it's been lit...

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