Exposure to Derivatives in Excess of $1.4 Quadrillion (not from the Onion)

[JurisDoctorOfDoom]

By way of Talking Points Memo:

When I posted the lowest responsibly sourced figure for global exposure in financial derivatives, $592 trillion, published May 19, 2009 by the Bank of International Settlements, all sorts of hoodoo apologists for Obama, Geithner, Summers, and Goldman Sachs crawled out the woodwork to claim that this figure is ridiculously exaggerated, there's really nothing to worry about, it's just a few bucks, and so on.

All the same hoodoos unfailingly claimed that it's stupid to consider worst-case scenarios when you calculate risk, because...

They have learned absolutely nothing from the ongoing financial meltdown which annihilated some of the oldest and largest investment banks in the world, and plunged the global economy into an almost vertical downturn.

So, since even the lowest reasonable figure for global exposure in financial derivatives attracts so much obfuscation and denial, I might as well be hanged for a sheep as a lamb, and offer up a much larger and probably more accurate estimate, which also includes the huge market in off-the-books derivatives, instead of only considering the OTC market upon which the previous calculation by the Bank of International Settlements was based, and that estimate is...

$1.4 quadrillion.

That's more than one million piles of money, with a billion dollars in each pile.

More at the original link: http://tpmcafe.talkingpointsmemo.com/talk/blogs/rutabaga_ridgepole/2009/07/global-exposure-in-financial-d.php?ref=reccafe

[periol]

no worries, hyperinflation will save the day 

[FireJack]

What will derivatives do? Every time I see these figures people glaze it over with a "it cancels itself out." What would have to happen to for these quadrillion dollars worth of derivatives to have some kind of effect?

[picasso moon]

Much of this will cancel itself out, some will not, and that's the point. Just  2% of this is over $28 trillion!

[periol]

What will derivatives do? Every time I see these figures people glaze it over with a "it cancels itself out." What would have to happen to for these quadrillion dollars worth of derivatives to have some kind of effect?

All the nonsense with AIG was because they were the party that was holding derivatives that "cancelled out" other derivatives.  Even if you cancel out the risk, it only evens out in a macro sense, not a micro sense - there are still plenty of places stupid companies will be left holding the bag.  Start unwinding and the AIG mess will seem like a drop in the bucket.

[PseudoPhil]

1.4 quadrillion is over 20 years worth of the total world GDP.

That is an insane amount of money.

I've just had a mental image of the people in the penthouse deciding to keep warm by lighting the bottom floors of the building on fire.

[JohnLudi]

There are probably beaches with less grains of sand...this is a truly stunning amount of fake money!

Let's put it into perspective, shall we...it'll be FUN!!!


Estimated age of planet Earth in days (assuming the standard 4.5 billion years):

1,642,500,000,000


What 1.4 quadrillion dollars looks like by comparison:

1,400,000,000,000,000


Bwaaaaaaahahahahahahahahaha!!!

I need a drink...

[cygnus]

There are probably beaches with less grains of sand...this is a truly stunning amount of fake money!

Let's put it into perspective, shall we...it'll be FUN!!!


Estimated age of planet Earth in days (assuming the standard 4.5 billion years):

1,642,500,000,000


What 1.4 quadrillion dollars looks like by comparison:

1,400,000,000,000,000


Bwaaaaaaahahahahahahahahaha!!!

I need a drink...

Me, too, John.  Oy.   

[roccman]

I hear the rothchilds fortune is upward on 300 trillion (with a T).

Maybe if they joined the hive they are developing...

Naw...nevermind...what was I thinking.

[perrisboy]

@firejack

these derivatives are daisy-chained. so if anywhere in the chain, if an event occurs particularly an unexpected one, for example the fed ending their zero-rate policy, and instead hiking interest rates to say 5.0%, someone gets hammered, and may go belly-up, and can't pay. whomever was expected to get paid off from this organization, say a county in alabama is holding the bag. most of these derivatives are of the interest rate swap variety, not the credit default swaps that caused so much problems. so someone doesn't payoff, causing someone else not to payoff, this can go on for awhile but eventually, the day of reckoning occurs for someone. how big they are, determines how much systemic damage will occur. the scary part is no one knows for sure how many of these things were written on the same event, for example you pay me if interest rates go up a quarter of 1 % in this time period, else you keep the money i put up front.

[Redwood]

There are probably beaches with less grains of sand...this is a truly stunning amount of fake money!

Let's put it into perspective, shall we...it'll be FUN!!!


Estimated age of planet Earth in days (assuming the standard 4.5 billion years):

1,642,500,000,000


What 1.4 quadrillion dollars looks like by comparison:

1,400,000,000,000,000


Bwaaaaaaahahahahahahahahaha!!!

I need a drink...

Even if you use the age of the universe instead of the age of the earth, it's still bigger.

[Poseidon]

Much of this will cancel itself out, some will not, and that's the point. Just  2% of this is over $28 trillion!

And I bet that those derivatives cancelling themselves out might very well 'destroy' some money and reduce liquidity, à la 2008!  And we all remember how fun that was!

[Bruce]

 Let's assume not a single dollars worth of these derivatives causes a single problem (that's a helluva assumption I agree). Lets also assume not a single financial document or a single Wall Street move causes a single problem with the world economy as we know it. We are still screwed. We are in debt up to our ass with no way out ALREADY. I have stated this challenge on many post several times and as of yet have not had a single response. How in hell can we reasonable expect to satisfy our debt? Any takers??.......................................Bruce

[shaleoh2]

There are probably beaches with less grains of sand

     oh my GAWDDDDDDDDD

          thank you!!!  It's all making sense now!!!

[ralfy]

Pls. take a look at the reversed pyramid chart on this page:

http://www.creditcontraction.com/index.html