Derivatives for dummies article, and why they have the potential to blow up the financial system. – Ilene
Commentary: Fiscal WMD
By ARNAUD DE BORCHGRAVE, UPI Editor at Large
WASHINGTON, May 7 (UPI) — Even the world’s most savvy stock market giants (e.g., Warren E. Buffett) have warned over the past decade that derivatives are the fiscal equivalent of a weapon of mass destruction, potentially lethal, and the consequences of such an explosion would make the recent global financial and economic crisis seem like penny ante.
But generously lubricated lobbyists for the unrestricted, unsupervised derivative markets tell congressional committees and government regulators to butt out.
While banks all over the world were imploding and some $50 trillion vanished in global stock markets, the derivatives market grew by an estimated 65 percent, the Bank for International Settlements said.
BIS convenes the world’s 57 most powerful central bankers in Basel, Switzerland, for periodic secret meetings. Occasionally, they issue a cry of alarm. This time derivatives had soared from $414.8 trillion at the end of 2006 to $683.7 trillion in mid-2008 — in 18 months time.
The derivatives market is estimated at $700 trillion (notional value, not market value). The world’s gross domestic product in 2009: $69.8 trillion; the United States’ $14.2 trillion. The total market cap of all major global stock markets? A mere $30 trillion. And the total amount of dollar bills in circulation, most of them abroad: $830 billion (not trillion).
