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Chinderland · 10-08-2008, 11:29 AM

The real trigger will be the implode of the derivatives markets.

Here is a recent news story about the HUGE bubble of financial derivatives worldwide. The report is based on 2007 figures http://timesofindia.indiatimes.com/I...ow/3537897.cms

A few excerpts from the article, on the size of the bubble:

"According to its (BIS) quarterly report, the total amount outstanding in the derivatives market was $677 trillion at the end of 2007. This is a notional figure based on the face value of traded derivatives, giving an idea of the cash flow involved. And the total turnover (sum of buying and selling) of the derivatives trade in organized exchanges was $2,289 trillion in that year. "

"These are unimaginable numbers, normally found in cosmology or particle physics. In the real world, for the sake of reference, consider the gross world product for 2007, which is the sum of the value of all products and services created in that year - it is a mere $65 trillion, about one-tenth of the derivative market."

"Between 2000 and 2007, the value of traded derivatives rose six-fold, from $109 trillion to $677 trillion. In 1993, it was just $9 billion. But why call this a bubble? That's because it is made up of a small amount of substance and a whole lot of hot air."

"There are two other features that define the bubble - its location and its creators. The BIS report shows that almost 50% of the trading was taking place in North America. Over 46% of the money invested in major derivatives came from "other financial institutions", which are investment banks, hedge funds, private equity funds, etc.

So, now we know why it is the US-based investment banks like Lehman and Merrill Lynch that have gone under - because such banks were exposed to the tune of trillions of dollars to the fickle derivative market. Does this also mean that other treasure chests, like hedge funds and equity funds may be on the chopping block in the coming days? Nobody knows for sure, but the 'golden era' of super profits from bubbles is over - at least till the next bubble."

10-08-2008, 11:29 AM	#11
Chinderland Avalon Senior Member Join Date: Sep 2008 Posts: 43	Re: It's Begun? The real trigger will be the implode of the derivatives markets. Here is a recent news story about the HUGE bubble of financial derivatives worldwide. The report is based on 2007 figures http://timesofindia.indiatimes.com/I...ow/3537897.cms A few excerpts from the article, on the size of the bubble: "According to its (BIS) quarterly report, the total amount outstanding in the derivatives market was $677 trillion at the end of 2007. This is a notional figure based on the face value of traded derivatives, giving an idea of the cash flow involved. And the total turnover (sum of buying and selling) of the derivatives trade in organized exchanges was $2,289 trillion in that year. " "These are unimaginable numbers, normally found in cosmology or particle physics. In the real world, for the sake of reference, consider the gross world product for 2007, which is the sum of the value of all products and services created in that year - it is a mere $65 trillion, about one-tenth of the derivative market." "Between 2000 and 2007, the value of traded derivatives rose six-fold, from $109 trillion to $677 trillion. In 1993, it was just $9 billion. But why call this a bubble? That's because it is made up of a small amount of substance and a whole lot of hot air." "There are two other features that define the bubble - its location and its creators. The BIS report shows that almost 50% of the trading was taking place in North America. Over 46% of the money invested in major derivatives came from "other financial institutions", which are investment banks, hedge funds, private equity funds, etc. So, now we know why it is the US-based investment banks like Lehman and Merrill Lynch that have gone under - because such banks were exposed to the tune of trillions of dollars to the fickle derivative market. Does this also mean that other treasure chests, like hedge funds and equity funds may be on the chopping block in the coming days? Nobody knows for sure, but the 'golden era' of super profits from bubbles is over - at least till the next bubble."