US Commercial banks alone own an unbelievable $202 trillion in derivatives.

B

ByLoSellHi

The $1 QUADRILLION Derivatives Time Bomb

http://seekingalpha.com/article/153555-five-reasons-the-market-could-crash-this-fall

Few commentators care to mention that the total notional value of derivatives in the financial system is over $1.0 QUADRILLION (that’s 1,000 TRILLIONS).

US Commercial banks alone own an unbelievable $202 trillion in derivatives. The top five of them hold 96% of this.

By the way, the chart is in TRILLIONS of dollars:

saupload_banks_thumb1.jpg


As you can see, Goldman Sachs alone has $39 trillion in derivatives outstanding. That’s an amount equal to more than three times total US GDP. Amazing, but nothing compared to JP Morgan (JPM), which has a whopping $80 TRILLION in derivatives on its balance sheet.

Bear in mind, these are “notional” values of derivatives, not the amount of money “at risk” here. However, if even 1% of the $1 Quadrillion is actually at risk, you’re talking about $10 trillion in “at risk.”

What are the odds that Wall Street, when allowed to trade without any regulation, oversight, or audits, put a lot of money at risk? I mean… Wall Street’s track record regarding financial instruments that were ACTUALLY analyzed and rated by credit ratings agencies has so far been stellar.

After all, mortgage backed securities, credit default swaps, collateralized debt obligations… those vehicles all turned out great what with the ratings agencies, banks risk management systems, and various other oversight committees reviewing them.

I’m sure that derivatives which have absolutely NO oversight, no auditing, no regulation, will ALL be fine. There’s NO WAY that the very same financial institutions that used 30-to-1 leverage or more on regulated balance sheet investments would put $50+ trillion “at risk” (only 5% of the $1 quadrillion notional) when they were trading derivatives.

If Wall Street did put $50 trillion at risk… and 10% of that money goes bad (quite a low estimate given defaults on regulated securities) that means $5 trillion in losses: an amount equal to HALF of the total US stock market.

This of course assumes that Wall Street only put 5% of its notional value of derivatives at risk… and only 10% of the derivatives “at risk” go bad.

Do you think those assumptions are a bit… low?
 
How many threads have we had on this? And how many times does it bear pointing out that the humongous numbers people keep throwing around are notionals and, as such, meaningless?
 
The most money a single company can really lose is the total value of its assets at firesale prices at the lower level OR the total discounted free cash flows available to the firm in perpetuity, should the firm be re-possessed and re-run by bankers.

Of course, it's still a massive systemic risk especially since these investment banks are so interlinked with the financial economy (i.e., lehmans).
 
Quote from Martinghoul:

How many threads have we had on this? And how many times does it bear pointing out that the humongous numbers people keep throwing around are notionals and, as such, meaningless?
More...

These notational flingers need to start a business. They can put pencil to paper and say "Gee, 300 million people in the US. If just 1% of them buy a 747 from me, I'll be rich!" :D
 
Quote from ByLoSellHi:

The $1 QUADRILLION Derivatives Time Bomb

http://seekingalpha.com/article/153555-five-reasons-the-market-could-crash-this-fall

Few commentators care to mention that the total notional value of derivatives in the financial system is over $1.0 QUADRILLION (that’s 1,000 TRILLIONS).

US Commercial banks alone own an unbelievable $202 trillion in derivatives. The top five of them hold 96% of this.

By the way, the chart is in TRILLIONS of dollars:

saupload_banks_thumb1.jpg


As you can see, Goldman Sachs alone has $39 trillion in derivatives outstanding. That’s an amount equal to more than three times total US GDP. Amazing, but nothing compared to JP Morgan (JPM), which has a whopping $80 TRILLION in derivatives on its balance sheet.

Bear in mind, these are “notional” values of derivatives, not the amount of money “at risk” here. However, if even 1% of the $1 Quadrillion is actually at risk, you’re talking about $10 trillion in “at risk.”

What are the odds that Wall Street, when allowed to trade without any regulation, oversight, or audits, put a lot of money at risk? I mean… Wall Street’s track record regarding financial instruments that were ACTUALLY analyzed and rated by credit ratings agencies has so far been stellar.

After all, mortgage backed securities, credit default swaps, collateralized debt obligations… those vehicles all turned out great what with the ratings agencies, banks risk management systems, and various other oversight committees reviewing them.

I’m sure that derivatives which have absolutely NO oversight, no auditing, no regulation, will ALL be fine. There’s NO WAY that the very same financial institutions that used 30-to-1 leverage or more on regulated balance sheet investments would put $50+ trillion “at risk” (only 5% of the $1 quadrillion notional) when they were trading derivatives.

If Wall Street did put $50 trillion at risk… and 10% of that money goes bad (quite a low estimate given defaults on regulated securities) that means $5 trillion in losses: an amount equal to HALF of the total US stock market.

This of course assumes that Wall Street only put 5% of its notional value of derivatives at risk… and only 10% of the derivatives “at risk” go bad.

Do you think those assumptions are a bit… low?
More...


We will all just have to work longer and harder, and make do with less. I don't want Wall Street to suffer. These guys may have to fly on a Hawker 850 instead of a Gulfstream 550. We can't let that happen. Everyone buckle down and get to work.
 
Quote from Martinghoul:

How many threads have we had on this? And how many times does it bear pointing out that the humongous numbers people keep throwing around are notionals and, as such, meaningless?
More...

The article I posted speaks exactly to the point you are complaining about.

Did you even read it?

Here's the pertinent section:

"Bear in mind, these are “notional” values of derivatives, not the amount of money “at risk” here. However, if even 1% [a conservative figure just for the sake of being conservative] of the $1 Quadrillion is actually at risk, you’re talking about $10 trillion in “at risk.”
 
I don't see a problem.

If they go in the tank, the fed can easily print a quadrillion to bail em out, and then the s&p will rally fifty percent.
 
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