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Old 05-04-2008, 07:45 PM   #1
anders lindman
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Default Derivatives - Financial super bubble?

"According to the Bank for International Settlements in Basel, Switzerland, another massive bubble that keeps ballooning is the derivatives market, which has quintupled in five years since 2002 to more than $500 trillion -- not billion.

The magnitude of the $500 trillion derivatives bubble is brought home by America's largest dollar figures: GDP ($15 trillion); federal budget ($3 trillion); U.S. government's maximum legal debt ($9 trillion); and also by the GDP for all nations ($50 trillion); and the total value of the world's stock and bond markets (more than $100 trillion). By way of reassurance, BIS' 2007 annual report also says that the $11 trillion "gross market value provides a more accurate measure of the scale of financial risk transfer taking place in derivatives markets" every day."

From: http://www.peakoil.com/modules.php?n...icle&sid=37137

"Derivatives are financial instruments whose value changes in response to the changes in underlying variables. The main types of derivatives are futures, forwards, options, and swaps."

From: http://en.wikipedia.org/wiki/Derivative_(finance)

I.e., derivatives are only speculations about future values and they do not have any substance by themselves.
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Old 05-04-2008, 08:44 PM   #2
callybhoy
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Yip...the subprime market is only the tip of the ice berg apparently
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Old 05-04-2008, 09:44 PM   #3
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Quote:
Originally Posted by pedsi View Post
Yip...the subprime market is only the tip of the ice berg apparently
It looks like subprimes and derivatives are connected:

http://youtube.com/watch?v=0YNyn1XGyWg
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Old 05-04-2008, 10:12 PM   #4
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Here is an older news article from 2006:

"Here at MoneyWeek headquarters we are occasionally beset with bouts of irrational happiness. We count on our naturally gloomy bent to get us through. And when that fails, we think of derivatives.

Twenty years ago, the total notional sum of derivatives in the entire world was close to zero. At least that is the impression you get from looking at a chart showing the growth of derivatives in the years since. From nothing, the global supply of derivatives rose faster than the Nasdaq, faster than oil, faster even than prices of Mayfair flats. Other market bubbles were like soap bubbles compared to the Hindenburg of derivatives. The latest estimates judge it to be worth some $236 trillion – or about eight times the GDP of the entire planet. In other words, it is a bubble larger than the world itself." [my emphasis]

http://www.moneyweek.com/file/18497/...l-bubbles.html
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Old 05-04-2008, 10:33 PM   #5
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"We try to be alert to any sort of mega-catastrophe risk, and that posture may make us unduly appreciative about the burgeoning quantities of long-term derivatives contracts and the massive amount of uncollateralized receivables that are growing alongside. In our view, however, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal." -- Warren Buffett

http://www.marketwatch.com/news/stor...&dist=printTop
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