Derivatives a Ticking Time Bomb

Remember Long Term Capital, the hedge fund that failed with $5 billion worth of losses in 1998 that nearly brought down the entire financial system? That’s a quaint memory compared to the over $500 trillion worth of derivatives now floating about the world today…

This is crucial: LTCM nearly killed the system with a relatively small $5 billion trading loss. Peanuts compared with the hundreds of billions of dollars of subprime-credit write-offs now making Wall Street’s big shots look like amateurs.

…so true, but now we’re in the big leagues…

• U.S. annual gross domestic product is about $15 trillion
• U.S. money supply is also about $15 trillion
• Current proposed U.S. federal budget is $3 trillion
• U.S. government’s maximum legal debt is $9 trillion
• U.S. mutual fund companies manage about $12 trillion
• World’s GDPs for all nations is approximately $50 trillion
• Unfunded Social Security and Medicare benefits $50 trillion to $65 trillion
• Total value of the world’s real estate is estimated at about $75 trillion
• Total value of world’s stock and bond markets is more than $100 trillion
• BIS valuation of world’s derivatives back in 2002 was about $100 trillion
• BIS 2007 valuation of the world’s derivatives is now a whopping $516 trillion

…given the size of this, there is going to be no way to bail out derivatives. All the governments on earth don’t have the resources to make a small dent in this problem. You’ve been warned. Read it all.