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Credit-default swaps, contracts designed to protect investors against default and used to speculate on credit quality, led the increase, expanding 49 percent to cover a notional $43 trillion of debt in the six months ended June 30, the BIS said in a report published late yesterday.
Derivatives of debt, currencies, commodities, stocks and interest rates rose 25 percent from the previous six months, the biggest jump since the Basel, Switzerland-based bank began compiling the data.
This latest boom and bust of not only subprime mortgages, but of all types of credit ranging from out-of-control consumer credit card issuance to rampant private equity acquisitions have created the largest transfer of wealth from the poor to the rich in modern history. None of the experts on television will ever admit to it because if the average American actually understood what has happened, social upheaval would probably ensue.
It is entirely possible that all of the U.S. banks are currently bankrupt. Just because Citicorp generates billions of dollars every day in revenue doesn't mean that it has any equity left. Between 2005 and 2007, over a quadrillion dollars of CDOs were underwritten. A one percent writedown would amount to at least a trillion dollars worth of losses. Most CDO analysts at the large investment banks have already publicly stated that they expect at least several hundred billion in writedowns, although to date, less than a hundred billion has been announced.