posted on Apr, 16 2008 @ 08:30 AM
Not to be alarmist, but a serious unwinding of the massive $62 trillion+ derivatives market has the potential to dwarf the subprime debacle and
literally bring about a collapse of the financial system.
This is the elephant in the closet, the dirty secret no one on Wall Street wants the little guy out there to know about.
Derivatives are a rather arcane element of financial dealings, but essentially are bets used to hedge against risk, and are done on margin; i.e., a
fractional amount is spent to insure against an unwanted rise or drop in an asset's price during a financial transaction. There is no insurance on
such positions; the trading firms essentially insure themselves, with one marginally generated "asset" (read: "piece of debt") being used as
collateral against another.
Derivatives started out as a logical way to limit risk in financial trading, but have taken on a life of their own as a potentially high-profit means
of speculating on all aspects of the markets. As things developed, speculation has overtaken legitimate hedging, and the entire market nearly doubled
in the last year alone.
Plain and simple, the derivatives market has become a debt-swap, -trade and -speculation orgy, a staggeringly huge ponzi scheme of debt being
magically collateralized into assets to underwrite more debt that now has financial regulators finally looking to impose stricter (read: any) rules
now that it threatens to implode.
(visit the link for the full news article)