The $55 trillion question

The $55 trillion question

money.cnn.com

As Congress wrestles with another bailout bill to try to contain the financial contagion, there's a potential killer bug out there whose next movement can't be predicted: the Credit Default Swap.

In just over a decade these privately traded derivatives contracts have ballooned from nothing into a $54.6 trillion market. CDS are the fastest-growing major type of financial derivatives. More important, they've played a critical role in the unfolding financial crisis. First, by ostensibly providing "insurance" on risky mortgage bonds, they encouraged and enabled reckless behavior during the housing bubble.

"If CDS had been taken out of play, companies would've said, 'I can't get this [risk] off my books,'" says Michael Greenberger, a University of Maryland law professor and former director of trading and markets at the Commodity Futures Trading Commission. "If they couldn't keep passing the risk down the line, those guys would've been stopped in their tracks. The ultimate assurance for issuing all this stuff was, 'It's insured.'"

(visit the link for the full news article)

If this article is true and not sensationalizing the situation, we're in some serious trouble... and by "we" I mean the entire world.

Staggering to imagine that these CDS total more debt than the entire world's GDP. Also, if ever there was a piece of evidence at just what a fiat system the global currency market is, it's right here. I write a contract stating that I'm paying you $100 Million and suddenly in the eyes of everyone else around us, you are essentially holding $100 million? My God, it can't even be compared to Monopoly money because at least that's printed up by Parker Bros. whereas these CDS are essentially just plucked out of mid-air.

I'd also love to know where the growth is? In 7 years $55 Trillion worth of imaginary money being exchanged for real commodities & contracts... shouldn't there be some indication of growth somewhere thanks to this? Why then has the world's economy gone steadily downward over the same span and infrastructure & personal wealth done the same?

Baffling!

money.cnn.com
(visit the link for the full news article)

Glad you posted this, the derivatives market is the elephant in the closet of the whole financial "house of cards" (our Decider) and the real reason Wall Street is sweating bricks. If the whole unregulated ponzi scheme unwinds these "financial institutions" will simply implode.

The real scandal is that regulators let this mind-numbingly dangerous speculative derivatives frenzy develop in the first place.

Of course these being the same people who want to shove the bailout down our throats.

(typos)

[edit on 30-9-2008 by gottago]

What do you mean if this is true.... I just checked out some fidelity funds I am in and they have CDS's in them... FSICX and FLTMX both have this problem.. THey are not exposed like most funds, but have about 3 to 5 % of the fund is this crap... This is real and it is going to bring down the world, this is just ENRON in the banking system...

What's more crazy is that the loser secretary of the treasury used to to be the CEO of goldman sachs who invented this whole mess. he should be tried for treason and fraud.

[edit on 30-9-2008 by GrndLkNatv]

reply to post by GrndLkNatv


The truth of the article wasn't what I was bringing into question. Poor choice of words on my part. I am not educated, however, on exactly how many of these derivatives are based on "phantom" contracts. I would assume, as with all things, some of the CDS are legtimate, non-ridiculous contractual terms. I was only questioning if the situation has as much potential for disaster as the article indicates.