posted on Oct, 19 2008 @ 03:24 PM
reply to post by redhatty
Doesn't look like it was the same person, but it goes to show that the derivatives market is beyond the imagination of many people. I mean, how much
is a $quadrillion?? That's a $trillion times a thousand. That's $1,000,000,000,000,000. How can anyone pay these debts off???
The problem is that they can't. Were everything covered under derivatives to go belly up, we'd be looking at global economic collapse.
Fortunately (if there's a fortunately), a chunk of the derivatives cancel each other out. If Company A made a $100 bet with Company B that Entity X
would fail, Company B could make a bet with Company A for $150 that Entity X would fail. When Entity X fails, $50 of that bet is canceled out and
only $50 is owed in the end.
It remains, though, that even if half the contracts are canceled out by counter-bets, we're still looking at $500T. The article I linked goes
further and illustrates that even if only 1 or 2% of the contracts aren't canceled out, that's still $10-20T, which is a tremendous chunk of the
worldwide economic output.
It's difficult for anyone
to comprehend numbers that large. It's understandable that some won't "get it."