$707,568,901,000,000: How Banks Increased Total Outstanding Derivatives By A Record $107 Trillion In

$707,568,901,000,00 0: How (And Why) Banks Increased Total Outstanding Derivatives By A Record $107 Trillion In 6 Months

While everyone was focused on the impending European collapse, the latest soon to be refuted rumors of a quick fix from the Welt am Sonntag notwithstanding, the Bank of International Settlements reported a number that quietly slipped through the cracks of the broader media. Which is paradoxical because it is the biggest ever reported in the financial world: the number in question is $707,568,901,000,000 and represents the latest total amount of all notional Over The Counter (read unregulated) outstanding derivatives reported by the world's financial institutions to the BIS for its semi-annual OTC derivatives report titled "OTC derivatives market activity in the first half of 2011." Indicatively, global GDP is about $63 trillion if one can trust any numbers released by modern governments. Said otherwise, for the six month period ended June 30, 2011, the total number of outstanding derivatives surged past the previous all time high of $673 trillion from June 2008, and is now firmly in 7-handle territory: the synthetic credit bubble has now been blown to a new all time high. Another way of looking at the data is that one of the key contributors to global growth and prosperity in the past 10 years was an increase in total derivatives from just under $100 trillion to $708 trillion in exactly one decade. And soon we have to pay the mean reversion price.

What is probably just as disturbing is that in the first 6 months of 2011, the total outstanding notional of all derivatives rose from $601 trillion at December 31, 2010 to $708 trillion at June 30, 2011. A $107 trillion increase in notional in half a year. Needless to say this is the biggest increase in history. So why did the notional increase by such an incomprehensible amount? Simple: based on some widely accepted (and very much wrong) definitions of gross market value (not to be confused with gross notional), the value of outstanding derivatives actually declined in the first half of the year from $21.3 trillion to $19.5 trillion (a number still 33% greater than US GDP). Which means that in order to satisfy what likely threatened to become a self-feeding margin call as the (previously) $600 trillion derivatives market collapsed on itself, banks had to sell more, more, more derivatives in order to collect recurring and/or upfront premia and to pad their books with GAAP-endorsed delusions of future derivative based cash flows. Because derivatives in addition to a core source of trading desk P&L courtesy of wide bid/ask spreads (there is a reason banks want to keep them OTC and thus off standardization and margin-destroying exchanges) are also terrific annuities for the status quo. Just ask Buffett why he sold a multi-billion index put on the US stock market. The answer is simple - if he ever has to make good on it, it is too late.

Struth, that's a whole lot of increased derivatives. From what I understand these increases have occurred due to falling values of the derivatives in question and selling them helped keep derivative values up, over and beyond what they previously were.

I would be interested t read someone with a little more knowledge about this interpret what is going on here. Is this like a ballooning debt bubble? A debt bubble that can burst at any given moment? The comment there about threatening a self-feeding margin call as the (previously) $600 trillion derivatives market collapsed on itself, banks had to sell more - does this refer to some kind of evasive urgent action by the banks involved to avert such a collapse?

Interesting stuff here.

This planet has issues.

No. I don't know what this means.
No. I don't know what they are doing.
No. I don't know what they have done.
No. I don't know where this is heading.


Fear. It's a hell of an enabler.

Eeeeek on ... oh my..

S&F OP,
ILikeStars

The numbers are so far out into fantasy land it isn't even funny anymore. All the gold ever mined on planet Earth is estimated around 160,000 tons. The most recent spot price I saw for gold is $1672. That brings that total value for all the gold known to man at around 8.8 trillion dollars. 8.8.......and we're talking about 707 trillion in fantasy concepts for 'products' that don't even exist outside of a computer database.

Oh we're in such trouble it can't even be explained anymore in a way someone who doesn't have a base of knowledge will understand or believe.

This is making my brain hurt. May God help us. Our founding fathers are crying out of their skull eye sockets.

Phage- please debunk this or at least make it sound less utterly terrifying. If you can't, I hear there is free Ben and Jerry's at Occupy...

Skeptic here on the true meaning of $707Trillion. Money in motion is not the same as money at rest.

Reminds me of realtor statements where they say they've handled a billion dollars of business. Maybe they handled between 3-6% of a billion, but that wasn't money realized by their business. Doesn't compare to a business that actually produces and sells goods.

Your personal life is another example of money in motion vs. money at rest. Look at how much you make and what you pay in taxes and bills, compared to how much you have in savings. Lots more money moving than there is at rest.

Originally posted by Dbriefed

Well, that makes me feel slightly more comfortable with the ridiculously large number.

But still, the difference between total gross market value and the outstanding derivatives is slightly (or a better word: extremely) ridiculous.

Second, can someone explain to me why they increased by 7 times in just 10 years? How would it even be close to possible to reverse this trend?

Need economics majors on deck in here...

reply to post by CREAM

I'd love to debunk it...but...umm...err.... Well, this part is from the OP article link....

Which means that in order to satisfy what likely threatened to become a self-feeding margin call as the (previously) $600 trillion derivatives market collapsed on itself, banks had to sell more, more, more derivatives in order to collect recurring and/or upfront premia and to pad their books with GAAP-endorsed delusions of future derivative based cash flows.

After reading through this again I really stopped on this part. Isn't this basically a fancy financial industry definition of the good old fashioned ponzi scheme?? Only this isn't some goober getting more investors to pay the old ones. These fools have the presses that MAKE the money by way of bottomle$$ bailouts from the Fed and 0% 'loans' as the U.S. Treasuries basically are at the moment.

There is no logical limit to this since the rules really seemed to have stopped holding meaning after 9/11. The rule books became backup toilet paper after Obama came into power. A few years ago people were talking about how we'd enter uncharted waters at some point. I think we've been in those waters for awhile now and the map says "Dar be monsters there!". Go figure.

reply to post by Wrabbit2000


Oh, thats what I worried about, can't say I'm surprised. Fetal position.. engaged...

The banks were allowed to create ever more fanciful financial mechanisms and trading games, that essentially are meaningless in the real world. Unchecked and unregulated, the liabilities rise and rise to these mind boggling figures, so huge that there is not enough money in the entire world to pay them off. It's all a fanciful game, but has real world implications and will probably crash the entire planet.

Thing is, these are indeed "notional" amounts and trades. They do not physically exist, there is no tangible product, just figues on a piece of paper or a computer database somewhere. In other words, they are created entities living in a fantasy finacial game that some crooks dreamed up in order to fleece other crooks and everyone else but which, in reality, can never be called in or the debt paid as the money just doesn't exist.

But, isn't that the whole idea of the game? Create debt numbers so huge that it cannot be paid, and thus other payment options must be explored.... like handing over sovereign power to the banks?

It's laughable! When the old boys in suits come calling for their debt collection, why don't we tell them to shove it, or just shoot them? Seriously, why do we let these bozos get away with these farcical finacial shenanigans and have to pay up for debt we didn't create or have benefitted from?

It sure is a crazy old world!

I'm not an economist but I took the introductory courses.

As long as the economy keeps moving we're fine. If all bets are called at once we're toast.

Banks have the right to call any loan due at any time. Imagine what would happen (to the banks/economy) if all loan/mortgage balances were due by end of the month. None of the loan holders would have the money and there would be no buyers for the assets. Buyers with cash could get property for pennies on the dollar.

It took a while to understand why the interbank lending rate was so important in 2008, if lending stopped, then the economy stops moving. This results in sudden deflation of first things that are highly leveraged in loans (startup companies, struggling companies, homes, autos), then other assets that can be sold to pay off loans.

reply to post by Dbriefed


I agree.. the things that are considered derivatives (for instance all margin accounts) and FX margins are money that is leveraged at a high rate but often paid back very quickly, but they are all considered derivative accounts. (equity Derivative) Convertible bonds are also derivatives, as are Warrants, all Futures Contracts and Equity Swaps.

Not all derivatives are outlandish contraptions like the CDO/CDS debacle that can come unraveling.. Most Derivatives are very simple and used everyday often by people not knowing they are even using derivatives.

There's also no real way of calculating the total amount of derivatives so I'm not even sure where 707 T came from.

Fancy this:

I don't care.
Now look at this from a serf's standpoint...

They put this "debt" on paper.
Not I.

They are blowing this bubble until it pops.
Not I.

I don't worry about this anymore for a few main reasons:
1. I am well aware of how this debt will be erased.
2. I am fully prepared to deal with another contrived crisis.
3. We all here on ATS have watched this crisis develop.
4. I learn from my mistakes, and history...


This time, I am ready.
And money is meaningless to me.
It's just another control method.

reply to post by Rockpuck


Can someone explain this post to me? I doubt there is only 160,000 tons of gold in the world. That amount seems very low. Thanks.

reply to post by KoolerKing


There isn't that much gold in the World really.. on average 2,500 tons are mined each year. The 160,000 number seems extremely low however, I've seen numbers much, much higher. But either way, the relative amount of Gold mined and or "ever mined" is very small.

reply to post by Britguy

But, isn't that the whole idea of the game? Create debt numbers so huge that it cannot be paid, and thus other payment options must be explored.... like handing over sovereign power to the banks?

It's laughable! When the old boys in suits come calling for their debt collection, why don't we tell them to shove it, or just shoot them?...

Iceland told them to shove it



Ireland however signed thermselves into multigenerational servitude to the banksters

Greece is in turmoil now because the populace sees themselves being serfs like the Irish and refuse...but the elites & political bankster execs are trying to hand over all sovereign resources to theTBTF bankster aristocrats.



i can't find the piece right off, mainly because its so filled with boring numbers... but the banks all over the world are betting heavily on many of the EU countries going bankrupt...and the price of the CDS's has gone up like 30-40% in cost to these big money bettors...

its like a CDS on Greece went from $150k for a $2Million swap to over $275k for the same $2Million default..
thats just a example... SO, no wonder a $100 Trillion increase happened...
now- on those CDS swaps, if Greece or Spain. Italy, Portugal, etc all get a 50% voluntary liquidation on their Sovereign debt...
(( like the 1st Greek deal that bouyed the American DOW up some 1,200 points--and since deflated to the
present 11,300))

Then many of those CDS bets will not be paid out as 'debt defaults' & the big banksters with enormous sums of dollars-from-thin-air in those CDS bets will be Pfft-out-of-luck...

serves them right i say

IOW... many of those derivatives are not funded by any money... it's just that the issuing bank took the counter party side of a CDS (or whatever) and has that figure on their (legal but unethical) 2nd set of books.
Then uses that counter-party position to leverage a position that will protect their bank from the liability... its a theoretical money swaps anywys--- until they scream Poor-Me to the central bank/Fed Reserve and the taxpayers have to make good on the supposed 'legal obligations'

its all fraud & counterfeiting imho

What do casino's do when someone wins too much?
They kick them out because the casino pays.

Right now, we the people should kick them out, because they play the chips and we pay for their games.

Not to mentions that these people are useless to us, we don't need their control, we don't need the job they do, they create nothing except destruction. Obviously most of them are psychopaths.

I dont get all this... But I reckon if you put the bankers against the wall and threatened to shoot them if the money did not turn up - it would turn up pretty quick.

It is a much bigger version of the mortgage crisis.

People claimed that bubble could not collapse, but it did.

This derivatives market will also collapse, it is just a question of how much longer it can be kept inflating.

At that point in time, huge amounts of wealth will disappear, and there won't be any bailout money available.

only the chozen internationalists could come up with something so impossible.

the quicker we free ourselves from their archaic sumerian tyranny, the better.

reply to post by surrealist


I'm by no means an expert in economics (i.e. I've successfully completed courses in introductory micro/macro economics, but nothing more). As such I offer this unqualified opinion and will post links you may find useful.

OTC derivatives may be best described by the doctrine of economic moral hazard. And I think that standpoint more or less juxtaposes with some of the other comments offered in this thread. But, once again, I offer it only as my opinion and do not mean to speak or represent the views of others.

1) Endogenous Risk: www.colbud.hu...

2) Transcript of NOVA interview on history and development of financial (risk) instruments: www.pbs.org...

3) U.S. Bill that had tremendous influence on global OTC derivatives: www.cftc.gov...@lrrulesandstatutoryauthority/documents/file/ogchr5660.pdf

4) Opposition to OTC derivatives reform: dealbook.nytimes.com...

Primary Source: Ron Hera, mises.org...