Tuesday, March 31, 2009

The derivatives market= $1.405 quadrillion. So how much is a Quadrillion?

To anyone that finds this topic interesting and has a Facebook account, I recommend joining the group ATCA. DK Matai is a Certified Financial Analyst and a Philanthropist out of Switzerland who throws a lot of philanthropy which good sugar to swallow this with, and yes I'm a critic of reports and he has his facts straight (and he's not trying to sell us stocks).

So how big is the derivatives market? A Quadrillion US dollars does not exist yet (sign of excessive fraud). The total net worth of the Planet Earth is around $100 trillion, or only 1/10th of a quadrillion US Dollars. The net worth of the United States floats between $50-60 trillion dollars. The square root of a Quadrillion is over 32 million. A Quadrillion dollars holds 15 zeros.

How big is $1.405 quadrillion?

This is $206,000 US Dollars per person on the planet. "According to various distinguished sources including the Bank for International Settlements (BIS) in Basel, Switzerland -- the central bankers' bank -- the amount of outstanding derivatives worldwide as of December 2007 crossed USD 1.144 Quadrillion, ie, USD 1,144 Trillion.

The main categories of the USD 1.144 Quadrillion derivatives market were the following:
1. Listed credit derivatives stood at USD 548 trillion;
2. The Over-The-Counter (OTC) derivatives stood in notional or face value at USD 596 trillion and included:
a. Interest Rate Derivatives at about USD 393+ trillion;
b. Credit Default Swaps at about USD 58+ trillion;
c. Foreign Exchange Derivatives at about USD 56+ trillion;
d. Commodity Derivatives at about USD 9 trillion;
e. Equity Linked Derivatives at about USD 8.5 trillion; and
f. Unallocated Derivatives at about USD 71+ trillion.

Quadrillion? That is a number only super computing engineers and astronomers used to use, not economists and bankers! For example, the North star is "just" a couple of quadrillion miles away, ie, a few thousand trillion miles. The new "Roadrunner" supercomputer built by IBM for the US Department of Energy's Los Alamos National Laboratory has achieved a peak performance of 1.026 Peta Flop per second -- becoming the first supercomputer ever to reach this milestone. One Quadrillion Floating Point Operations (Flops) per second is 1 Peta Flop/s, ie, 1,000 Trillion Flops per second.

It is estimated that all the data found on all the websites and stored on computers across the world totals more than One Exa byte of memory, ie, 1,000 Quadrillion bytes of data...

...1. Subprime Mortgage linked Loans & Assets (USD 1.5 trillion) within Mortgage backed Assets (USD 5 trillion);
2. China, India, Eastern Europe and other Emerging Market Loans (USD 5 trillion);
3. Commodities (Commodity Derivatives at about USD 13 trillion);
4. Corporate bonds (USD 18 trillion);
5. Commercial (USD 22 trillion) and Residential property (USD 45 trillion);
6. Credit Cards Outstanding Debt (USD 4.5 trillion);
7. Currencies (Foreign Exchange Derivatives at about USD 62 trillion); and
8. Credit Default Swaps (USD 57 trillion) as a subset of all Derivatives (USD 1,405 Trillion).

The relative scale of the world's financial engine is as follows:
1. The entire GDP of the US is about USD 14 trillion and falling.
2. The entire US money supply is also about USD 14 trillion with rising Quantitative Easing in trillions.
3. The GDP of the entire world is USD 45 trillion and falling. USD 1,405 trillion is 31 times world GDP.
4. The real estate of the entire world is valued at about USD 65 trillion.
5. The world stock and bond markets are valued at about USD 70 trillion.
6. The trans-national universal model financial institutions own about USD 150 trillion in derivatives.
7. The population of the whole planet is 6.8 billion people. So the derivatives market represents about USD 206,000 per person on the planet."


The issue of Quantitative Easing is a heavy question. Bernanke and the current/former Treasury Secretary have been snagging taxpayer dollars in the form of a "bailout" and TARP to add value to the toxic assets without hyperinflation? Are the TARP funds supposed to absorb the inflation? Not sure how that works. Bernanke seems to be pro-inflation. Our Federal Reserve chairman and Treasury Secretary are engaging in some sort of financial contortionism to give value to the fraudulent assets. We've got creditors around the world to pay off!

And we all thought that the banks were just insolvent. It's been 6 months and $3 trillion dollars later (spoken $1.4 trillion spent on bailouts + stimulus + omnibus + earmarks + pork) and the banks have yet to lend. Many jobs have been lost since the initial collapse, many more people foreclosed on their homes since then. This obviously isn't working.

This is Obama on the Toxic Asset plan.


On a personal note:
As a late comer to the financial markets during the dot com economy, post layoffs from our brokerage firms finance professionals were forced to find work. Our options were finance/accounting, the real estate market or the Derivatives market. Working in a firm that invested in derivatives was like working in a prestigious niche that dealt with a market which operated like a sketchy pawn shop. Many savvy, marketable engineering/techie types with masters in their own field and MBA's ended up in this field. On my first day of work, my boss told us right out that these derivatives are "supposed to be backed by bonds". Everything I processed were. We were set up in the perfect work environment, were treated really well as employees. However noone understands the joy of processing a multimillion dollar settlement from any random firm (Countrywide, Morgan Stanely, etc.) in an unregulated market through inconsistant means when the pertinent information is on page 9 and jammed in the fax machine.

I wrote the story to illustrate this point, these bank and non-bank lenders knew they were selling krap. This story happened a few years ago. We knew this was coming, and we knew it was huge. Did we say anything? People were preoccupied in their personal gains during the booming real estate market. Talking like this would make anyone sound crazy unless the audience was already familiar with financial instruments. I'm trying to illustrate why I'm against the bailout.

Here's a Max Keiser video discussing the topic. He gets to the good stuff 6 minute into the vid. At least on blogspot you can just fastforward without waiting for the video to upload. 5 minutes into the video he discusses the role of the Federal Reserve and the status of our debt as is.

also found on http://www.youtube.com/watch?v=SdZMsPWnwMk

The markets were unregulated so finding accounts to hold the banksters accountable for their crimes is going to be a sticky wicket. Disappointingly enough, Congress has forced the taxpayers to be shareholders yet we have not seen one proxy. We have no rights as shareholders. They have not mentioned any sort of prosecution against these criminals. The AIG bonus issue is a red herring.

(I may have another video to upload shortly)

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