Wall St appears to have issued $513Trillion worthless Derivatives

It was only when China suddenly got wind of the fact that the same "assets" were being sold by Wall St. to multiple buyers that the lid came off the pot.
This is like selling a house and getting paid by say 100 people who have not actually seen the house, but have done similar transactions before and so "trust" the seller. Or perhaps the Jeweler who sells some diamonds on consignment knowing that he will be paid once the consignee has sold the goods.

Once the news gets around that everyone has been cheated, no one will do business with that person again. The problem is that person is the USA in the form of our Wall St.

Countries that purchased these "known to be worthless" assets demanded some of their money back. They said that unless the US government repaid at least some of their money a group of them including China, Japan, Germany and others would dump US T bills and make the value of the dollar fall to nothing. They gave the administration a week to come up with some money, and some sort of repayment schedule.

This is what we are in and why according to certain experts we will be in this crisis for between 10 - 15 years.

People have no idea how badly we have been taken to the cleaners by this administration and their friends on Wall St.
When Bush said to a group of his supporters before he was "elected" in 2000 he said "You may think your rich now, but by the time I get done you will be filthy rich"

Putting aside all the Neocon, PNAC, Right wing Fascist, National Socialism (by Leo Strauss w/o anti Semites)we are in a big pile of dodo and no one in the world trusts a word we say. They consider the US to be run by bullies, liars, cheats and thieves.

Oh that's right that just about describes the McCain campaign and the Bush Administration for the past 7 years.
How sad that we took our eye off the ball with regard to our country and our constitution and our Bill of rights.
But like the Romans said "Keep the people fearful and they will hand you the country if you promise them safety"
The Republican Neocon tactics have been around for thousands of years, but we stopped teaching our children the lessons of the past and so could be blind sided by the same old story.

we are really up the creek now aren't we?

That is the story you won't hear on M$Greedia.

sitting on the globe

known to be worthless then why buy them?

A derivative instrument can be out of the money when purchased and have value at a later date. That is, after all, how derivative markets work. Those markets have 3 functions: speculation, risk management through various hedging strategies, and price control.

This allegation, if true (and no supporting documentation is offered), seems like an extortion attempt - which is being facilitated by widescale ignorance of what these kinds of securities are and how these markets function. A derivative security is not valued like other financial assets. I would recommend Googling the Black Scholes options and derivative valuation model for some informative reading.

the more you know the better you do....

are 'derivatives.' Options have been around for a long time...you know, the good ol' Puts and Calls. Derivatives, on the other hand, are like options on options...they have very little to do with anything that could be classified as an 'asset.'

You are young and you have been schnuckered into being a tool for the rich white boyz. A ton of these 'derivatives' were deals made over the phone with NO paperwork....just commissions. These rich white boyz shouldn't be allowed to handle more than $10,000/year and need to live in one bedroom apartments...actually they should live in cells dressed in orange. But in our unjust and unfair society, that would be too much too demand.

WASF.

I wish I were young. But I am not. Nor am I a "rich white boy" (not that I have a clue why race, gender or socio-economic class are relevant to anything other than your own bias).

My last two jobs were as an investment portfolio manager. I also worked a trading desk. I had confirmation of every directed trade I made as a manager and trader. Every phone call I had was recorded - as were all calls into our office. Every directed trade including derivative instruments was documented either on paper or on tape. And, guess what? I was paid a fixed salary. The fees my employer took were directly tied to account performance. Neither I or my employer charged a commission for any of the services we rendered. When account values increased then our fees increased proportionately and when account values declined or fees did likewise.

Simple fact is that options are a type of derivatives - just like futures, forwards and swaps. And, guess what, all of those classes of derivatives can be used as risk management tools. And market speculators have a legitimate role in the market in that someone is needed to assume the opposite side of the risk management contracts. Don't believe me? Check out Wikipedia:
http://en.wikipedia.org/wiki/Derivative_security

You might also want to learn something about the myriad of derivative strategies. Strangles and straddles are among the most basic strategies. You must have a basic understanding of some of these strategies to comprehend how derivative instruments are used to manage risk.

defensive when something bad is said about a very small segment of that population? Why? I truly want to know.

I am looking at the world not thru rose-colored glasses. Please show me any major bank or investment house that is not CEOed by a rich white boy. The number of Black or Woman CEOs is miniscule.

I, too, worked in that industry and had all of my phone calls recorded. But prior to 1982, the derivative market was nonexistent. There were puts and calls and all of the related strategies that you list.

I remember this very clearly because all Series 7 were required to take a test on Derivatives so we could sell/trade them.

Today, everything is referred to as a derivative...We're living in 1984 and History is being rewritten for us. And I could give a rat's poop about Wiki. I know what I lived. Three of my co-workers and I refused to take the test stating we would rather go to Lake Tahoe and play craps.

Rich white boys have ruled the financial domain and if you don't see that, you're blind. The amount of harassment that women have endured in the investment industry is of course something you'd probably like to argue about as well. Not interested.

Guess there is just some risk that can't be managed. I was listening to one of the Quant dudes (a physicist of all things) who developed those risk models....he was angry at the world for doing something that he had not programmed into his model. I mean he was livid! How can Reality be random???

The egos of some of these people...well... you know...'Master of the Universe' types.

And look what the derviatives have done....are you denying that as well? I saw this coming years ago. Greed must be regulated...so did you vote for Reagan...the asshole who started all of this? Many democrats did.

I am not a white male.

When I worked in the international private bank center of one of the large US multinational banks white males were in the minority. My colleagues were European, Asian, African, and South American and included women. Those observations are from this millenium and may differ from your earlier experience. Which is not to suggest that racism and sexism and other forms of discrimination have been removed from the workplace. They haven't.

I worked as a money manager not a broker. There is a big difference between the two. Money managers are compensated based on performance. Brokers are paid a commission which offers considerable incentive for the less ethical to churn accounts (yes, I realize that not all brokers are guilty of this offense). The Series 7 is a pop quiz compared to the multi year credentialing process required to earn the designation of Chartered Financial Analyst, a designation which many of my colleagues held (FWIW, I chose to leave the industry before earning this designation though I had met many of the criteria).

I've also had opportunity to work in a small investment management firm. Each manager did his or her own equity portfolio modeling using a buy list of about 100 stocks. It really is not at all complicated. Set up your Excel spreadsheet so that it downloads the historical price data for the desired time period from Bloomberg. Link the historical data to build your correlation and covarience tables. Link your tables to generate your theoretically optimal mean varience portfolio. There are certain assumptions you will need to input. Now that you have a theoretically optimal portfolio you will probably want to tweak it. You can maximize or minimize any portfolio variable - and you can do so while setting any other variable to a constant. If you maintain a fairly clean book of accounts it becomes relatively easy to then implement this model.

No, not all risk can be managed. But a competent financial adviser can create floors, caps and collars. These strategies often require the use of both traditional and derivative instruments. These strategies are worthwhile and serve a useful and valuable function in that they provde certainty and stability. Anybody that has ever locked in a natural gas or heating oil price for the winter has benefitted from these kinds of strategies.

I do not blame derivatives for our present crisis any more than I blame guns for murder. There are appropriate and useful purposes for both derivatives (e.g., risk management) and guns (e.g., self defense). Greed seems to be the scapegoat de jour but ignorance bears just as much blame. Folks who should have known better were ignorant of what derivatives were, how they could be used and just exactly what the value of the underlying assets was and how that related to the value of the derivative instrument itself. Seems that there were lots of financial folks that chose to play craps rather than do their homework (no, that is not a personal attack it is an observation on the financial industry as a whole).

I suspect you will have no more luck regulating greed than you will have regulating lust or gluttony, or sloth, or envy, or wrath, or pride. Good luck with that though.

And, no, I did not vote for Reagan.

And if the industry is so woman-friendly, why is there never a single photo of a female broker with her hand over her face during a decline? I don't think I've ever seen a SINGLE AP photo of a female broker.

Yes, of course in the Asian markets, most traders are Asian. In the African markets, most traders are African. Imagine that! But in the US and Europe? Most stock brokers are white and male. Women are tokens on Wall Street. I was told in 1999 that I could be a commodities broker, but that stocks were for men. Too much gesticulating...

I don't know what firm you worked for...maybe it was one that actually helped the farmer hedge his crops.

So, ms. pink how the hell do we find ourselves in this financial mess? And if you don't think greed can't be regulated, we're toast. The rich white boys are off the hook again...hell, Greenspan didn't even know how derivatives worked. You speak of stability....yes, I see it everywhere! The world is ever so stable and calm.

One last thing, pinkie, the one outstanding characteristic of the upcoming generation is their absolute certainty of being right.

I hope you have a very strong back because sitting on your pink ass managing green paper is about to come to an end.

You are now ignored...because you know all there is to know. You have no room for idea that an older person might shed light on how the world took that turn and now there are regrets. Go play with your green paper...just remember, it's not edible.

Not. Worth. It.

I don't get why this is a race or gender issue either. Some people can only see the world in that way, I guess.

a female. Must have some nice inherited wealth from papa. Who knows? I rather like Asian Lesbians...never tried to rip me off or steal from the working people, did they?

You win a banana for first post that (I have observed) that mentioned Black Scholes (plus add dynamic optimization and contemporary computer muscle).

You left out risk arbitrage and all the profit-taking attendant to the extreme volatility in the markets.

The mathematical models are not perfect -- "portfolio insurance" was integral to 1987 meltdown -- and not all "finance engineers" are that competent and management more often than not does not understand the technology. Some complex derivatives cannot be usefully priced even with all the computer and mathematical power now available. Plus the derivative markets may be off balance sheet, not regulated, and not equally transparent to participants.

you know as much as you seem to, pls think about sharing some PRACTICAL advice with those of us on brink of retirement, trying to save ourselves from the ditch?

am in a similar life situation.

Truly I am confused about what is happening probably more than most.

I have an 1980s MBA from a famous school where my master's project used these techniques and a never to be finished PhD using black scholes and similar algoriths optimized as a portfolio in depleting and non-depleting natural resource economics.

The game is biased against the middle classes and poor. I got out of the stock market in 1999.

I already had left corporate and academic life in the mid 90s for self-employment and rural life.

I do not like the rescues/bailouts as it looks like another unfair transfer of wealth.

It is particularly hard to decipher individual strategies when the biggest debt is often a large underwater home mortgage.

Good time to get out of debt if possible for freedom's sake.

I have a more recently minted MBA which I got to compliment a JD I had earned a couple of decades arlier. I worked as an investment portfolio manager for a time. Left the financial services industry when I determined it was not a good place to be for my purposes. I was looking for a stable career to take me to retirement at the time. I am now long-term unemployed and in the process of re-inventing myself. I'm acquiring more blue collar trade and craft skills to be self employed in a niche industry. I too intend to relocate to rural area. I hope that eventually my education combined with a hopefully successful experience in business will enable me to leave the country if necessary.

I don't really have a problem with the government investing in private institutions in order to provide market stability provided there are well defined terms and strict oversight. I do have a problem with using the public treasury to subsidize the excess and negligence of both institutions anc consumers.

I think what bothers me most about the bailout plan is that it does nothing to address the fundamental underlying problems. Consumer spending represents something like 72% of GDP. Consumer debt is near an all time high. As are trade deficits. Meanwhile, our infrastructure is crumbling and fewer than ten percent of our workers are employed in the manufacturing sector. If we want to fix our economy then we need to rebuild our manufacturing sector. I believe that means that we are going to have to become somewhat more protectionist. Why? Because the logical end result of a global economy is a single worldwide standard of living - and that means that wealthier countries (and many of their individual citizens) will become poorer while poorer countries will prosper. Our greed is currently being supported by a third world service and consumer driven economy.

....this rotten corporate capitalist wall street scum should be hunted down like the filthy dogs that they are, given a fair trial, then executed!!!

$513 TRILLION? Can that be right?

Although, it's well known that a few trillion here, and a few trillion there, and pretty soon we'll be talking serious money!:-)

But either way a boat load of $

Likely mistaking them for the 2007 amounts handled by DTCC.

Established in 1973, it was created to reduce costs and provide efficiencies by immobilizing securities and making "book-entry" changes to show ownership of the securities. DTC provides securities movements for NSCC's net settlements, and settlement for institutional trades (which typically involve money and securities transfers between custodian banks and broker-dealers), as well as money market instruments. In 2007, DTC settled transactions worth $513 trillion, and processed 325 million book-entry deliveries. In addition to settlement services, DTC retains custody of 3.5 million securities issues, worth about $40 trillion, including securities issued in the US and more than 110 other countries. DTC is a member of the U.S. Federal Reserve System, and a registered clearing agency with the Securities and Exchange Commission.

http://en.wikipedia.org/wiki/The_Depository_Trust_Company

As much as I like most of Dennis' policies, he's well out of his league on these issues.

It really is springtime for Hitler's bankers.

:shrug:

derivatives do you mean credit default swaps OR derivatives because HamdenRice will crucifie you if you don't explain yours self!

see my post #15

:hi:

http://en.wikipedia.org/wiki/Derivative_(finance)

http://en.wikipedia.org/wiki/Black-Scholes

last week. Ellen Brown wrote a fantastic book about the entire fucking mess.

http://www.webofdebt.com/

for every $1 you deposit in a bank account, the bank turns around and lends, say, $12 out to customers. this may appear risky, but historically, this is very safe. however, lending out $36 for every $1 in deposits is very risky, and that is basically what the investment banks did.

it's not the leverage per se that is risky, it's the extent of the leverage that was the problem.


the assets were not "known to be worthless". the risks were generally known, although people underestimated counter-party risk due to excessive leverage.

the real problem was not even that; the real problem was the fact that so many of the assets (and derivatives, had a single, shared risk, which was a sustained, substantial drop in real estate prices. this risk was not well diversified in the sense that so many assets were impaired by this one single event. THAT was the real problem.

That's right -- overseas, where all our wealth and extractive resources (plantation economy) comes from. Along with where all the real money is stored away.

It includes derivatives that have nothing to do at all with the USA. According the the Bank of International Settlements figures for April 2007, there were $124 trillion dollars of outstanding dollar-denominated derivatives, and $147 trillion of euro-denominated ones. And the turnover of them is more than twice as high in the UK as the USA.

always the same aren't they.

made the WRONG deal

We are NOT going to pay it

:applause:


(kidding)

So that the Treasury Dept. may participate in overstating these devalued assets
instead of prosecuting these "too big to fail" mercantile royal corporations.

Interesting what happened to Eliot Spitzer vs. Kneel Kashkarry, isn't it?

The situation was no surprise; there are financial criminals walking.

Hopefully a new adminsitration will correct past abuses; may be the easiest way to move forward.

I would like to see asset forfits and imprisonment but I am a dreamer in a world turned nightmare.

You can't make serious claims like that without a source to back you up.

asked for it.

if you would like them. :-) I hope this helps a bit. I am always afraid of boring people if I give them too much. Because I read a great number of various publications and reports I can sometimes be a bit long winded and not everyone wants or needs it all. But if you would like more info I would be pleased to provide it to you. (once a prof always a prof, eh?)

Derivatives Estimated to be More than $700 Trillion
By Mogambo Guru • April 22nd, 2008 • Related Articles • Filed Under

Junior Mogambo Ranger (JMR) Brad W. sent, from the Ludwig von Mises Institute, the essay "Our Financial House of Cards and How to Start Replacing It With Solid Gold", to which I say, "Hahaha! Good luck, dude!", because to think that banks would give up their powers to create money with which to enrich themselves, or that Congress would make banks stop creating more money with which Congress can spend on itself and its nasty little friends, makes me laugh and laugh and laugh, until my stomach hurts and I am tired of laughing, and I realize, "Hey! This isn't funny!"
And this is only a couple of lousy trillions of dollar's worth of bonds! The total value of the existing global gargantuan globular glut of derivatives is estimated to be more than $700 trillion! Compare this stupefying fact to the associated fact that global GDP is only about a lousy $50 trillion!
Hell, the population of the whole freaking planet is about 6 billion people, all neatly divided into categories of either "with me" or "them", so the derivatives market alone represents $116,666.66 per each person on the whole freaking planet! Hahahaha! This is incomprehensible!
Read more:

http://www.dailyreckoning.com.au/derivatives-2/2008/04/22/


Total Notional Value Of Derivatives
Outstanding Surpasses
One Quadrillion
By Jim Sinclair
6-10-8

The notional value of all outstanding derivatives now totals approximately $1.144 QUADRILLION.

This appears to be Bank of International Settlement Spin to announce the largest gain in derivatives outstanding since they started to report. As of the last report it appeared that both listed and OTC derivatives was under $600 trillion. Now listed credit derivatives alone stood at $548 Trillion. The OTC derivatives are shown as $596 billion notional value, as of December 2007. One can only imagine what number they are at now.

Well we hit a QUADRILLION. We have more than $1000 trillion dollars in all derivatives outstanding. That is simply NUTS because notional value becomes real value when either counterparty to the OTC derivative goes bankrupt. $548 trillion plus $596 trillion means $1.144 quadrillion.

It would be an interesting piece of research to see what the breakdown is of listed derivatives according to exchange to see if it adds up to the reported number. Spin is now everywhere.

Read more:
http://www.rense.com/general82/out.htm


Total Notional Value Of Derivatives Outstanding Surpasses One Quadrillion
Posted On Jun 11 Economy Add comments
The notional value of all outstanding derivatives now totals approximately $1.144 QUADRILLION.
This appears to be Bank of International Settlement Spin to announce the largest gain in derivatives outstanding since they started to report. As of the last report it appeared that both listed and OTC derivatives was under $600 trillion. Now listed credit derivatives alone stood at $548 Trillion. The OTC derivatives are shown as $596 trillion notional value, as of December 2007. One can only imagine what number they are at now.
Well we hit a QUADRILLION. We have more than $1000 trillion dollars in all derivatives outstanding. That is simply NUTS because notional value becomes real value when either counterparty to the OTC derivative goes bankrupt. $548 trillion plus $596 trillion means $1.144 quadrillion.
It would be an interesting piece of research to see what the breakdown is of listed derivatives according to exchange to see if it adds up to the reported number. Spin is now everywhere.
This means that no OTC derivative house can be allowed to go broke. This means that whatever funds are required to rescue failing international investment banks, banks and financial entities will be provided.
Keep this economic law in mind. Monetary inflation proceeds price inflation and is its primary cause in economic history from Rome to present.
Nothing can stop the juggernaut of price inflation heading towards every nation like a runaway freight train down a mountain.
Gold is going to at least $1650. I am probably way too low with that estimate.
The US dollar will trade down to at least .5200 as measured by the USDX.
Gold is the easiest market to trade for the aggressive investor. Sell 1/3 when the market looks like a Rhino Horn which you will see with your French Curves at the point of the rollover.
Buy 1/3 back when the price of gold looks like a fishing line hanging off a fishing rod. Your maximum power down trend line will give you this.
Monday, June 09, 2008
Author: Jim Sinclair
Source: Jim Sinclair’s Mineset

Read more:
http://www.infiniteunknown.net/2008/06/11/total-notional-value-of-derivatives-outstanding-surpasses-one-quadrillion/

They are a complex set of deals made by western banks and speculators with each other. Nor is it a question of the same thing being some to multiple people. They are mainly swaps of interest rate deals between 2 parties.

The problem with them is that if one player (eg Lehman Brothers) goes bankrupt, then it can hurt all the others, who are then owed money which they needed to pay someone else, and so on.

And the centre of this trade isn't 'Wall St.', but London. See http://www.bis.org/publ/rpfxf07t.pdf?noframes=1 for some figures.

Not the wealthy ... obviously.

But it only go read by a few, but at least
made it to greatest in a limited way..

not the mortgage bull they keep spewing. I have been saying that for weeks. It's the bets everyone made on risky mortgages NOT the mortgages themselves. The bottom two derivatives are something you can hold in your hand AND are Regulated the
third Is Not. Nor is it anything you could ever, ever hold in your hand. It is essentialy Unregulated Gambling-Period!
That's also not to say that the houseing problem is not real,

but that is another story. ( How the banks inflated the prices when you applied for a loan and you lost money before the house was even in your name-that is another story )


There are three types of Derivatives:

Futures/Forwards, which are contracts to buy or sell an asset at a specified future date.
Options, which are contracts that give a holder the right to buy or sell an asset at a specified future date.
Swappings, where the two parties agree to exchange cash flows or returns.