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Sunday, October 19, 2008

USD 596,004,000,000,000

Or US 600 Trillion Dollars.

That's the estimated size of the Derivatives Market globally by the Bank of International Settlements as at Dec 2007.

The growth from Dec 2006 (just one year prior) is staggering - from USD 415 Trillion to USD 596 Trillion, or a growth of USD 181 Trillion, or 44% growth in just 12 month period.

I wouldn't dare to predict what the updated figure would be at at June 2008, in view of the huge momentum growth, notwitstanding recent events and bankruptcies. I would *hope* the world learnt quickly how dangerous these instruments is, but they don't seem to have learnt in 2007 despite the huge warning signs posted all over the place then.

According to this author here ... "However You Look At It, This Is an Accident Waiting To Happen" - http://seekingalpha.com/article/99674-coming-soon-the-600-trillion-derivatives-emergency-meeting?source=article_sb_emailed

Just the tiniest % change to this Huge number is still a huge number in itself, that the recent bailout packages proposed in the US and Europe that runs into Hundreds of Billions still appear inadequate.

And by the way, in the entire history of US stock markets which stretches to well over 100 years, with all the doom and gloom during the Great Depression, 2 World Wars, the Cuban Missile Crisis, the Great Oil Crisis in the 70s, Asian Financial Crisis, the Great Tech Bust, 911, etc. etc. etc. - my simple question is - has the world seen such a large derivative market before in its entire history? USD 600 Trillion or more?

Will 2008 goes down into history books as the Great Credit/Derivative Crisis?

If the world has never seen such a crisis on such a massive scale before, how much damage can such an implosion do? Is there a limit, where is that limit and how certain are we that that is the limit?

Many financial institutions have gone down, even the largest that were previously thought to be "too big to fail" have also gone down. The question is have the system purged out all the toxins, or are there still institutions holding much of this toxic waste that is still "hidden inside the closet"? USD600 Trillion is not something one can hide easily.

Markets have taken a huge plunge this month, and volatility has never been higher. Perhaps there is some consolation that markets have "priced in" these problems, but with such a huge amount of sensitivity and uncertainty, how does one go about "reasonably pricing in" such uncertainties?

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