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

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

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.

Which brings us to the the chart showing total outstanding notional derivatives by 6 month period below. The shaded area is what that the BIS, the bank regulators, and the OCC urgently hope that the general public promptly forgets about and brushes under the carpet.

Try not to laugh. Or cry. Or gloss over, because when it comes to visualizing $708 trillion most really are incapable of doing so.


And, once again for those confused, the fact that notional had to increase so epically as market value tumbled most likely means that the global derivative pyramid scheme (no pun intended) is almost over.


Redhanwen Digital Pre-Release | Redhanwen

Redhanwen Digital Pre-Release | Redhanwen.
Redhanwen (Digital Pre-Release).

Poof it’s gone! – YouTube

Poof it’s gone! – YouTube.

Who Smashed the Laptops from Occupy Wall Street? Inside the NYPD’s Lost and Found | Motherboard


Why Is China Building These Gigantic Structures In the Middle of the Desert? | Danger Room | Wired.com

Why Is China Building These Gigantic Structures In the Middle of the Desert? | Danger Room | Wired.com.

xkcd: Map Projections

xkcd: Map Projections.Map Projections

Iceland’s New Bank Disaster « naked capitalism

The New Banks have written off claims on major corporate debtors, whose continued operations have ensured their role as cash cows for the banks’ new vulture owners. But household debts acquired at 30 to 50 percent of face value have been re-valued at up to 100 percent. The value of owners’ share equity has soared. The Government has not intervened, accepting the banks’ assertion that they lack the resources to grant meaningful debt relief to households. So unpayably high debts are kept on the books, at transfer prices that afford a windfall to financial predators, dooming debtors to a decade or more of negative equity.

With the preparatory work done, the time has come for the Vultures to cash in through re-sale of New Bank equity shares by yearend. The New Banks have kept their corporate cash cows afloat while window-dressing owners’ equity with unrealistic valuations of consumer debts that cannot be paid, except at the cost of bankrupting the economy.

via Iceland’s New Bank Disaster « naked capitalism.

Steve Keen interview on Capital Account (11/10/11) – YouTube

Capital Account with Lauren Lyster (11/10/11) – YouTube.

Investment research | The Eurocalypse Rant: The Consequences of Foolish Monetary Policy | Reggie Middleton Boom Bust Blog | Res

Very interesting post here by ‘Eurocalypse’ on Regggie Middleton’s blog:  Investment research | The Eurocalypse Rant: The Consequences of Foolish Monetary Policy | Reggie Middleton Boom Bust Blog | Res.

All the evidence anyone needs is right here, and you’ve demonstrated as well that runs are quite possible, and the rational things for investors to do is to try to escape the chaos by removing their money from the weakest banks and countries, but that poses a prisoner’s dilemma. If everyone does the same, then we’re sure it will happen! The weakest is finished, but then, like in 10 Little Indians or any “B” rated “slasher” movie, the 2nd weakest is soon to be the next victim, and so on. Italy or banks are not much more really or potentially insolvent today than a few months or years ago. There is no magical number like 100%, 120% debt to GDP ratio that makes things SUDDENLY unworkable… It’s the realization of all this by investors, individuals and bankers alike.Actually I am must more pessimistic than you, Reg. I’ve been thinking for a while, USSR 1989 or better put, Capitalism 2012. In USSR in 1988 nobody had a real clue that everything would be over in less than a year. I think it’s the same here. People don’t disappear, all factories don’t close, but a massive change and chaotic transition occurs. I expect the same in Europe, with some revolution or coups in some countries, big institutional changes, massive defaults and bankruptcies in both banks and the leveraged corporate sector, returning to some state-nations, or forming of several blocs, but EMU won’t exist as it is even in 1 year most realistic analysts say 5 years… As you demonstrated, I think it goes further than EMU and we can include UK, US and perhaps even Japan; all the western world with it, with a short 1-2 year lag at the very most. I’m not forecasting nor hoping for war, but that’s become my main scenario.


Programming in CellOS

“We are looking at creating a cell’s equivalent to a computer operating system in such a way that a given group of cells could be seamlessly re-programmed to perform any function without needing to modify its hardware. We are talking about a highly ambitious goal leading to a fundamental breakthrough that will, —ultimately, allow us to rapidly prototype, implement and deploy living entities that are completely new and do not appear in nature, adapting them so they perform new useful functions.”

via Programming in CellOS.