# how big is the derivative problem



## partdeux (Aug 3, 2011)

Bigger then I can wrap my pea sized brain around

This is absolutely staggering representation of the derivative postions.



> Since there is literally no economist in the world that knows exactly how the derivative money flows or how the system works, while derivatives are traded in microseconds by computers, we really don't know what will trigger the crash, or when it will happen, but considering the global financial crisis this system is in for tough times, that will be catastrophic for the world financial system since the 9 largest banks shown below hold a total of $228.72 trillion in Derivatives - Approximately 3 times the entire world economy. No government in world has money for this bailout
> *source*


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## jungatheart (Feb 2, 2010)

A lot of people will be crying when it does crash and there's no doubt in my mind that it will. 

Wish it would happen soon so we can start to rebuild right.


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## Tweto (Nov 26, 2011)

partdeux said:


> Bigger then I can wrap my pea sized brain around
> 
> This is absolutely staggering representation of the derivative postions.


I've heard the same thing about derivatives. NYSE is a shell of its former self and experts are starting to say that Wall street is being manipilated by the government to keep it high.

When derivatives collapse, the economy collapses.


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## RevWC (Mar 28, 2011)

Tweto said:


> I've heard the same thing about derivatives. NYSE is a shell of its former self and experts are starting to say that Wall street is being manipilated by the government to keep it high.
> 
> When derivatives collapse, the economy collapses.


Go to 25 minutes.


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## BillS (May 30, 2011)

A sudden collapse in the derivatives market could be the thing that initiates a collapse of the banking system and the economy. I still think there's a good chance that such a collapse could happen with little or no warning. It's another reason to get prepared and stay prepared.


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## Zonation (May 4, 2012)

Beyond comprehension. Start buying massive amounts of silver for daily purchases and gold for the bigger necessities. It's very sad to think of what we have become.


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## Woody (Nov 11, 2008)

Tweto said:


> I've heard the same thing about derivatives. NYSE is a shell of its former self and experts are starting to say that Wall street is being manipilated by the government to keep it high.
> 
> When derivatives collapse, the economy collapses.


Well, someone has to be manipulating it, how in the world could it still be going up with all that is going on? International shipping of goods has been going down for a long time now, where is all this 'money' coming from?

Remember a while ago when the MSM evening news would report the 300 point increase is due to renewed optimism over the EU outlook. Then the next night it drops 300 points due to the pessimistic outlook on the EU. Nothing goes up and down that much without outside help. They are just giving BS reasons for what was happening.

And your last line is absolutly correct. And the funny thing is they are based on nothing! It is only betting on things.


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## partdeux (Aug 3, 2011)

Woody said:


> And your last line is absolutly correct. And the funny thing is they are based on nothing! It is only betting on things.


Nothing wrong with derivatives, they actually serve a normal business purpose. But what has happened is not normal.


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## BillS (May 30, 2011)

http://beginnersinvest.about.com/od/stocksoptionswarrants/a/what-is-a-derivative.htm

"Why Are Derivatives Dangerous

Although derivatives can help make the economy function by reducing risk for farmers, oil companies, startup employees, and more, left unchecked, they can introduce "systematic risk". Only a handful of firms represent a massive portion of the total derivatives traded in the world meaning that if one of them went bankrupt, it could lead to a daisy-chain effect that caused all of the others to fail, wiping out the entire financial system.
The failure of Lehman Brothers nearly caused this to happen during the Credit Crisis and would have succeeded had it not been for the extraordinary intervention by the Federal Reserve, Treasury, FDIC, and other government agencies."


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## Marcus (May 13, 2012)

According to the Bank For International Settlements, the derivative market was $516 trillion at the end of 2007. That's roughly 8.5 *years* of the total economic output of the planet.
It's important to distinguish between the commodity and stock market derivative markets and the financial derivatives markets.
The former is used to hedge future price risk while the later is (supposedly) used to hedge performance risk.
An example of a commodity derivative might be a corn farmer buying a put at the current corn market price to to protect himself against prices going down. A shareholder of a particular stock might likewise buy a put to protect his unrealized gains. These types of derivative transactions were not the cause of the financial problems in 2008.
That crisis was caused by the bursting of the housing bubble and the subsequent collapse of the financial derivative markets (Credit Swap Defaults and all their kin.) For more on the financial derivatives fiasco, I suggest reading Extreme Money by Das. http://en.wikipedia.org/wiki/Tranching


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## Zonation (May 4, 2012)

It's beyond comprehension. That's all I have to say about that.


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## DKRinAK (Nov 21, 2011)

*You are off just a bit*

The total derivatives market held right now is just a tad over 700 trillion US dollars.

Or about 1,200% of the entire planet's GDP.

Hope you have your food storage up to par, because before too long, beans is going to be the new currency....


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