Sunday, November 27, 2011

$ 700,000 billion

On thursday, the Bank of International Settlements (BIS) published the above figure. It represents the total value of all OTC derivatives outstanding, BTW global GDP is about $63,000 billion, so more than 10x global GDP. The most amazing thing here is that six months ago, total outstanding derivatives was $600,000 billion. In the space of 6 months, financial institution grew their OTC exposure by more than 10%. Picking up premium to make up their revenue shortfall, in the business we have another name for that; picking up dimes in front of a steam roller! Buffet called them weapons of mass destruction, the Europens were blaming derivatives for their current difficulties, they stopped when they found out that it was their central banks that were some of the biggest players... It remains that this development is serious. 

In other news, the British foreign service is preparing for a rapid failure of the Euro, with the obvious dislocation that this would entail. This morning France and Germany have announced that they can achieve closer integration without changing the European treaty, via bilateral agreements. Basically, we are looking at a core Europe that will include France, Germany and maybe Italy (if they can), the rest are on their own. If this last bit of news is true, then both French and German banks will be nationalized (insufficient capital to go on). But it means that core Europe is finally looking for a real solution!

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