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251 Comments
- spucky, on 10/13/2008, -15/+109An unregulated Wall Street has done more damage to us as a nation than any terrorist could do.
- inactive, on 10/13/2008, -1/+41I feel some explanations on derivative are in order:
How derivative works: Say you got a dollar. You want to buy a contract that will make sure you can buy one bread with that dollar in one year. That contract will cost .10$
With 1$, you can buy ten contracts and make sure you can buy 10 breads at 1$ in one year. That doesn't mean you will buy the bread, however.
If the breads are worth 0.99$ in one year, you won't pay 1$ to buy your bread and your contracts will expire worthless (You lose your dollar)
If the bread is worth 2$ instead of 1$ in a year, your contracts are worth 10$ since you can save 1$ per bread times 10 bread.
You just made 10$ out of 1$, a 1000% profit. That is why you can have an insane sum of derivative such as 1 quadrillon (true number)
And thats how derivative work. - glibpaxman, on 10/12/2008, -2/+40and they said that $700 Billion was a "really large number"
- Shiftgood, on 10/13/2008, -1/+36doesnt that make things worse?
"EVERYONE!! FREAK OUT!!! SELL!"
then, everyone sells, the economy is destroyed and the money you took out of the stock market is now worthless anyways.
Me? im gonna keep it in. Try to pay off all my debts. shop local, drive less and not run around telling everyone to panic.
waddyathink? - martalli, on 10/13/2008, -1/+33Ten times the world output? Who will end up owning who when this is all done?
- sunyata322, on 10/13/2008, -1/+31This is the total NOTIONAL value.. It is meaningless.
- m4532v, on 10/13/2008, -3/+24And THIS is why the market has not remotely reached a bottom yet. To most people 700 billion seems like an obscene amount of money. In reality it is only a minute fraction of the scope of this gigantic mountain of debt that the world has racked up with by creating debt and credit.
- dcbebop, on 10/13/2008, -1/+21ruh roh
- Shiftgood, on 10/13/2008, -1/+20I just hear people running around yelling and waiving their arms in the air about how its the end of days. The economy is going to kill us all. And telling everyone to sell their stock. But I really dont think that any of that helps. Infact, i think it makes it worse.
People are selling stock, storing soup cans and loading up guns. Is that the solution you want people to take on? Thats the America you are fighting for?
If not, then what can we do? If everyone held onto their stocks. Why would the market still crash? what is your advice?
Only 1 thing is certain about the future. Those who work together will be the successful. Only positivity will bring about positivity.
Plant a small garden, collect rain water, use solar power. stop buying so much useless stuff that you dont need. stop fighting for prestige and find self worth in a days work and a good laugh.
And you know whats crazy about that advice? its things we should be doing anyways.. - DiggCommando, on 10/13/2008, -0/+18According to various distinguished sources including the Bank for
International Settlements (BIS) in Basel, Switzerland -- the central
bankers' bank -- the amount of outstanding derivatives worldwide as of
December 2007 crossed USD 1.144 Quadrillion, ie, USD 1,144 Trillion.
The main categories of the USD 1.144 Quadrillion derivatives market
were the following:
1. Listed credit derivatives stood at USD 548 trillion;
2. The Over-The-Counter (OTC) derivatives stood in notional or face
value at USD 596 trillion and included:
a. Interest Rate Derivatives at about USD 393+ trillion;
b. Credit Default Swaps at about USD 58+ trillion;
c. Foreign Exchange Derivatives at about USD 56+ trillion;
d. Commodity Derivatives at about USD 9 trillion;
e. Equity Linked Derivatives at about USD 8.5 trillion; and
f. Unallocated Derivatives at about USD 71+ trillion. - ThinkOutTheBox, on 10/13/2008, -1/+19I don't think they even know how much they are worth.
- SilverBlade2k, on 10/13/2008, -1/+18The real terrorists don't hide in caves. The real terrorists are the ones who control the money.
- pak314, on 10/13/2008, -4/+21that clears it all up.
- brad3378, on 10/12/2008, -3/+19I swore I read somewhere else that the derivatives markets added up to more than $1 Quadrillion+
- m4532v, on 10/13/2008, -0/+15It's because it IS fake! The world is bankrupt.
- dizilbdog, on 10/13/2008, -3/+16It's amazing how a 401K is literally a gambling retirement. That's it you work your whole life for one of these and poof it's gone. What a sad civilized society we live in oh did i mean civilized let me take that back..
- disrupter, on 10/13/2008, -1/+14That's alot of cheap hookers
- junkwheel, on 10/13/2008, -5/+18An unregulated Wall Street would be fine.
If The Fed didn't exist. - madcat033, on 10/13/2008, -5/+17Derivatives are so stupid... they aren't even really investments. It's a zero sum game, no different from gambling. Why is gambling illegal but derivatives aren't?
- dickybrown, on 10/13/2008, -0/+12first intelligent comment I've read - Thank you
If Company A buys an interest rate swap converting $1Billion variable rate debt to fixed rate debt and Company B buys an interest rate swap converting $1Billion fixed rate debt to variable rate debt, this would be reported as $2 billion of "derivatives" when really, 2 companies have just exchanged a little bit of interest rate exposure. Company B might get a lower rate than they otherwise would have if rates go down, but they could wind up paying more if rates rise - if they're OK with that risk, why is the gov't supposed to get involved? - odigity, on 10/13/2008, -1/+12The entire world financial system is one big fraud. Most of it started in 1913, with the Federal Reserve.
Look, I know it's boring and everything, but it's crucial that everyone understands this in detail, because the world depends on it. So set aside an hour and watch this:
The Creature from Jekyll Island - A Second Look at the Federal Reserve by G Edward Griffin
http://video.google.com/videoplay?docid=-848491157 ... - odigity, on 10/13/2008, -1/+12It's not greed. I'm greedy, but I can't cause much harm in the world because when I say "give me control of your money supply", people laugh at me.
The problem is when these guys said it in 1913, people said "ok".
So the problem is ignorance and apathy. If we force the Federal government to obey the constitution (which does not authorize any monetary policy), this wouldn't happen. - phogasmic, on 10/13/2008, -2/+13If it is more then the worlds output, how the hell does it even exist? That number is so huge that it seems fake, its insane that so much money could be so unregulated. This s*** is crazy.
- brad3378, on 10/13/2008, -0/+10no no no no!
Futures contracts are not hidden taxes!
They're basically a form of a middle man that takes the risk - sort of like an insurance policy against swings in prices..
Best example.........
A farmer grows wheat.
A bread maker buys wheat.
The Farmer wants a stable price for his product.
The bread maker also wants a stable price. They're each in the business of producing a product - not in the business of gambling or following financial trends. A futures contract acts as an insurance policy for each party so they don't have to become risk takers if the price swings in the wrong direction. Sometimes the person holding the contract gets lucky - sometimes they lose out, but at least when there is a predictable price a bank feels safer loaning money to the farmer for a new piece of farm equipment or to the bread maker for a new oven.
Earlier this year, the price of oil skyrocketed and put an enormous financial strain on Airlines. The most conservative airlines such as South West held energy futures contracts as a hedge against higher fuel prices. As a result, they were amongst the most financially stable companies in the industry despite the surge in fuel prices. they're also still in business. - Briandrews15, on 10/13/2008, -3/+13fractional reserve banking
- fasda, on 10/13/2008, -10/+20How could an organization which can barely think past next quarter be responsible for regulating itself. They don't care about sustained growth or stability they care about the maximum amount of profit possible right now without a thought to weather the hole thing could blow up in there faces.
- paranoiabacon, on 10/13/2008, -1/+10well the article is in pounds, something the title neglects, so yes it would come out to over a quadrillion dollars.
EDIT: It goes back and forth. Unprofessional and very confusing. - cavedog0, on 10/13/2008, -0/+9This is true. You can't print gold.
- cnot3, on 10/13/2008, -21/+30The market is much better at regulating itself than a corrupt and incompetent government is.
- thereisnostate, on 10/13/2008, -1/+10It wasn't Wall Street that artificially manipulated interest rates to cause an economic bubble, it was the Federal Reserve. You are blaming the free market for what the government has done.
- ttw1002, on 10/13/2008, -3/+12Where have you read that there is ANY regulation of the derivatives market? There is none. Zilch!
Who needs terrorists when you have a bunch of greedy people on Wall Street to sink this nation. - jojopumpkin, on 10/13/2008, -1/+10Who already owns who now?
- ThinkOutTheBox, on 10/13/2008, -0/+9No if you really want to point to one reason, Fractional Reserve Banking.
- inactive, on 10/13/2008, -0/+9The .75 is what scares me.
- mythicflux, on 10/13/2008, -3/+11Who is the 'we' your talking about spucky? The democrats who are just as responsible at the Republicans are for this whole mess?
- RubberMullet, on 10/13/2008, -0/+8You're all wrong, it's these guys:
http://www.youtube.com/watch?v=sdaRuTwWl9I - inactive, on 10/13/2008, -5/+13Instead listen to me. The douche on the internets.
- imightbewrong, on 10/13/2008, -3/+10gambling isn't illegal lol
- JCJW, on 10/13/2008, -0/+7Any attempt to quantify the size of the derivative market is dumb. Why? Derivatives don't have any innate value. When you take out brokerage fees and margin account requirements, you can buy and sell many derivatives such as swaps and futures for nothing. However, derivatives have "face values" associated with them.
Let's take a futures contract in US T-bills. When you buy a futures contract, if you take out the fees and margin account requirement costs, you have paid $0 for the contract. However, 1 t-bill contract has a $1 million dollar notional amount, which means that a 1% change in the interest rate on t-bills will increase/decrease your margin account by 1%*1m = $10,000 (in reality, changes are quoted in basis points, or 1/100 of 1%, which makes a 1bp move equal to a $100 change). So even though many of these derivatives (and most of them are either futures, swaps, or forwards especially in the FX market) have no value to them, their notional amount is what was used to make this calculation, which is useless.
NB: There are some derivatives that do have innate value, such as credit default swaps (which are essentially bond insurance) and options. However, these account for a relatively smaller amount of the total number of derivatives. - moses141, on 10/13/2008, -1/+8That is actually a very good question. Although many derivatives are useful for offsetting risk, some actually are 100% gambling.
Writing a credit derivative swap on something that you don't have a financial interest in used to be looked at as gambling by the courts and therefore was illegal in many states. According to Eric Dinallo, head of the NY Insurance Commission, a swap on something you don't own is no different than gambling.
Unfortunately, thanks to Wall Street lobbying, Congress passed a law force states to allow speculation in these derivatives.
Score another one for our friends in power. - Hillsfar, on 10/13/2008, -11/+18This is why the $700 billion bail-out won't save our economy.
My suggestion: Consider selling your stocks on any up-side. - Dumbledorito, on 10/13/2008, -2/+8Ah. So there isn't one, as I suspected.
Please go and do some research and think through the consequences before you give your all for a political ideology. - jomojo, on 10/13/2008, -0/+6It doesn't exist. It only exists because some people decided to gamble.
Banks made loans to people who couldn't afford the loan because they were able to sell those loans to someone else.
People bought those lousy loans only because there was a third party willing to "insure" that the loans would not lose money.
Then people began to speculate on these loans. Not the real loans, just derivatives. One side bet that the loan would lose value (even though they didn't really own the loan), and another person bet that it would be fine and "insured" it against losses for a price (even though they couldn't actually afford to pay off the "insurance").
Now that bad loans are going under like crazy, we're trying to figure out who should be getting paid, and who should have there legs broken. - fasda, on 10/13/2008, -3/+9heres the good part well all I good read before it got too funny
"The Paulson Ponzi Plunder Plan is the first installment of their final attempt to bankrupt the sheople, who they hope to beat into submission by hyper-inflating and Weimarizing them with bailout after bailout, ad nauseam, knowing full well that these bailouts are futile and useless. The Illuminati will now attempt to force the poor, hapless sheople into a fascist police state as the next giant step toward the creation of a New World Disorder called Novus Ordo Seclorum (a New Order of the Ages), as set forth on the back of every dollar bill under the all-seeing eye overlooking the unfinished pyramid, both symbols of the new age, the occult and the ancient mystery religions. What else would you expect from the satanic trillionaires who hope to become the new lords of the universe. Nice try fellas, but we suspect that God, the current and eternal Lord of the Universe, has other plans. Many of their own henchmen are going to go down in the chaos to follow, but the raving madmen we refer to as the Illuminati will gleefully sacrifice them on the alter of world government." - inactive, on 10/13/2008, -0/+6This is the time to buy; google dollar cost averaging.
The market will come back; be smart, and BUY.
Panic is artificially over-correcting the market; many good stocks are undervalued. - jjmckay, on 10/13/2008, -4/+10Both Wall Street and our financial institutions are highly regulated. Don't fool yourself that this drama is the product solely of the private sector or of no regulation.
You think the authorities are going to protect us but I think they are deeply involved in this outcome. Surrender more freedoms to them so they can do more damage? No thanks. - Delta009, on 10/13/2008, -6/+12£516 trillion IS NOT equal to $516 trillion
£516 trillion is equal to $878,695,609,541,722.75 !!! - Narcowski, on 10/13/2008, -0/+61) $700 billion
2) Reply button - Dumbledorito, on 10/13/2008, -3/+9Pray thee, O Libertarian genius: Under the ultimate Libertarian idology of "no regulation," what method would there be to stop the accounting ***** that's currently built up this pile of investments built on non-existant "assets" and lies within lies about money that never even saw existence outside of some crooked spreadsheet?
Further, without regulation, how would the selling of politicians' souls even be detected, much less restricted? I put forth that under a strict Libertarian regime, polticians will be bought and sold like chips in a casino. - m4532v, on 10/13/2008, -0/+6I'm not saying it is the End of Days. I actually AGREE with a lot of what you are saying. But this whole thing has to do with "fractional reserve banking" or creating debt off of more debt off of more debt. It's a ponzi scheme at best (or worst). This bailout only means hyper inflation! It does NOTHING for the American public! I am FURIOUS with both candidates for backing this bailout. The excuse that businesses need this bailout to pay their employees and such is just a joke! When business have to pay their employees out of credit then they are ALREADY BANKRUPT! Think about it .... why would you need credit to pay your employees if you ALREADY have money in the bank? Would you go to you local bank to make a loan to pay your employees? And most of the Market involves investment in companies that are already bankrupt. If business would grow their businesses with PROFIT instead of turbo charging growth with CREDIT then there would not be a problem in the first place! The stock market will continue to decline until it reaches the REAL value of the market and that COULD be negative! Printing more paper just prolongs the agony for a longer period of time.
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