Bankruptcy

Really Scary Numbers

By J. Michael McBride

Now, as long as everyone used the recent pop up in the markets to sell their stocks, except for the ETF inverse positions, then watching today’s market was not too upsetting. But if another 700 point drop in the Dow does not concern you, then here are some numbers which will! This is an article which explains how the derivatives market is valued at nearly 600 trillion dollars and the credit default swap market at 54 trillion dollars.

“How can the derivatives market be larger than the entire world's financial wealth?

Because the same assets might be involved in several different derivatives. A derivative is a financial instrument whose value depends on something else—a share of stock, an interest rate, a foreign currency, or a barrel of oil, for example. One kind of derivative might be a contract that allows you to buy oil at a given price six months from now. But since we don't yet know how the price of oil will change, the value of that contract can be very hard to estimate. (In contrast, it's relatively easy to add together the value of every share being traded on the stock market.)”

Here is a link to this scary article: http://www.slate.com/id/2202263/

Michael

Full post as published by Texas Lawyer Blog on October 15, 2008 (boomark / email).