Derivatives : Financial heroin for a bank near you.

While everyone was focused on the impending European collapse, the latest soon to be refuted rumors of a quick fix from some idiot Western politician or central banker 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.” 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. 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.

The Thai media wouldn’t even understand the above, so spread it around, search google for more info if you don’t believe me. The derivative bubble is well and truly inflated to pop. But the bankers like to keep it quiet. Think of it this way, in the West, banks hold about 4 times total national GDP on their books. Well that’s the case for the Eurozone as a whole anyway. These guys are leveraged 30x, their derivatives books even more so, and you think it will end well?

There are about 120 banks (and 30 mega sized ones) and any 1 of them could spark the end. It’s that fucked up. And it makes one appreciate the Thai banking model, albeit conservative, full of nepotism, and the obligatory ladyboy clerk in every branch throughout the country.


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