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Total Derivatives Decline By 3% In Q2 To Only $691 Trillion
Who says macroprudential regulation doesn't work: according to the BIS, notional amounts of outstanding OTC derivatives contracts fell by 3% to "only"
$691 trillion at end-June 2014. This is also roughly equal to the total derivative notional outstanding just before the Lehman collapse, when global central banks volunteered taxpayers to pump a few trillion in capital to meet global variation margin calls. Clearly the system, in the immortal words of Jim Cramer, is "fine."
From the BIS:
The contraction in aggregate notional derivatives positions was largely driven by the interest rate segment. Notional amounts of interest rate derivatives contracts stood at $563 trillion at mid-2014, about $20 trillion below the volume recorded at end-2013. Outstanding volumes of interest rate swaps fell by 8% to $421 trillion... The contraction in swap positions was partly offset by rising activity in the forward rate agreement segment, where notional contract volumes expanded by 17% to $93 trillion. Outstanding amounts of fixed income options, by contrast, remained largely unchanged.
None of that is a surprise. One place, however, where a brand new source of systemic risk and contagion has emerged, is the massive shift away from dealer counterparties to "other" financial institutions as counterparties. In percentage terms, this has soared from under 50% around the time Goldman crushed its biggest fixed income competitor, Lehman Brothers, to just over 75% today.
The distribution of interest rate derivatives by counterparty points to a continued shift in activity towards financial institutions other than dealers right-hand panel). Contracts between dealers and other financial institutions stood at $463 trillion at end-June 2014, or 82% of all contracts, up from about one half at end-2008. A potential driver could be the increased use of derivatives by asset management firms and a general shift away from the traditional dealer-centric market structure. That said, the trend towards central clearing of OTC contracts also plays an important role, as it may overstate growth in notional amounts for other financial institutions. Once a trade between a dealer and its counterparty is novated to the central counterparty (CCP), it becomes two outstanding contracts with the CCP.
Or it just may indicate that traditional banks are getting the hell out of the derivative dealing market (see Deutsche Bank and CDS) for reason that will soon become apparent. In the meantime, none of this should be of concern to anyone: after all the S&P just had an uptick from its all time highs, so clearly all is centrally-planned, er, well.
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the fed is good for it
If this 691 trillion dollar derivative number comes from the Comptroller Of The Currency, ignore it. The C of C is just a frontman for the banksters. The actual number is probably double that, a number over 1 quadrillion dollars. Hard to believe that repealing the Glass-Steagal Act in 1999 would lead to a hundred fold increase in derivative creation. Before then, badly betting on derivatives (only created some years earlier) led Orange County into Bankruptcy Court in 1994. I wonder, is there a World Bankruptcy Court?
Silly! That's after the offsetting/netting so the stuff that cancels each other out like for every long there's a short in the futures market and so it really doesn't matter a bit. (sarc for those it be necessary for)
BUT
Just you wait until somebody gets one big ass booty collateral* call and nobody has a fucking clue where the collateral is let alone the underlying whatchamacallits or whatevers being measured, anyway because it's all fictitious, maybe, too, unless it just vaporized**.
Hands Up*** ...Lemme See Your Collateral. Now!
* size as large as Kim Kardashian's ass to a frog
** aka Corzined
*** Ferguson mark to market
The Lloyd explained this to the little people some time after the last almost collapse of the galaxy.
If a claim had been made against the Squid on any poorly chosen derivatives, he would merely respond with a claim against the bankrupt counter party to the trade....
Wait a sec... I may need to check some maff...
It's like them climaxing when we're jerking off.
They get the goodies, we do the work
Or sumfin' like dat!
Also reminds me of getting canker sores from eating KFC.
It is like THEM climaxing into OUR face when WE jerk THEM of.
What about starting with this as a definition of the current financial system?
"If you like your morally-spiritually-economically insane leverage you can keep your morally-spiritually-economically insane leverage."
(In the case of derivatives one can't even speak of leverage. In most cases there is no capital AT ALL that is being levered except the fact that you have to be BIG BANK for participating in this game of printing your own free lunch. Using the leverage fomula would result in #DIV0 error. Derivatives are fiat money in disguise brought into existence by the banksters bastards themelves. It is ternminal. The next big boom can be heard from Saturn)
Most of these function as a money substitute.
Even if you don't believe this number a default of these to the amount of just a few percent would wipe out all the global fest of money printing.
Is ther still talks about inflation, not to mention hyperinflation?
You got the point. Most have no idea that derivatives are bank-printed money - with all the funny consequences that are best understood with complexitx theory.
I heard Trillion is a lot of money. 691 must be very much. Can be Shift-Delete in a second.
my best friend's mother makes $82 /hr on the internet . She has been without work for five months but last month her pay check was $20842 just working on the internet for a few hours. browse around this website... www.yelptrade.com
ZEROHEDGE: Please admit that you make money on this asshole - or get this account TF removed. IT SUCKS.
"...'only' $691 Trillion." ROFLMAO!
What's the leverage, 150X?
Friggin' ponzi house of cards!
You don't want to look under the hood.
Trust me on this;)
Translation: your SPY puts expired
Gee Wally,
That means a 5% "shock" is worth 34 Trillion?... No wonder the VIX is unplugged.
"Write downs", drink
Thank god. That extra trillon or so was bothering me.
There is 1 and only 1 semi stable path out of this mess. Stay gold Ponyboy, stay gold.
People bailing on the derivatives business means that they expect calls to be made. These particular rats are booking passage on a different vessel and it would be wise to pay attention to which one they choose to sail with.
This is all off the balance sheet, so who the hell knows the real (fantasy) sums at risk?
I wish the author had made it a bit clearer just who these, "dealers" and "Other financial institutions" (Which are apparently not traditional banks) are because it is a bit confusing when you are trying to work out which of the mongrels have the biggest retards working for them.
For example, the author states that dealer counterparties (Who must have been acting like the traditional "Names" of Lloyds in the insurance business) are being replaced by other "financial institutions", then at the end states that this may indicate the traditional banks are getting out of the derivatives business. Sounds kind of contradictory to me.
Derivatives contracts, like the insurance business, have two components: maturity time and premiums. A few years ago, Kyle Bass was able to get jump risks on Japan for apparently 1 basis point (0.01%) on tens of billions of dollars in notional value, which was probably the bargain of the century. So at the very minimum, the carry trade is 69.1 billion, more likely 100x that amount every year considering the huge range of derivatives out there and their wide range of premiums. If the notional value at risk is then 691 trillion, the cash being exchanged for premiums on them is 69.1 billion to 6.91 trillion per annum. As long as nothing breaks and no country goes down the toilet, that's a lot of profit for somebody for just sitting on their hands and pretending to have enough cash to be a counterparty. I don't think these greedy bastards are ever going to give up something that lucrative.
Derivatives are often sold as hedging strategies but they are the purest form of gambling with extraordinary returns since they are not investments of any kind in anything tangible but betting on the probable outcomes of something vaguely related in the real world. They circumvent the world of finite resources to sell infinite amounts of imaginary shadows, all the while making gamblers out of honest men and casino owners out of bankers. Sure it can make instant billionaires out of millionaires, but when it breaks, a lot of people are going to get killed, whole nations ruined. In fact I have a feeling that it is starting already.
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