Derivatives market Chart

CHART OF THE WEEK

The picture is rather stark. This is a chart shown in an article at Global Research (www.globalresearch.ca) Financial Implosion: Global Derivatives at 1, 200 Trillion Dollars 20 Times the World Economy. It bears repeating.

Specifically the chart shows the assets of five of the USAs largest banks vs. their respective derivative position. Derivatives dwarf the asset position of the banks. Wachovia and HSBC (USA) are not even amongst the top five derivative players in the US. The top five in order are JP Morgan Chase, Bank of America, Morgan Stanley, Citigroup and Goldman Sachs. There is a huge drop off in derivative positions after the top five players.

The global derivatives market is estimated by some at $1, 200 trillion ($1.2 quadrillion). Estimating the size of the market is difficult. The Bank for International Settlements (BIS) shows a size of $647 trillion as of December 2011. However, some market followers who have written books on the subject have estimated the market as being even larger at upwards of $1.2 quadrillion. At that level it is 20 times the size of the global economy estimated at $60 to $70 trillion.

The global derivatives market is unregulated and quite possibly under reported. The financial institutions have successfully lobbied for years to block any attempt at regulating the market. Roughly 75% of the market is interest rate contracts (i.e. forward rate agreements, interest rate swaps (the largest component) and options on interest rates). The next largest component is foreign exchange contracts and that only constitutes roughly 10% of the market. The third largest category is credit default swaps (CDS) and that makes up roughly 4% of the market. The rest of the market consists of commodity contracts and equity linked contracts.

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Yield Hunters' New Tune Echoes Financial Engineering's Past  — Wall Street Journal
And fresh geopolitical angst is again pushing yields lower on benchmark government debt. All this creates incentives for financial engineering.

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