Tag Archives: counterparty risk

World Banks’ $707.5 Trillion Derivatives Time Bomb

12 Dec

No, dear reader. That headline is not hyperbole.

It’s based on official Bank Of International Settlements data.

For what that’s worth.

Money Trends Research has the story (emphasis in original):

$707,568,901,000,000: How (And Why) Banks Increased Total Outstanding Derivatives By A Record $107 Trillion In 6 Months

While everyone was focused on the impending European collapse, the latest soon to be refuted rumors of a quick fix from the Welt am Sonntag 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.” Indicatively, global GDP is about $63 trillion if one can trust any numbers released by modern governments. 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. Another way of looking at the data is that one of the key contributors to global growth and prosperity in the past 10 years was an increase in total derivatives from just under $100 trillion to $708 trillion in exactly one decade. And soon we have to pay the mean reversion price.

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…

Which brings us to the chart showing total outstanding notional derivatives by 6 month period below. The shaded area is what that the BIS, the bank regulators, and the OCC urgently hope that the general public promptly forgets about and brushes under the carpet.

Try not to laugh. Or cry. Or gloss over, because when it comes to visualizing $708 trillion most really are incapable of doing so.

Click to enlarge

(click here for the full article)

What is the Aussie bank(ster)ing system’s share of that total?

According to the RBA, at June 30 2011 our banks held … wait for it … $16.97 Trillion in “Consolidated Off-Balance Sheet Business”.

An all-time record total. And a record increase of $2.14 Trillion in just 6 months.

Including almost $9 Trillion in OTC derivatives bets on Interest rates. And $2.2 Trillion in OTC bets on Foreign Exchange rates.

Can you say “galactic-scale casino”?

Seems our little Milky Way galaxy just isn’t big enough for our bank(st)er ‘masters of the universe’.

Because the dream of global carbon dioxide derivatives trading has always promised an intergalactic expansion of Big Bang proportions.

As your humble blogger has argued for so long, our Green-Labor government is playing their part in the banksters’ dream.  Despite being presented as a “tax” for the first three years, the truth is that derivatives trading is the real goal of a scheme purportedly designed, and certainly fronted, by Trilateralist “economist” Ross Garnaut. A new form of wholly unregulated derivatives trading that will begin from Day 1 … before the so-called “fixed price” period ends, and the “ETS” begins.

Here’s a Bloomberg news article I missed back in November, reporting on an ASX announcement that adds further proof to that already presented in previous posts.

That the Clean Energy Future scheme, is the bankers’ carbon derivatives scam from Day 1 (emphasis added):

ASX Group, operator of Australia’s main stock exchange, plans to offer secondary and futures markets for carbon allowances before the country’s emission trading system begins in 2015, the exchange said.

Key to the success of the ETS will be the introduction of second and futures markets for carbon permits and any fungible carbon-related products,” the Sydney-based company said today in a statement. “The markets will generate the short and long- term price signals and risk mitigation required to underpin investment certainty.”


For any readers wondering whether the ASX’s reference to “secondary and futures” markets does mean “derivatives”, take a look at the European Energy Exchange’s website, under “Market Data” – “Emissions Rights”:

Click to enlarge

And consider the words of our own bankers:

Australian banks are eyeing opportunities to cash in on the proposed carbon tax by developing new financial products and services that capitalise on a market seen to be worth billions of dollars annually, according to a report by the Australian Financial Review…

ANZ’s head of energy trading said the value of the derivatives carbon market would dwarf the $10 billion initially raised by the government, according to the AFR.

For more, see my earlier article “Ticking Time Bomb Hidden In The Carbon Tax”.

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