Chris Whalen & Barry Ritholtz: 'The Derivatives Timebomb'

Great discussion.  Global derivatives are 5 times global GDP.

Found this clip over the weekend.  It's worth the time.

According to the Office of the Comptroller of the Currency’s fourth quarter report for 2011, approximately 95% of the $230 trillion in total U.S. derivative exposure was held by just four financial institutions: JP Morgan Chase, Bank of America, Citibank, and Goldman Sachs.

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Dec. 5 (Bloomberg Law) -- The unregulated multi-trillion dollar derivatives market exceeds global GDP and poses a clear danger to the global economy, Chris Whalen, Senior Managing Director at Carrington, and Barry Ritholtz, CEO at Fusion IQ, tell Bloomberg Law's Lee Pacchia. "The fix is very simple," says Ritholtz, "repeal the Commodities Futures Modernization Act and suddenly this becomes like every other financial instrument." Whalen notes that the financial industry is reluctant to change the way derivatives are managed because they generate large returns at a time when banks are less profitable than before. "The super normal returns that they earn from derivatives subsidize the rest of the business," he says. One way or the other, Ritholtz and Whalen believe the financial industry needs to get used to the idea of making less money.

Comments

[SKINFLINT]

The question then becomes just how evil is this. Are the people who are involved in ratcheting up the leverage evil people hell bent on raping and pillaging whole economies or are they just regular misguided men who want more than their fair share.

[john]

Skin, I hate to spoil a surprise but, imagine Mayor Bloomberg and the big 'O' super-sizing this, USA style...

http://andysrant.typepad.com/.a/6a01538f1adeb1970b016768065e89970b-pi

[john]

Hold the press...

http://thehill.com/blogs/e2-wire/e2-wire/280351-dems-ask-nfl-for-ideas-on-battling-climate-change

WTF just hit me aside the head????

[h5mind]

One of the most elemental rules of economics is a market activity will continue as long as it remains profitable and technically legal. The latter part of that maxim is ignored if the enterprise is sufficiently lucrative (witness Citibank, the largest launderer of drug money in the world).

So unless we plan to one day hand over the deed to the entire planet to these pariahs, this mother of all Ponzi schemes must be allowed to die without the rest of us left to keep it afloat.

[DailyBail]

Good link, thanks john.