This is the SIZE of credit derivatives exposure. Oh my god!
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Credit Default Swaps has grown to be a huge market: The total value of all CDS contracts is something like $450 trillion. Because buyers and sellers of insurance usually create multiple "policies" as they attempt to control risk, that number includes a lot of duplication. Real exposure, says the Bank for International Settlements, may be only 20% of that, or $90 trillion. Some studies have put the real credit risk at just 6% of the total, or about $27 trillion. That puts the CDS market at somewhere between two and six times the size of the U.S. economy.
The amount of money the US government needs its central bank to print would definitely crash the US dollar like a piece of banana paper. -
I think the stock market has gone overboard in it's creation of financial tools.
These days it seems more like a virulent cancer. -
wise man says
(a) avoid ALL banks with investment banking businesses. The reason is because ONLY investment banks trade/price credit default swaps and under-write this risks. CDS risk is largely within the network of investment banks. One defaults and then because of contagion effect, it will knock down all the others.
(b) if you are working in the banking sector, move to banks with minimal investment banking businesses such as banks with only private banking like Julius Bear, Belgium banks etc.
(c) the bigger the bank with power centered in investment banking department, the larger the risk that the bank goes under.
(d) do not assume that US government will always bail out large banks because the tax payers / voters will protest on the unfairness of using their money to bail out super highly paid investment bankers who are responsible for the credit crisis itself. Dont forget that this is an election year. -
In other words, investment banking is already a SUNSET industry. -
Pole dancing at the new casinoes.
That's the next big thing.
Yeah.