bonds, commodities, currencies etc and they
are based on the derivative’s initial interest
rate. The Bank of International Settlement
accepts that there are at least one quadrillion
dollars’ worth of derivatives world-wide – 1,000
trillion dollars! Three years’ ago the Italian
Central Bank let it slip that at least a third of
derivatives were worthless and that many
more were worth 5-20 cents on the dollar. If
we just accept that one third are worth zero,
that’s 333 trillion dollars of debt! The world
GDP is only around 60 trillion dollars. In other
words, looking at derivatives alone, the debt
held by banks and
hedge funds etc is at least five times the
world’s GDP. When the derivative bubble
bursts we face financial Armageddon.
weapons of mass destruction
Credit Default Swaps are supposed to act as
insurance policies for derivatives but there are
nowhere near enough of them. They were
devised by J P Morgan’s Blythe Masters in
1994 and were called “weapons of mass
destruction” by Warren Buffet. In the event of a
default on a derivative, the buyer of the CDS
should receive face value of the loan and, in
return, the seller of the CDS takes possession
of the defaulted loan. In normal insurance only
the owner of an asset is permitted to insure it
but in the CDS market, several entities can
buy the same CDS. The insurance indus