HOW!?? US Banks exposure to derivative markets > 3*world GDP

[onlinegtrash]

If derivatives are derived from their underlyings ( stock or futures)
how can they ever be bigger than 3 times world GDP !!!!

US debt is ~15 Trillion $ but US banks seem to have 100s of trillions of dollars in derivative market exposure.

Are these strange things are possible because banks somehow borrow from future time and trying to include future GDP as underlying !!???

JP Morgan lost 2 Billion in derivatives market
but their net exposure is 70.1 Trillion ( yes T-r-illion)
collectively US banks have 200 Trillion $ derivative exposure !!!

can some one make sense of this piece of news !

 

[onlinegtrash]

$63.12 Trillion is world's GDP (as per 2010)


I guess the magic of *COMPOUND INTEREST* should be hiding somewhere and royally screwing up things for everyone!

but still am not able to put all the pieces together to get the big picture.

anyways if I can do that, I could be consulting for Citi Groups board of members

for time being, I can only get out and grab a cup of coffee

 

[Reggie]

The key word here is leverage.

There is the story of LTCM (Long Term Capital Management) which in one year made a profit of over a billion dollars. However, within a few years of its founding, the hedge fund with Noble Prize winning laurates (including Myron Scholes and Robert C. Merton, who shared the Nobel Prize for determining new method to value of derivatives) went bankrupt.

The reason? Not that they had not done risk management study. However 25 time leverage of capita, did them in.

If the figures that you have mentioned are true, one shudders to think of what a black swan event can do to the financial markets, including you and me!!