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Showing posts from April 24, 2011

The Global Las Vegas

As an earth scientist, I deal with real resources, such as water, oil, natural gas or coal, and I am bewildered by the figure above. It shows that the sum of goods and services produced on the Earth, or the World Gross Domestic Product (GDP), is as large as credit default swaps, and 10 times less than the total face value of all financial derivatives, including the credit default swaps.  Therefore, in the global casino we have created, bets on all things in the world have exceeded the value of what we actually produce 10-fold.  So if only 10 percent of these bets went wrong, an equivalent of world's GDP would be wiped out.  And our clueless politicians are piddling with a couple of billions of dollars here and there.  Or our hapless Treasury is talking about controlling the "core" inflation.

A credit default swap (CDS) is a form of insurance that protects a lender if a borrower of capital defaults on a loan. When a lender purchases a CDS from an insurance company, the l…