Thursday, January 29, 2009

A lot of... something

This Bloomberg article Credit Swaps Industry Says Limits Would Hamper Market throws around a lot of big numbers:
A draft of a bill aimed at reining in $28 trillion of credit-default swaps would hinder recovery of debt markets, according to academics and an industry group.
That's a lot of reigning in, or it seems so until you see the size of the market:
House of Representatives Agriculture Committee Chairman Collin Peterson of Minnesota circulated an updated draft bill yesterday that would ban credit-default swap trading unless investors owned the underlying bonds. The draft, distributed by e-mail from the committee, would also force U.S. trades in the $684 trillion over-the-counter derivatives markets to be processed by a clearinghouse. Hearings on the draft will be held next week.
So it would actually reign in about 4% of the total market. The total 2007 world GDP was about $54.5 trillion, which looks pretty damn small compared to the derivative market.
JPMorgan Chase & Co. held $87.7 trillion of derivatives as of Sept. 30, more than twice as much as the next largest holder, Bank of America Corp., which had $38.7 trillion, according to data from the Office of the Comptroller of the Currency. Of the holdings at New York-based JPMorgan, 96 percent were in the OTC market, compared with 94 percent for Bank of America.
I have the feeling this is all going to end rather badly.


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