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Losses Of $1.6 Trillion May Be A Huge Underestimate

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Turning $1 into $20

The liquidity factory was self-perpetuating and seemingly unstoppable. As assets bought with borrowed money rose in value, players could borrow more money against them, and it thus seemed logical to borrow even more to increase returns. Bankers figured out how to strip money out of existing assets to do so, much as a homeowner might strip equity from his house to buy another house.

These triple-borrowed assets were then in turn increasingly used as collateral for commercial paper -- the short-term borrowings of banks and corporations -- which was purchased by supposedly low-risk money market funds.

According to Das' figures, up to 53% of the $2.2 trillion commercial paper in the U.S. market is now asset-backed, with about 50% of that in mortgages.

When you add it all up, according to Das' research, a single dollar of "real" capital supports $20 to $30 of loans. This spiral of borrowing on an increasingly thin base of real assets, writ large and in nearly infinite variety, ultimately created a world in which derivatives outstanding earlier this year stood at $485 trillion -- or eight times total global gross domestic product of $60 trillion.

A very interesting article.

It appears that greed has completely ducked the system!!!!!

If these figures are accurate losses of $1.6tr are a huge underestimate if this lot unwinds as surely as it must be a lot more, anyone any idea of what the total wealth of the planet is???

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If that's the loss $1.6tr, that's only 0.32% of the total outstanding, which is hardly anything when you consider the value of these bits of paper is $485tr.

If it's only $1.6tr we are worrying about nothing.

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I remember reading somewhere that the derivatives figure you have quoted is the notional value. In reality any losses will actually be a lot less than that sum but substantial none the less.

Can anyone on here clarify what the differences are?

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