Global Exposure in Financial Derivatives Surpasses One Quadrillion Dollars

By Jacob Freeze, Section Diaries
Posted on Tue Jul 21, 2009 at 10:34:49 AM EST
Tags: Neil Barofsky (all tags)

Share This: Digg!

When I posted the lowest responsibly sourced figure for global exposure in financial derivatives, $592 trillion, published May 19, 2009 by the Bank of International Settlements, all sorts of hoodoo apologists for Obama, Geithner, Summers, and Goldman Sachs crawled out the woodwork to claim that this figure is ridiculously exaggerated, there's really nothing to worry about, it's just a few bucks, and so on.

All the same hoodoos unfailingly claimed that it's stupid to consider worst-case scenarios when you calculate risk, because...

They have learned absolutely nothing from the ongoing financial meltdown which annihilated some of the oldest and largest investment banks in the world, and plunged the global economy into an almost vertical downturn.

So, since even the lowest reasonable figure for global exposure in financial derivatives attracts so much obfuscation and denial, I might as well be hanged for a sheep as a lamb, and offer up a much larger and probably more accurate estimate, which also includes the huge market in off-the-books derivatives, instead of only considering the OTC market upon which the previous calculation by the Bank of International Settlements was based, and that estimate is...

$1.4 quadrillion.

That's more than one million piles of money, with a billion dollars in each pile.

In previous posts I also considered the total exposure of the federal government from various programs designed to bail out the banking establishment, $23.7 trillion, which was calculated by Special Treasury Department Inspector General Neil Barofsky, one of the very few watchdogs charged with overseeing Geithner/Paulson/Summer's infinite generosity to the banks, and why should we believe a mere inspector general, when we can rely on unsourced estimates from right-wing hoodoos?

So in the interests of complete fairness, balance, impartiality, and pandering to ignorant hoodoos who insist on nothing but sunshine in the news, I am also offering up a much smaller figure for the total bailout exposure of the federal government, extracted from the most reputable of the many sunshine blogs selling all-is-well scenarios all over the internet, and that low-ball estimate for federal exposure is... $13.9 trillion.

Added to those figures are $4.4 trillion in other possible Treasury programs, and $2.3 trillion in F.D.I.C. guarantees of deposits. The final $7.2 trillion comes mostly from various mortgage-related programs.

"Possible Treasury programs!"

"Various mortgage-related programs!"

And that's really just about all anybody knows about them, except for Tim Geithner, Larry Summers, and Goldman Sachs, because the US Treasury and the Federal Reserve don't have to tell you anything, and they don't even have to disclose much to inspectors-general like Neil Barofsky, who says...

Treasury also should report the values of its investments in banks and other financial institutions, disclose the identity of borrowers under a nonrecourse loan program and disclose trading activity under a public-private investment fund.

Treasury should report the values of its investments in banks!

What a silly idea!

Special Treasury Department Inspector General Neil Barofsky is obviously insane, and I'm only posting this article to give a bunch of right-wing hoodoos yet another chance to correct his absurd misinformation.

< The Invisible Iranian Embassy in Nicaragua | Back-story of the iPhone "Suicide" in China >

Global Exposure in Financial Derivatives Surpasses One Quadrillion Dollars | 1 comment (1 topical)

Readers Must Login or Create an Account to Comment

Exposure (none / 0) (#2)
by Jacob Freeze on Tue Jul 21, 2009 at 09:07:23 PM EST

In the blog I linked from the Times, the blogger is obviously determined to undermine the inspector-general's report, and supplies his own sensational paraphrase of Barofsky's language...

But in the report accompanying his testimony, Mr. Barofsky conceded the number was vastly overblown.

But anyone who runs a simple search on the report itself will discover that it does not contain that language, and in spite of tremendous pressure from the media and Congressional Democrats, what Mr. Barofsky actually said was...

"The total potential federal government support could reach up to $23.7 trillion."

This is the real contractual exposure of the federal government, and the question whether it's possible that every single penny of it could be lost is a separate issue, which Barofsky did not address.

"We're not suggesting that we're are looking at a potential loss to the government of $23 trillion," he said. "Our goal is to bring transparency, to put things in context."
Asked what he thought the maximum total cost could be, he replied that it was not his job to estimate that, and declined to give a figure.

So does notional exposure really matter, since the full amount is virtually never lost down to the last penny?

Yes.

It matters because nobody knows exactly how much of the notional exposure the federal government may eventually have to cover, and that's exactly the sort of uncertainty about monstrously complicated, interlocking financial derivatives which produced the ongoing financial meltdown.