Interesting statistic which I do not fully understand at all (from Jim Miller on Politics)

$600 Trillion In Derivatives? As often happens, I found the chart
accompanying this New York Times article more interesting than the article.

According to the chart, world wide, derivative contracts now have a
face value of about $600 trillion. (Down, by the way, from about $670
trillion in 2008.)

By way of comparison, the United States GDP is valued at about $15
trillion a year. Our GDP is usually valued at somewhere between 20 and
25 percent of the world's GDP. If we use the lower number, then the
world's GDP is about $75 trillion a year.

So the face value of the those derivatives is about eight times as
large as the world's GDP.

That suggests, at least to me, that the world has too much invested in
those derivatives, though I should add, immediately, that I have no
claim to understand even the basics about those markets and that I
recognize that derivatives can often be useful.

But I would like to see an explanation of that number.

(According to the article, European Union regulators are investigating
whether big banks have been rigging the markets in one kind of
derivatives, credit default swaps, and may extend the investigation to
other kinds.

There's nothing implausible about the idea; as Adam Smith wrote,
centuries ago, competitors often fix prices, or in some other way,
conspire against the public. You can have great respect for markets, as
Smith did, and still recognize that temptation.)
- 2:28 PM, 26 May 2011 [link

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