The Bankwatch

Tracking the consumer evolution of financial services

If Planet Mars were banker to the world, this planets credit cards would be cut up

While this is an interesting article, the point of this post is only to capture the quotes that show the extent of the unreasonable and unsustainable runaway growth in various aspects of the financial markets, that have developed since the 1980’s.

Stock markets in the world are valued at a paltry $51 trillion compared to the $400 trillion in derivatives.

However the overall total of equities, bonds, and derivatives at $518 trillion was supported by a world economy of $49 trillion.  If Planet Mars were banker to the world, our credit cards would be cut up.

The emergence of an abstract, even absurd world—call it Planet Finance—where mathematical models ignored both history and human nature, and value had no meaning

This year we have lived through something more than a financial crisis. We have witnessed the death of a planet. Call it Planet Finance. Two years ago, in 2006, the measured economic output of the entire world was worth around $48.6 trillion. The total market capitalization of the world’s stock markets was $50.6 trillion, 4 percent larger. The total value of domestic and international bonds was $67.9 trillion, 40 percent larger. Planet Finance was beginning to dwarf Planet Earth.

Planet Finance seemed to spin faster, too. Every day $3.1 trillion changed hands on foreign-exchange markets. Every month $5.8 trillion changed hands on global stock markets. And all the time new financial life-forms were evolving. The total annual issuance of mortgage-backed securities, including fancy new “collateralized debt obligations” (C.D.O.’s), rose to more than $1 trillion. The volume of “derivatives”—contracts such as options and swaps—grew even faster, so that by the end of 2006 their notional value was just over $400 trillion. Before the 1980s, such things were virtually unknown. In the space of a few years their populations exploded. On Planet Finance, the securities outnumbered the people; the transactions outnumbered the relationships.

Written by Colin Henderson

November 7, 2008 at 02:37

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