Wednesday, December 8, 2010

Derivatives & The Blob

I was flipping channels over the Thanksgiving holiday and stumbled upon the movie classic, "The Blob".  I had forgotten that this 1958 horror classic starred Steve McQueen.  I remember as a kid that this was the ultimate scary movie.  "The blob eats you alive!".

Reading an article on Bloomberg last night regarding financial derivatives reminded me of The Blob.  It just oozes along devouring everything in its path.  In the end, they froze The Blob and sent it to the Arctic for a permanent freeze.  How are we going to "freeze" these instruments that Buffet described as "weapons of mass destruction"?

"Global derivatives trading in over- the-counter and exchange-traded futures and options will represent a $700 trillion market with $3.7 quadrillion in annual turnover by the end of this year, research company TABB Group said.  Rules to have central clearing for over-the-counter trading would require additional collateral of as much as $2.2 trillion, Westborough, Massachusetts-based TABB said in a statement on its website, citing a report it completed at the request of the World Federation of Exchanges."
Source: Bloomberg

"The 'derivative monster' still lurks in these financial waters. Every contraction cycle needs a culprit. Derivatives will be the blame for this one."
Random Roving, July 3, 2010
"Puplava's risk comments are targeted at the significant amount of derivatives in the world.  His argument is that the risk can NOT be taken out. Many on Wall Street believe that great mathematical models can remove the risk. For a more thorough understanding of the crisis evolving...."   

Random Roving, March 27, 2003 (email era)

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