September 25th, 2008

was it 2005? notional amount outstanding of $236 trillion

In the most recent BIS report, gross mark-to-market value is approximately 4% of notional amount outstanding. In addition, net credit exposure (after netting but before collateral) is 0.7% of notional amount outstanding.

Applying these percentages to the total Isda market survey

notional amount outstanding of $236 trillion,
gross credit exposure before netting is estimated to be $9.4 trillion and credit exposure after netting is estimated to be $1.7 trillion.

Overall, the total notional amount of derivatives outstanding across asset classes was $236 trillion, which reflects both new transactions and those from previous periods. The amounts do not, however, represent the risks associated with the activity. To determine the risk, it is necessary to estimate net replacement cost, which Isda does not collect, the association said.

Isda added that the Bank for International Settlements (BIS) collects both notional amounts and market values in its derivatives statistics and it is possible to use the BIS statistics to determine the amount at risk in the Isda survey results.

http://www.risknews.net/public/showPage.html?page=320958
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TODAY

Other derivatives markets grew, the ISDA said in its statement yesterday. The notional amount of derivatives used to hedge against changes in interest rates increased 22 percent during the first half of 2008 to $464.7 trillion. Contracts linked to equities grew by 19 percent to $11.9 trillion.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aYdE4_qKZF94&refer=home

An Alternative to the Wall Street Bailout

 http://pajamasmedia.com/blog/an-alternative-to-the-wall-street-bailout/#comment-112949

The truth is the government's plan could very well cause the problem it purports to solve.
September 24, 2008 - by Arnold Kling

I am concerned that the bailout might be the cause of the problem that it purports to solve.

Treasury Secretary Henry Paulson described the problem as follows:

The underlying weakness in our financial system today is the illiquid mortgage assets that have lost value as the housing correction has proceeded. These illiquid assets are choking off the flow of credit that is so vitally important to our economy. When the financial system works as it should, money and capital flow to and from households and businesses to pay for home loans, school loans and investments that create jobs. As illiquid mortgage assets block the system, the clogging of our financial markets has the potential to have significant effects on our financial system and our economy.
Collapse ) Arnold Kling is an economist who worked at the Federal Reserve Board in the 1980s and at Freddie Mac in the 1980s and 1990s. He blogs at Econolog.