This is the truth, nothing but the truth, and the whole truth, with a waterboard as my witness!

Sunday, September 28, 2008

Notional Value of Derivatives and Warren Buffett

Notional Values is the total value of a leveraged position's assets. This term is commonly used in the options, futures and currency markets because a very small amount of invested money can control a large position (and have a large consequence for the trader).

For example, one S&P 500 Index futures contract obligates the buyer to 250 units of the S&P 500 Index. If the index is trading at $1,000, then the single futures contract is similar to investing $250,000 (250 x $1,000). Therefore, $250,000 is the notional value underlying the futures contract.

It boggles the mind. The size of the derivatives market — which is at the heart of the current financial crisis in the United States (and other parts of the world) — has been estimated at $450 trillion as of August 2008. This is nine times the total market capitalization (number of outstanding shares x the share price) of all the publicly traded stocks in the world, i.e., the global stock market ($50 trillion) in the same period. More than six times the worldwide assets of the largest 1,000 banks in the world ($74.2 trillion in 2007). And for good measure, more than 14 times the size of the global economy.

Now, finally now: SEC chief urges oversight of credit-default swaps

Buffett called them 'financial weapons of mass destruction.'

Can we get some oversight?

Or will we watch the SEC be the mouthpiece of the finance industry?

I will be posting soon on the problem when oversight fails, as in insurance with the insurance commission, or with power companies and the public utility commission.

Is it any wonder why the top issues are the economy, healthcare, and energy?

Is it any wonder why the mantra of deregulation and the trickle-down theory is rejected?

Even as a lifetime registered republican I now have to fight the urge to promote eating the rich, instead of destroying the entire financial food chain by dumping on the useless eaters.

There needs to be a hegelian swing, I'll spend this week until sunday on the SEC and their inability to perform oversight going back to GE and Jack & Co., Squat-box, and tulipmania, with a 60-minutes leslie stahl kicker.

Then the following week to PUC and Maryland, with a CEG kicker,

And then finally a week on insurance and the Maryland Insurance commission.

Overall I support the bailout plan, but we need now new regulations and oversight and a new bretton woods III.

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