naked capitalism: Credit Default Swaps and Bank Leverage: "Credit Default Swaps and Bank Leverage
The Financial Times reports that that $45 trillion figure that most of us have been using for the size of the credit default swaps market is woefully dated. The International Swaps and Derivatives Association will announce today that outstanding contracts now total $62 trillion, up from $34.5 trillion a year ago."
See also:Mish's Global Economic Trend Analysis: Credit Default Swap Tsunami Approaches: "Default Swaps Intensify Credit Crunch Is the loss at AIG really $5 billion or is it $10 billion, or is it more? Don't ask AIG, they don't have any idea. AIG cannot “reliably quantify” the figure. That sure must be a huge confidence booster to investors."
Norton's comment: So what does this mean? It means the the degree of leverage of the commercial banking and investment banking system is still unfolding as higher than even the FED chairman Bernake believes or admits. As the system continues to de-leverage, we will have more surprises that the safety reserves that backup deposit funds and loans are inadequate by any measure. this "discovery" will demand increases in reserve funds that will continue to reduce and complicate efforts to provide loan funds for qualified loan clients; thus a continuing credit crunch.
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