>> The $596 Trillion derivatives problem

Yes, you read that right. $596 Trillion. Thats a Trillion, with a T. [ Lets name this number RBN (Really Big Number) :) ]. Now that I have your attention, lets get to the details -

- This is the size of the derivatives market, as reported in the recent report by the Bank for International Settlements , the numbers are thus thus as on Dec '07.
- This $596 Trillion represents the notional value of outstanding derivatives in all categories
- $393 Trillion by volume = 2/3rd of RBN => represents interest rate derivatives
- $58 Trillion by volume => represents credit default swaps
- $56 Trillion by volume => Currency derivatives
Long and short derivatives should, in an ideal world, net out each other. Note:
- BIS assesses the net "risk" as $14.5 Trillion, this represents the gross market value of all contracts
- the gross credit exposure is a now-small-sounding $3.256 Trillion

Key things to remember ::
- This number is too big to be "taken care of" in case of an un-orderly unwinding
- Counterparty risk is going to be a problem
- Most of these contracts could be hiding under off-balance-sheet vehicles

( Image Information:
- The Bubble Nebula, as captured by Hubble
- Image credits : NASA, Donald Walter (South Carolina State University), Paul Scowen and Brian Moore (Arizona State University).
- Image details here )