The Money Pyramid - How the Money Supply has Grown

chrisweb

Just came across this visual interpretation of the money supply and how it has grown:
http://www.guardian.co.uk/business/dan-roberts-on-business-blog/interactive/2009/jan/29/financial-pyramid

Puts it into perspective!

chucky

a very floored article - it mentions the gross value of CDS and CDO's.
it should only mention the net amounts which are a fraction of what is mentioned in the article.

the journalist wants to make a headline isntead of actually telling the true facts/

icefall

not looking good that is it, instructive visually too.

purch

Puts it into perspective!

If you like pretty pictures and made up numbers.

People with more than a moderate intelligence level can probably find far more in-depth and accurate sources of information.

chrisweb

chucky wrote: »

a very floored article - it mentions the gross value of CDS and CDO's.
it should only mention the net amounts which are a fraction of what is mentioned in the article.

Why should it quote only the net? Can you explain a bit more - I don't understand.

chucky

chrisweb wrote: »

Why should it quote only the net? Can you explain a bit more - I don't understand.

look at the Lehmans auction - there was something like $500 billion dollars worth of trades out there. it ended up being something like a fraction of this amount that was netted when they were settled when they went bust.

don't forget in this settled number there will be buyers and sellers - the same firm will not always be the buyer or even the seller, so everything basically nets itself out. there will be losers and winners but not "doom" and "crash" numbers.

the problem that the journalist has missed is that the underlying of these trades may be the problem especially with the CDO's - he's missed the point completely.

serious question and not having a go; but do you make a habit of starting threads on stuff that you don't understand or was it the headline that got you?

chrisweb

I thought the post as interesting and posted here to see what others thought. Just trying to learn. Money is very complicated.

So you are saying that because only $500 billion eventually got traded in a bankruptcy that is all that should be included? Why can't the gross be included? Surely that was there to begin with but got devalued and/or dissipated through bad debt, but originally it was there?

You mention the article is flawed and is not stating the true facts. Would you simply see that pyramid as being smaller?

setmefree2

It's been posted here loads of times by HPCers......:rolleyes:;)

Radiantsoul

chrisweb wrote: »

I thought the post as interesting and posted here to see what others thought. Just trying to learn. Money is very complicated.

So you are saying that because only $500 billion eventually got traded in a bankruptcy that is all that should be included? Why can't the gross be included? Surely that was there to begin with but got devalued and/or dissipated through bad debt, but originally it was there?

You mention the article is flawed and is not stating the true facts. Would you simply see that pyramid as being smaller?

Company A issues a mortgage for £100k.

That loan is sold to company B for 99k, so company A receives £99k. If the loan goes wrong then the loss is £100k at most and not £199k. And in practice these loans were sold and resold many times.

chucky

chrisweb wrote: »

I thought the post as interesting and posted here to see what others thought. Just trying to learn. Money is very complicated.

So you are saying that because only $500 billion eventually got traded in a bankruptcy that is all that should be included? Why can't the gross be included? Surely that was there to begin with but got devalued and/or dissipated through bad debt, but originally it was there?

You mention the article is flawed and is not stating the true facts. Would you simply see that pyramid as being smaller?

it's like building a pyramid without a foundation or even a pharoah to bury - it just doesn't make sense

mbga9pgf

The thing about CDSs... the mrket has changed considerably since Lehmans; I agree the write dons will never be as large as the above article, but their economic models relied on Gaussian distribution, what we are seeing on the economic markets currently was considered as likely as a meteorite hitting the earth at the time the CDS's were issued, as the models didnt factor such a huge global recession and people without jobs unable to pay for their mortgages.

I personally think losses from CDSs have grown substantially, purely becuase some that took out CDSs will not be able to settle as their losses are so staggeringly huge. Thats bad news for banks that are still expected to pay out to those that are obviously significantly in the Black.

Unfortunately, the money the banks made in the sidelines will not cover the defaults. Neither will the insurance the banks took out, as again they face huge losses.

its one great big sh*t sandwitch and we are all going to have to take a bite...