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<div class="moz-cite-prefix">On 9/17/2012 11:14 AM, Paul Rumelhart
wrote:<br>
</div>
<blockquote
cite="mid:1347905693.92788.YahooMailNeo@web163606.mail.gq1.yahoo.com"
type="cite">
<div style="color:#000; background-color:#fff; font-family:times
new roman, new york, times, serif;font-size:12pt">I had no idea
that Ben Bernanke was single-handedly responsible for the gains
in the Stock Market. You learn something new every day.<br>
</div>
</blockquote>
<br>
Federal Reserve chairmen have often been able to affect the stock
market. However, the relatively golden post-World War II years, with
William McChesney Martin as chairman, came to an end when the Fed
had to respond to Lyndon Johnson's refusal to go along with tax
increases to pay for the war in Vietnam. The few and limited tools
of the Fed rely on governments to exercise their greater number of
more powerful tools wisely.<br>
<br>
<blockquote
cite="mid:1347905693.92788.YahooMailNeo@web163606.mail.gq1.yahoo.com"
type="cite">
<div style="color:#000; background-color:#fff; font-family:times
new roman, new york, times, serif;font-size:12pt">I still think
buying risky securities from big banks with money that didn't
exist yesterday is a formula for failure, no matter the
short-term gain.<br>
</div>
</blockquote>
<br>
Financial institutions all around the world have been on this track
for a very long time now, with the result that the notional value of
various forms of debt, and other securities that are derivatives of
underlying debts, is on the order of magnitude of one and a half
quadrillion dollars. Notice that's quadrillion -- not thousands, not
millions, not billions, not trillions -- quadrillions. A quadrillion
is a one with fifteen zeros after it.<br>
<br>
By way of comparison, the total market capitalization of all
publicly traded companies in the world was US$51.2 trillion in
January 2007<sup id="cite_ref-0" class="reference"><a
href="http://en.wikipedia.org/wiki/Market_capitalization#cite_note-0"><span></span><span></span></a></sup>
and rose as high as US$57.5 trillion in May 2008<sup
id="cite_ref-world-exchanges.org_1-0" class="reference"><a
href="http://en.wikipedia.org/wiki/Market_capitalization#cite_note-world-exchanges.org-1"><span></span><span></span></a></sup>
before dropping below US$50 trillion in August 2008 and slightly
above US$40 trillion in September 2008.<br>
<br>
The gross world product is the combined gross national product of
all the countries in the world. In nominal terms, the total 2011 GWP
was around US$70.16 trillion. Adjusted for purchasing power parity,
GWP totaled about US$78.95 trillion for 2011.<br>
<br>
The point of these last two items is to suggest that, in round
terms, all of the world corporate stock adds up to about 40
trillion, and all of the world output adds up to about 80 trillion.
Derivatives are financial instruments based on some other
relationship rather than having a value inherent in themselves. <sup
id="cite_ref-1" class="reference"><a
href="http://en.wikipedia.org/wiki/Gross_world_product#cite_note-1"><span></span><span></span></a></sup><sup
id="cite_ref-2011CIA_2-0" class="reference"><a
href="http://en.wikipedia.org/wiki/Gross_world_product#cite_note-2011CIA-2"><span></span><span></span></a></sup><sup
id="cite_ref-2011CIA_2-1" class="reference"><a
href="http://en.wikipedia.org/wiki/Gross_world_product#cite_note-2011CIA-2"><span></span><span></span></a></sup>So,
why is it that the total nominal value of all the derivatives is
between eighteen and nineteen times the entire world's output of
goods and services? And why is it that the total nominal value of
all the derivatives is between thirty-seven and thirty-eight times
the total valuation of all the stocks of all of the companies in the
world?<br>
<br>
The fact of the matter is that these private financial derivatives
have been allowed to get beyond the practical regulatory control of
the governments of the world. The peoples of the world need their
governments to cooperate in a set of reasonable, rational, orderly
plans to reduce the unacceptably large numbers and nominal
valuations of financial derivatives before they act within financial
markets in unreasonable, irrational, and disorderly ways which have
the effect of crashing and destroying the world financial order on
which everyone depends.<br>
<br>
Even if as individuals we don't deal in trillions and quadrillions,
we depend on the financial system to keep its operations stable and
smooth. Unfortunately, at the moment, conditions are ripe for
instability, and those conditions need to be corrected to prevent
unwanted, and unnecessary, disruptions. The problem is that a small
number of really large organizations around the world are making a
lot of money via the status <big>quo</big>, regardless of the
increasing dangers inherent in the financial house of cards. Somehow
we collectively have to find ways to convince financiers to be
satisfied with less in exchange for a lesser degree of financial
risk, and we have to do this without bringing on their emotional,
psychological, reactions in the form of market-destructive
activities.<br>
<br>
This is not an easy challenge, but it is a necessary one. We are
over-extended in the derivatives markets, and we need to come back
in from the ledge outside the finance tower's upper-story windows.
There is no need to jump to destruction, but there is a need to
crawl back inside, and attend to the realities of business.<br>
<br>
<br>
Ken<br>
<br>
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