Financialization of the GDP -- WASHINGTON BOARD

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Date Posted: 21:22:55 01/19/09 Mon
Author: Grumpy
Author Host/IP: 67-61-232-104.cpe.cableone.net / 67.61.232.104
Subject: Financialization of the GDP
In reply to: Grumpy 's message, "Demand side economics" on 22:24:12 01/11/09 Sun

http://www.vanityfair.com/politics/features/2008/12/banks200812

"This year we have lived through something more than a financial crisis. We have witnessed the death of a planet. Call it Planet Finance. Two years ago, in 2006, the measured economic output of the entire world was worth around $48.6 trillion. The total market capitalization of the world�s stock markets was $50.6 trillion, 4 percent larger. The total value of domestic and international bonds was $67.9 trillion, 40 percent larger. Planet Finance was beginning to dwarf Planet Earth.

Planet Finance seemed to spin faster, too. Every day $3.1 trillion changed hands on foreign-exchange markets. Every month $5.8 trillion changed hands on global stock markets. And all the time new financial life-forms were evolving. The total annual issuance of mortgage-backed securities, including fancy new �collateralized debt obligations� (C.D.O.�s), rose to more than $1 trillion. The volume of �derivatives��contracts such as options and swaps�grew even faster, so that by the end of 2006 their notional value was just over $400 trillion. Before the 1980s, such things were virtually unknown. In the space of a few years their populations exploded. On Planet Finance, the securities outnumbered the people; the transactions outnumbered the relationships.

New institutions also proliferated. In 1990 there were just 610 hedge funds, with $38.9 billion under management. At the end of 2006 there were 9,462, with $1.5 trillion under management. Private-equity partnerships also went forth and multiplied. Banks, meanwhile, set up a host of �conduits� and �structured investment vehicles� (sivs�surely the most apt acronym in financial history) to keep potentially risky assets off their balance sheets. It was as if an entire shadow banking system had come into being."

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