I was reading through a new blog tonight called OverHedged and was intrigued by their article, Credit Default Swaps: Tick, Tick, Tick, Tick… They mentioned that the global CDS market is approximately $40 TRILLION (I have seen $50 Trillion in other articles so just average them to get to $45 Trillion.) After reading that, I just stopped and sat staring at my monitor. I just cannot begin to imagine the size. I did some research and found that global CDS was about $100 to $200 billion in 1996…by 2002, it had risen to $2.4 Trillion…by the end of 2004, it was $4.8 Trillion…in 2006, it was about $27 Trillion…during the first six months of 2007 it increased 75%. Reminds me of the growth in ABCP….HMMMMM. Please wait while I stare at the monitor and try to clear my mind…………………………………………………………………………

Does any of this make sense to you? Most people didn’t know what a CDS was 6 months ago. Many may have heard of them now, but I suspect that they don’t understand what a CDS is supposed to do. Do you? I wish I didn’t. But I still cannot comprehend $45 Trillion and I doubt anyone can. Total world equity capitalization is probably running about $30 Trillion. So I have to ask, do you really believe that the CDS market is $45 Trillion? And another question…do you believe that the world is 10 times better protected against risk now versus 2004? I don’t. Believing that the CDS market protects the risk of loss is just nuts. It’s never been tested and if we ever see massive defaults, I suspect that the CDSes will not stand up. The whole thing seems like nothing but another piece of the same financial shenanigans that we are seeing in the CDO fiasco. It’s a great way to make money for the ultra sophisticated Wall Street crowd until the nonsense stops and then it gets painful for all the rest of us simpletons.