Greenspan Discusses Risks of Derivatives

Reading this in the context of the following breakdown of US GDP:

1). 80 % of wealth created by the financial sector, mainly trading with debt
instruments;

2). 12 % of wealth generated by the services sector;

3). 6 % of wealth generated by industrial production;

Make sense of this thinking of the $ 142 trillion p/a derivatives 
market, trading of currencies on foreign exchange amounting to 
$ 1 trillion per day. According to the market fundi this picture 
is "sustainable" for at least another 10 years before the money 
balloon leaves for the high heavens! Industrial production is 
then like the eye of those American "twisters" uprooting employment 
world wide, with more and more of the 6 % industrial production 
becoming the basis for "projection of power" (military
industrial) - makes one giddy!

Berend

=================================

 Greenspan Discusses Risks of Derivatives
 By REUTERS

 CHICAGO, May 8 (Reuters) - The chairman of the Federal Reserve, Alan
 Greenspan, expressed concern today over the risks posed to financial
 markets by the concentration of the $142 trillion derivatives market in
 the hands of a few investment banks.

 Derivatives are contracts based on underlying securities or other
 variables, ranging from interest rates and currencies to energy and
 weather. They allow investors both to spread risk and to make big
 leveraged bets.

 Mr. Greenspan, as he has done in the past, praised derivatives, saying
 their benefits materially outweighed the risks and had insulated the
 financial system from the stock market crash and economic downturn.

 But, for the first time, in a conference organized by the Chicago Fed,
 he detailed the potential dangers to financial markets if a big
 derivatives dealer had to exit the market, and he called for more
 meaningful disclosure.

 Mr. Greenspan repeated his opposition to regulating derivatives, but
 said heavy concentration in the market "gives me and others some pause."

 "If a major dealer exited and other dealers were unwilling to fill the
 void, the liquidity of the market likely would be impaired," Mr.
 Greenspan said.

 According to the Swiss-based Bank for International Settlements, the
 global over-the-counter derivatives market had grown to nearly $142
 trillion by the end of last year.

 In his speech, delivered to the conference by satellite, Mr. Greenspan
 said that a single dealer accounts for about a third of the global
 market in both interest rate and credit derivatives, and a few dealers
 account for more than two-thirds.

***************

 Full speech:
 www.federalreserve.gov