Great Chart

http://boombustblog.com/images/stories/jpm/thumbnails/image001.png

The economic republic of JP Morgan

PLEASE STOP PROPAGATING THIS UTTERLY PREPOSTEROUS BULL****!

It's so tiring to hear this incessant ignorant idiotic whinging about these humongous notional values of derivatives. Not only are the notional numbers completely meaningless, but the author of this blog adds insult to injury by a) comparing notionals to GDP; b) confounding notional with the concept of leverage.

Now, I am a big fan of the blogosphere, but this chart is an example of why you should always take people's views with a pinch of salt.

im not sure thats quite right!

I was taking it with a pinch of salt. Whatever you say about the correct values it was excess leverage that brought down Bear/Lehman etc.

The exposure to loans on Northern Rock or HBOS books would've been seen as preposterous BS also.

Yes, excess leverage is a bad thing and I never suggested otherwise. The sole point I am making is that using notional value as a measure of leverage is negligent, lazy, stupid and utterly wrong. Even further, to compare the notional value of a derivative contract to world GDP is silly beyond imagining.

Let me give you a trivial example. Eurodollar futures are simple derivatives (which are probably included in the author's tally); each contract's notional is $1mln. Current open interest is arnd 7mln contracts, which means that the total notional exposure of the mkt in Eurodollars is arnd $7trn, which is larger than China's GDP. What does that tell you exactly?

EDIT: I have argued over this at some length in a couple of different ET threads.