November 22, 2007 (LPAC)--The size of the global market for credit derivatives doubled during the twelve months ended June, 2007, according to a report issued today by the Bank for International Settlements. Credit derivatives, which are essentially insurance policies which purport to protect speculators against defaults on securities, rose from $20 trillion in June, 2006, to $43 trillion in June 2007. $23 trillion of these derivatives are deals between the major derivatives banks themselves, while another $18 trillion are between these banks and other financial institutions, the BIS reported.

Since all of the major derivatives banks are already bankrupt, the idea that they can insure each other against defaults is ludicrous: while the credit derivatives system might be able to handle isolated defaults, it cannot possibly provide protection during a systemic blowout. Credit derivatives are a prophylactic accounting fiction used to bolster the illusion that the assets in the system are protected, but condoms have no value when the rot is within.

The BIS also reported on the size of the global derivatives market, which, it said, has increased by 35 percent in the 12 months ended in June, 2007, jumping from $454 trillion to $613 trillion. The over-the-counter (OTC) market accounted for $516 trillion of the total, while derivatives traded on exchanges accounted for $97 trillion. These numbers should be taken with large blocks of salt, since the sum total of all derivatives bets is undoubtedly measured in quadrillions, and any attempt to quantify the size of the market is foolish, since the bankers themselves probably don't know, and any number you get will be outdated before it is published, given the hyperbolic growth of the derivatives market.