Aug. 31 (Bloomberg) — Wall Street is suiting up for a battle to protect one of its richest fiefdoms, the $592 trillion over-the-counter derivatives market that is facing the biggest overhaul since its creation 30 years ago. (Emphasis mine)

While researching financial reform a while ago, I came across this amazing article from Bloomberg that had me Googling up the intertubes:

That amazing number is what caught my eye. Depending on whose statistics you use, the entire Gross Domestic Product of planet Earth is $65 trillion or $70 trillion — meaning the appraised value of the derivatives market is about eight and a half times the size of the entire global economy.

How is that even possible?!

Bloomberg again:

“Business models of the larger dealers have such a paucity of opportunities for profit that they have to defend the last great frontier for double-digit, even triple-digit returns,” said Christopher Whalen, managing director of Torrance, California-based Institutional Risk Analytics, which analyzes banks for investors.(Emphasis mine)

Anyone remember how we got into this mess? Derivatives are such complicated instruments that only a few dozen people in the world really understand them. They are contracts based on the performance of other assets, leveraged to squeeze greater and greater profits out of a real dollar.

As we’ve seen, they’re inherently dangerous — and entirely imaginary. We might as well let Goldman Sachs play with Monopoly money.

Can someone explain to me how this works?!