Tony Blankley first makes the usual complaints now being voiced even by many Democrats, and not just in private anymore (eg, here, here, here and of course the Warren Buffett comments):

Obama not only is failing to focus more or less exclusively on protecting the financial system and the economy that depend on it but also is letting his ideological ardor drive him to expend both his own and his administration’s attention, along with the vast new tax dollars, on those programs rather than on the financial and economic crises.

Thus — and here is his political danger — if the financial system fails (and much of the economy along with it), it will be a fair, true and politically lethal charge against Obama that he didn’t do all he could as soon as he could to protect us from the catastrophe. It was this decision that shocked even some of his moderate supporters, such as David Gergen, David Brooks and others, who are muttering in private. And this misjudgment is only compounded by the slow and inept start of Treasury Secretary Timothy Geithner…

Then Blankley gets down to brass tacks, the quadrillion dollar potential financial crisis (quadrillion?):

The great whispered-about possible crisis that financiers and governments around the world shudder over is what to do about the more than quadrillion (thousand trillion)-dollar notional value of the world’s derivatives (what Warren Buffett called the financial WMD) — should that notional number become crystallized and, thus, real.

By comparison, the U.S. gross domestic product is $14 trillion; the U.S. money supply is $15 trillion. The GDP of the entire world is $50 trillion; the real estate of the entire world is $75 trillion; the world’s stock and bond markets are worth about $100 trillion.

The notional $1.14 quadrillion (as reported by the Bank for International Settlements, which is in Switzerland) only becomes real (and frightfully dangerous) if either counterparty to a derivative goes bankrupt and if the defaulter is a major institution. Then it would start a cascade of cross-defaults that might well infect and bring down the world financial system.

It may well be that the U.S. government has put up $180 billion to sustain the solvency of AIG because of AIG’s derivatives holdings. Our government may well need to spend trillions more before this is over on other tainted institutions and hope that is enough to hold off the derivatives catastrophe.

The first time we looked at the CDS problem it was a mere $45 trillion. A few months later it had grown to $60 trillion. This, however, is the first time we’ve heard about a quadrillion dollar problem. If that’s even a remote possibility, the amateur hour performance of Obama on buttressing the financial institutions is even more inept than it already seems.

This entry was posted on Thursday, March 12th, 2009 at 1:10 am and is filed under business, Democrats, General. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.