As best I can tell, the derivative resolutions were never resolved, but accepted in toto... much as the same way the underlying assets of Freddie and Fannie have never been "resolved".
I believe that the decision not to buy the risk assets that would have stabilized the economy came when the government realized what Warren Buffet told them about in 2002 was really true.

After all of the hullaballoo about derivatives, the nation has pretty much forgotten about them again. The market ignores the problem and there has been no effort... anywhere, to determine what happened or how to fix it.

Maybe Tsunami wasn't the way to describe the situation. Perhaps likening the problem to the potential earthquake that lies under California would be more appropriate.

It is virtually impossible to unravel the derivative swaps, and the longer the financial community can stall, the more responsible parties will disappear into the bushes. As Hedge funds and brokers declare bankruptcy or simply close down, the money that underlies the "securities" becomes even more opaque.

I would suggest that the world has thrown in the towel, and the question:
"How will the financial crisis develop"
will only be answered over a period of many, many years... a period of depression and stagnant economies.

I cannot find a single rational economist who will predict where the world community will find a stable base on which to build any new economy.

Here's the reasonable question that no one can answer. How does one work through a single derivative swap to determine the actual underlying value.

The $54 Trillion number came up at the time that the Lehman accounts were to be resolved. The counterparties who were party to the settlement resolved the process, by agreeing to accept the assets as stated, rather than unwinding the transactions to go to the underlying assets.

I'll listen to other theories on this subject, but at this point, I cling to my original surmise that derivatives are just a variation on the Ponzi Scheme... where the underlying capital that is supposed to be asset base for Freddie, Fannie, Pension Funds, Endowments, Municipal Funds, Insurance Companies, Foundations, Charities, and Brokerage and Market Funds... exists only as shadowy numbers...

...and that those "shadowy numbers" are only given credence as long as they are not required to be converted to cash.

Just as Madoff was never questioned as long as his funds paid off in cash when needed, so too does the financial community continue to perpetuate the derivatives bubble by accepting the assets of the community members.

The single most feared event for the entire world, is what would happen if there was a "run on the bank"... and that extended to all of the economic ties that we all live with.


Life is Good!