[adios]

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Are there $450 trillion in traded debt or in written contracts? One contract can be traded many times, that doesn't really bother me, but if there were written contracts for 10x world GDP, that's a little worrisome. Then traders are driving the market rather than the underlying demand for the product, probably not a stable situation.

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In futures markets the idea is that speculators actually stabilize prices due to the increased volume of activity i.e more liquidity.

Actually the statistic by OP is basically meaningless. Pretty easy to understand how derivitives utilized in CDOs are necessary and desirable. The real issue IMO is the bond rating agencies and how well they have assessed the riskiness of the bonds issued. OP in a post awhile back pointed out defaults in lower grade bonds. Doesn't mean that rating agencies have done a poor job since the bonds in question are expected to default a certain percentage of the time. If the rating agencies really screwed up (and they could have) then there would be a big problem IMO. We'll see and certainly they've screwed up rating corporate bonds before. I've maintained though that corporate earnings are more volatile than real estate prices and the behavior of mortgage holders is more predictable in the aggregate. I will say though that there are some very knowledgable traders that I respect alot that disagree with me on the accuracy of the rating agencies regarding bonds issued in CDOs. We'll see what happens.