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Pocketmags Digital Magazines
Pocketmags Digital Magazines


The derivatives market is worth trillions—what happens if Brexit brings it grinding to a halt?

In a letter to shareholders in 2002, the great money man Warren Buffett issued a warning. There was one financial asset traded on world markets that was making him worried. “Derivatives”, he wrote, “are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.”

When Buffett wrote those words, the total value of all derivatives in existence was $142 trillion. Things didn’t stop there: by the dawn of the crash in 2008, the figure stood at $458 trillion. Suddenly Collateralised Debt Obligations, and their close friend the Credit Default Swap, both forms of derivative, became almost everyday phrases, as they became the nitro and glycerin that helped blast the global financial system to pieces.

Ten years on from the crisis, they are more popular than ever. According to the Bank for International Settlements, the notional value of all outstanding derivatives currently stands at $542.4 trillion, higher than the pre-crisis peak. To give some sense of what that number actually means: if a million pounds is a cube of fifties about three feet high, then—from the same 3 square foot foundation—a billion pounds would make a tower of notes 3,000 feet high. A trillion, on the other hand, would reach an altitude of about 570 miles, stretching out past the orbit of the International Space Station.

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In Prospect’s October issue: Rafael Behr argues that politics has been poisoned by Twitter—the platform often drives the political news agenda, encourages people to descend deeper and deeper into echo chambers and sees MPs and their families regularly abused. Meanwhile, former Guardian editor Alan Rusbridger explains how Oxford picks its students and says that more needs to be done for the colleges to be more inclusive. Also, Jasmin Mujanovic outlines how Bosnia’s elections this month could tip the country back into conflict. Elsewhere in the issue: Alex Dean highlights the alarming decline in the number of students studying a foreign language at GCSE and beyond. Will Self reviews a series of new books about liberalism, arguing that “we need more than just social freedoms and the free market.” Aimee Cliff charts the story of the dying dream that London would be a 24-hour city.