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According to the Bank for International Settlements, the entire derivatives market had a gross credit exposure of $3.5 trillion at the end of 2009.
"What we have is gross credit excess" on both the personal and national levels, he continued, and credit excesses fuel speculative manias.
Once banks' claims on each other are stripped out, the residual ("gross credit exposure") is $3.7 trillion, well under 1% of the notional total (see chart 2).Even so, $3.7 trillion is a large sum.
"And will we get the credit for that big trade we devised, or will the guy in sales nab it all?" In sales and trading, the Goldman bonus is said to be largely reliant on your "GC" or gross credit – basically, how much revenue you generated for the firm.
This is because of a recent change in law which requires credit card companies to begin reporting to the IRS on the gross credit card receipts of businesses.
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Depending on which set of subsidiary accounts you use, in 2008 and the first half of 2009 ABN accounted for 75-144% of the combined group's operating losses and 47-50% of its loan impairments and gross writedowns from credit and trading activities.
More worrisome: On 80% of Heilig's gross sales it extends credit, often to customers unable to get a Visa card or other traditional credit.
To be sure, there are some positive signs, like reduced credit spreads, gross domestic product growth and diminishing job losses.
Credit card gross profit (interest income less interest cost) was $4 billion in the second quarter.
Unfortunately, the U.S. economy currently has the hallmarks of not-so-good deflation, including a significant increase in the ratio of credit to gross domestic product, large swings in property prices and an equity price boom on scale with the one that preceded the Great Depression.
Global financial watchdog Bank of International Settlements BISS) reported last weekend the gap between credit and gross domestic product (GDP), considered an early warning of financial overheating, hit 30.1 in the first quarter of this year.
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Justyna Jupowicz-Kozak
CEO of Professional Science Editing for Scientists @ prosciediting.com