‘Biggest shadow economy is not India,it’s the West’

Taking aim at the same financial derivatives that Warren Buffet described as weapons of mass destruction,de Soto said,“The biggest problem today in the world economy is that it’s not India that has the biggest shadow economy in the world,it’s not Peru or Mexico,it’s the West. They have got the biggest economy where nobody knows where the majority of the assets (derivatives) are — that’s a shadow economy.”

“According to my calculations,there are $170 trillion of stocks and bonds in the global market,$110 trillion of physical goods and that in total the world may have $400 trillion worth of assets. But you have anything between $600 trillion and $1 quadrillion (BIS estimates) worth of derivatives. There’s too many of them.”

But when asked if he would say derivatives should be banned,de Soto said,“No. First,we don’t know the facts. We have to determine how many there are. Second,we need to find out how many types there are. There may be 70-80 idiosyncratic types. So we have to find out: where are they? Who owns them? How many types are there? The next thing you need to know is what’s their value? $600 trillion or 1 quadrillion? In the old days,you had a mechanism called mark to market. But for derivatives it was seen as unfair. So now,for a start,put out a regulation that makes it compulsory to declare this information. That which isn’t declared doesn’t count. This will take care (of compliance). After getting all the information,you can decide whether these derivatives are weapons of mass destruction as Warren Buffet and George Soros say,and whether you have to ban them; or whether some are good,some are bad; or whether it’s all okay. But right now,we don’t know.”