The trillion has replaced the billion as the big number. Here''''s a quick look at some ''''trillions'''' that may have a profound influence on our collective financial future.

Not so long ago, a rupee millionaire was a big shot. Then, as our economy gradually ''''emerged'''', a million became small change. Now, there are more than six lakh households in the country with annual income of more than a million rupees - according to a recent study. It is another matter that only about a third of them declare themselves to be so in their tax returns.

The billion steadily replaced the million as the ''''big number'''' in popular imagination, as the list of home-grown billionaires expanded. Now the billion is also losing its power to excite our collective imagination. Trillion is the new big number. After all, we now have a trillion dollar economy - though partly because of the strong rupee. Our stock market capitalisation is well over a trillion dollars and we are all feeling very wealthy. So, here are a few ''''trillions'''' that will have a profound impact on global financial markets and, quite likely, our collective financial future.

The trillion dollar company
Before Petro China got listed on the Shanghai exchange, the highest market capitalisation a company had ever managed was slightly over $500 billion - only Exxon Mobil on the back of record oil prices. When Petro China made its grand entry, the number straightaway doubled to over $1 trillion!

To understand the true import of that once unimaginable valuation for a single company, consider these. Petro China''''s valuation is more than the combined market cap of the next two in the pecking order, Exxon Mobil and GE - both companies well-established, highly profitable and global leaders in their respective sectors. $1 trillion is what India manages in economic output in a whole year. The combined market value of all Indian companies was less than a trillion dollars until recently.

So, does Petro China deserve this very rich valuation? Those who are bullish on the stock point to the incredible market opportunity for energy companies as China continues to grow. But even the most optimistic profitability projections cannot justify the current valuations. Unless, of course, investors expect the company to come up with a cheap and abundant alternative to fossil fuels or something like that!

Petro China is a classic example of what scarce supply can do to stock prices. The Chinese government owns 86 per cent of the company and the free float for the stock in Shanghai is just 2 per cent. In Hong Kong, where the stock has been listed since 2000 and the free float is more than 11 per cent, the valuation is less than half that in Shanghai.

Is there a bigger question here for emerging markets? Investors have accepted the rich valuations in these markets for the simple reason that there are not enough quality stocks to absorb the huge overseas inflows. But, can these valuations be sustained when the supply of stocks improves in future? Are investors hopeful of even bigger inflows to absorb fresh supply, like the recent 4 per cent stake sale by Reliance Industries in Reliance Petroleum?

The credit loss trillions
How much does the global financial services industry stand to lose from the ongoing credit market turmoil? Especially since it is no longer a problem confined to US sub-prime mortgage lending and could spread even faster if economic growth decelerates, the toll must be quite high. To make it worse, valuation of most credit derivatives remains a tough business.

Ben Bernanke was probably the first to pronounce an estimate of likely damages, between $50 and $100 billion, nothing more. Even the Fed chief was at a loss on the valuation of ''''those damn things'''', as he described credit derivatives. That was a couple of months back when the world first heard about this new crisis and sub-prime suddenly became one of the most ''''Googled'''' terms. Major global banks have since declared losses in excess of $50 billion and have warned of even bigger numbers for the current quarter. European and even Chinese banks have not managed to dodge the bullet. Heads of a few high-profile CEO''''s have rolled and more may follow soon, though all of them will be sufficiently rewarded through handsome exit packages - presumably for creating the mess in the first place.

In recent weeks, analysts and commentators have had a field day forecasting the likely losses from the credit crisis. Of course, there are as many numbers as there are forecasters and everyone has distinct methods to arrive at their ''''definitive'''' and ''''reliable'''' number. Even OECD, the rich countries'''' club, jumped into the fray with a forecast of $300 billion. The only common thread in all these forecasts is that the number gets scarier with every new forecaster, as if they are in a race to find the guy with the biggest number.

When it comes to predicting trends and making forecasts, who can beat Goldman Sachs? After all they are the ones who defined the destinies of billions of people in Brazil, Russia, India and China with a single 24-page report - predicting their collective global dominance in future. Goldman will add another big feather to their forecasting crown when their 2005 prediction of $100 oil comes true, any day from now.

The ''''masters of the universe'''', as Goldman is known among Wall Street firms, even managed to make a pile of money from the sub-prime mess by going short on sub-prime credit derivatives. Yes, some of the hedge funds managed by Goldman lost billions of dollars in the credit market turmoil. But that was all fund investors'''' money, not the firm''''s money, and Goldman led the bailout team for the troubled funds. Even the bailout would not have hurt, as the fund infusion by Goldman and others into the hedge funds must have been done after valuing the funds'''' assets lower to reflect their quality deterioration. The bailout might have even turned in a profit for Goldman!

So, undoubtedly, Goldman has the best credentials to forecast exactly how much the lesser-endowed mortals stand to lose. True to form, Goldman''''s chief economist has put the likely damages at $400 billion. Not big enough for investors to lose sleep? He also said, when these losses materialise, creditors may have to scale back lending by $2 trillion! Now, that is scary for the US economy that needs all the help to avoid a recession. When Goldman made the $100 oil forecast a couple of years back, the reaction was almost derisive. Who knows, when the dust settles - whenever that is, Goldman may yet again prove to be incredibly prescient, or incredibly lucky, with their latest forecast. But the rest of the world would have been thoroughly shaken by then, if the forecast turns out to be true.

The derivatives market trillions
Of late, many seasoned bond market players like Bill Gross of PIMCO, the biggest bond investor globally, have warned against the perils of increasing ''''financialisation'''' of the global economy. They are referring to the deepening financial intermediation, where assets and risks are transferred down a chain of new investors. This process has now reached a crescendo with the relentless expansion in the market for increasingly complex derivative instruments.

Yes, the bond traders have an axe to grind. As investors develop a fancy for exotic derivatives, trading in plain vanilla bonds has lost the glamour. But, it is a fact that every new set of investors in the chain is less informed than the previous set of the underlying risks in these instruments. This scenario obviously leads to higher systemic risks and increases the potential for heavy losses in the event of a crisis. It may seem ironic that derivatives were developed as hedging tools against financial risks or to spread the risks among a larger number of stakeholders.

So, how big is the global market for derivatives? The Bank of International Settlements (BIS) says it was worth $521 trillion during the first half of this year. Yes, that number has nine zeroes after the first three digits and will be a bit intimidating to most folks. Unfortunately, bigger the number, the risk of potential damages in the event of a crisis also gets bigger.

The credit market crisis is unlikely to have brought down the derivative market size, though most investors are now wary of the more complex of these instruments. If anything, the market would have only expanded as the BIS says credit default swaps account for as much as 88 per cent of the credit derivatives market. Credit default swaps are like insurance against payment defaults by debt issuers, which investors can buy to cover the risk. As the risk of bankruptcy among US mortgage lenders and other financial companies have increased, the demand for these defaults must have only gone up.

The spread of derivatives means financial assets are increasingly getting bundled, re-packaged and sold to multiple layers of investors. So, any deterioration in the quality of base assets can spread like contagion and lead to heavy losses for those who are holding them. Warren Buffet once described derivatives as ''''financial weapons of mass destruction'''', though his insurance businesses continue to be very active in issuing derivatives contracts. Investors like Buffet are wary of complex financial derivatives as it is often difficult to value them and hence understand the underlying risks.

The risk of a highly damaging blow-up in derivatives, triggered by an unexpected event, is very real. For seasoned investors like Buffet - who also described derivatives as ''''time bombs'''' - and the big bond traders, it is only a question of when and not whether it will happen. The sad fact is that derivatives market regulation has not kept pace with the rapid pace of growth in volumes and diversity of instruments. Even now, financial market regulators can bring down the risk of widespread losses by prescribing better risk management practices and ensuring improved transparency.

Hopefully they will, before it is too late.