Derivatives: The Unregulated Global Casino for Banks

This info graphic on the relative scale of the world’s derivative markets and the individual exposure of the largest banks is useful.

“Pick something of value, make bets on the future value of “something”, add contract & you have a derivative.
Banks make massive profits on derivatives, and when the bubble bursts chances are the tax payer will end up with the bill.”

The scale of the derivatives (debts) overhanging the planet makes it very clear that no government or taxpayers in the world can possibly pay for these bets. They are a false and insane construct that must be allowed to fall on its own artifice taking all of its brilliant architects with it. Early bank bailouts have been siphoned out to a few executives, but the existing labyrinth of derivatives and counter-parties remains bankrupt and not saveable. Every time another financial entity or conglomerate, talks about tax payer-funded bailouts of this system, thinking people must revolt. Click here to see why.

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5 Responses to Derivatives: The Unregulated Global Casino for Banks

  1. michael says:

    I was just looking at this graphic …. I do not even pretend to know how CDO’s and CDS’s work or if there is some obscure balance in there somewhere.
    I have some experience and some knowledge of a particualar CDO affair. The ABCP story made right here in Canada. I remember that JPM and it’s batallion of whiz bang derivative genius’ took months to try to unravel a mere $34 billion of this crap. In the end they never really did figure it all out and if it were not for the fact the Caisse owned roughly half of it and therefore absolutley had to find a way out there would be a lot of desperate moms and pops out there.
    This is truly astounding.
    Think I’ll get me some beans and bacon a few squirrel traps some black powder for my musket and head for the hills.
    Make room Jeremiah Johnson.

  2. Roberta says:

    These derivative numbers are scary for sure. But I don’t know what they mean or if derivatives are really dangerous. They may be the thing that reduces the human population by 75% when they collapse the world economy and we all starve. OR they may be fairly harmless. I don’t know which is closest to the truth but I’d sure appreciate it if ANYONE can explain how they could destroy the economy and give some realistic idea of how likely that is to happen.

    I have noted that many talking heads keep talking about the dire consequences of events in Europe such as Greece defaulting, etc, but so far everything seems to be going along fairly well, except for quite a bit of fear about the world economy caused by stories like this one. Next things to fear of course, which will cause contagion and a worldwide collapse are default of Spain, France, Portugal, and Ireland, as we all have read 1000 times in the past 3 years or so. So far, all just a bunch of hype. Then again, Peter Schiff did call the housing bubble accurately……..I’d recommend preparing for the worst and hoping it doesn’t happen…………

  3. Roberta says:

    Here’s one for ya. One of our favorite websites suggests now is the time to be in cash so when the looming collapse in asset prices occurs we can swoop in and scoop up goodies at low prices with both hands. Please explain to me how that will work, given that the banks are going to collapse due to exposure to hundreds of trillions of dollars of derivatives. I assume the cash is in banks, right? If I weren’t so simple minded I would know how all this works – I just inherited the wrong genes I guess.

    It reminds me of the arguments about Social Security being unfunded by $75Trillion over the next 75 years. Almost every future expenditure on the planet is unfunded since the money to pay for it has not been earned yet!!!!! Simple minded folk like me just don’t seem to get it……………………. 🙂

  4. John says:

    Roberta, most people who advocate being in cash typically recommend short-term US Treasuries, because the US government would be the last entity to technically default on its obligations. And money in the bank is not really cash. It’s a loan to the bank. Cash is that paper stuff you have in your wallet.

    I like your point about unfunded liabilities. I think the concern is not that they are unfunded, but the size of liabilities given the current level of debt, projections for growth, demographics, etc. But that’s almost besides the point because the US can technically fund whatever it needs to. It will just keep creating the “money” it needs to pay its bills. Which is to say, it will increasingly appropriate the wealth of the people until the dollar is not longer viable as a currency. Then, once all the wealth has been taken they will switch t a new “dollar.”

  5. doug robertson says:

    I was able to parse through a letter from the local old folks home recently, and the trustee-in-charge mentioned that times are changing and that they are preparing to survive whatever it is they are so doggone fearful about. Coming changes to the healthcare system, horrible demographics and the fact that the incoming class of oldsters (70’s) got badly hurt in the 2000-2009 smash-up and with ZIRP, they are ZIP. As in badly, but not severely, yet assets. Cash-types survived, bonds okay but stock accounts got a haircut. HAIRCUT.

    These derivatives are going to make some filthy rich/set for life….the others will be headed for the hills with the squirrel cages. There is no way you can prepare. They will catch you at every exit and then POW. Just thought you ought to be aware.

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