Posted on 09/28/2014 7:00:07 PM PDT by SeekAndFind
When is the U.S. banking system going to crash? I can sum it up in three words. Watch the derivatives. It used to be only four, but now there are five "too big to fail" banks in the United States that each have more than 40 trillion dollars in exposure to derivatives. Today, the U.S. national debt is sitting at a grand total of about 17.7 trillion dollars, so when we are talking about 40 trillion dollars we are talking about an amount of money that is almost unimaginable. And unlike stocks and bonds, these derivatives do not represent "investments" in anything. They can be incredibly complex, but essentially they are just paper wagers about what will happen in the future. The truth is that derivatives trading is not too different from betting on baseball or football games. Trading in derivatives is basically just a form of legalized gambling, and the "too big to fail" banks have transformed Wall Street into the largest casino in the history of the planet. When this derivatives bubble bursts (and as surely as I am writing this it will), the pain that it will cause the global economy will be greater than words can describe.
If derivatives trading is so risky, then why do our big banks do it?
The answer to that question comes down to just one thing.
Greed.
The "too big to fail" banks run up enormous profits from their derivatives trading. According to the New York Times, U.S. banks "have nearly $280 trillion of derivatives on their books" even though the financial crisis of 2008 demonstrated how dangerous they could be...
American banks have nearly $280 trillion of derivatives on their books, and they earn some of their biggest profits from trading in them.
(Excerpt) Read more at theeconomiccollapseblog.com ...
Bird & Fortune comedy bit on finances. At 2:40 they talk about sub-prime mortgages. “Dodgy Debt”. And overpriced mortgages on poor homes. And all of these mortgages get bundled into an “Investment Vehicle”.
“Why would people buy this “dodgy debt”?
“They have good names. Like ‘High Grade Enhanced Leveraged Fund’.
“Well - that sounds like a good investment.”
The entire bit sounds like this derivatives thing. Of course the failure of the mortgage market DID happen, and had long-lasting effects.
Comedy - but VERY close to the truth IMHO.
You are correct of course. People who aren’t finance people know nothing about hedging. For instance, if you are an oil and gas company and you buy a billion dollars worth of oil and gas reserves from another company. Are you really going to risk the price of the commodity falling and your deal becoming a big loser that bankrupts your company? Or are you going to hedge your exposure with a derivative? You and I know the answer.
LOL... I like that one.
The debt is so big, it is unimaginable. It will implode, maybe sooner, rather than later. If the US goes, the world goes, and I am pretty sure it will cause a world war. Just how extensive that war will be, is anyone's guess, but I believe it will happen. Just keep reading your Bible. You will need it.
Or, what our government spends 2 months.
Here's some real info, not Snyder's idiocy.
http://www.occ.gov/topics/capital-markets/financial-markets/trading/derivatives/dq114.pdf
Right.
And the real problem is that given a certain event the banks selling the insurance couldn’t begin to pay off more than a small fraction of what they supposedly insured.
Forbes article on derivatives and other financial schemes.
Snip: We can’t say when this will happen. We can’t say which bank or which particular instrument will trigger the debacle. What we can say with virtual certainty is that if we continue as now is that it will happen. Because the scale of the trading is larger, and because the depleted government treasures are not well placed for another huge bailout, the impact will be worse than 2008.
http://www.forbes.com/sites/stevedenning/2013/01/08/five-years-after-the-financial-meltdown-the-water-is-still-full-of-big-sharks/
It’s actually far more than 500T that is exposed according to the CFTC and Director Brooksley Born. Watch:
http://www.pbs.org/wgbh/pages/frontline/warning/interviews/born.html
And look what John Boehner did in June of this year:
The derivatives exposure is a bomb that the banks threaten to blow up the American economy with if they are not obeyed. They are holding a gun to the USA’s head.
We have a war to fight with banksters either now or later but it will happen. Our lives will get scary but without defeating this current crop of banking criminals we are destined to lose freedom.
This is the end game.
All of the news of ISIS, Putin and China is a distraction. It is the criminal network that controls the international banks that is the real enemy.
Look at how Congress has been bought and paid for. There is effectively no representation in Congress for Americans. All legislation is prioritized according to what banks demand. There are no bills passed that focus on reforming government to get it off the backs of ordinary Americans or that promote America’s exceptionalism or add to its border security, and so on. The Bills that pass are not for Americans, they are for international corporations.
How did the banksters seize control? Repeal of Glass-Steagall and the Bush family are the primary causes.
Derivatives are mostly cover for mortgages made to unworthy debtors.
It’s a way to sell them to the ignorant buyer.
Affirmative action in mortgages has caused numerous crashes, and will continue to do so as long as Congress advocates for them.
Well, assuming arguendo your argument is valid, what happens when the price of oil inevitably collapses (historically it’s cyclical) and ole JP and others are broke and out of business like Lehman Brothers.
Your derivative is now toilet paper correct?
American banks have nearly $280 trillion of derivatives on their books, and they earn some of their biggest profits from trading in them.
...
Oh geeeez, not the notional value accounting nonsense again.
“Margin call, gentlemen.”
“What makes risk so risky?”
The way I understand it is that a lender, who has son bad debt, sells portion of that bad debt fish wrapped in, “good” debt, in hopes the good debt pays off and the buyer makes son money.
It’s just a way for a bank or finance company to reduce its exposure to debt with high risks.
And the guy who is offering to pay the $500.00 doesn't have to have the $500.00 to write the insurance.
To me, it’s the Federal Govt!
Year after year, for 50-60 years, 536 of these clowns (the Federal Government) have met in Washington in a thing called “Congress” and The Presidency.
The “cumulative effect” of all those Congresses and Presidents is the country is impossibly and irreparably broke and over-regulated.
So, the CE (cumulative effect) is, for me, a developer, that it is simply too Risky to borrow money and develop buildings. The “risk” as you say, due to the CE, is just “too risky” THANKS TO THE past sixty years of FEDERAL GOVERNMENTS!
So, where once my projects employed hundreds, I employ one person part time. Sad! How many thousands of guys like me are out there? Is the federal government the biggest job and future killer there is? I say yes!
“People who aren’t finance people know nothing about hedging.”
Gents, my bets ride with Warren Buffet...a little known and marginally successful (pun intended) finance guy from Nebraska......Here is what he said in his 2002 Annual Report Letter to Investors pages 14-15
http://www.berkshirehathaway.com/2002ar/2002ar.pdf
“Charlie and I believe Berkshire should be a fortress of financial strength – for the sake of our owners, creditors, policyholders and employees. We try to be alert to any sort of megacatastrophe risk, and that posture may make us unduly apprehensive about the burgeoning quantities of long-term derivatives contracts and the massive amount of uncollateralized receivables that are growing alongside. In our view, however, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.”
“DERIVATIVES ARE FINANCIAL WEAPONS OF MASS DESTRUCTION.”
The prophet from Omaha said this 6 years before the last melt down....and he is still not trading this trash.
Illuminate us on the wonderful benefits of hidden tail risk, counter party risk, and large notational risk. This crap ain’t your grandaddy’s 2% interest rate hedge.
When the final bullet was pumped into the corpse of the 1933 Glass-Segal Act (which segregated the ownership and actions of commercial banks, insurance companies, and investment firms to prevent a repeat of 1929-1932) by the 1999 (Phil)Gramm-Leach-Bliley Act, the money boys just went wild didn’t they? And OOPS! We had 2007-20??.....
Yeah, but they say this time it will be different don’t they?
But, I don’t feel strongly about it and what the heck do Warren and I know about it anyway.
No big deal. The government will bail them out and Obama can say he saved the economy again. Obama’s stash is limitless.
The GOPe support the same thing.
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