Shining a Light On Shadow Economies (why derivatives are terrible)

"Developed countries, especially the U.S. and western Europe, produced an enormous amount of paper that represents assets that are unaccounted for," he says. The Bank for International Settlements put total notional value of outstanding derivatives at $591 trillion at end of 2008.

"The amount of paper you have in America and western Europe that is unanchored to anything you can put your hands on is enormous," "Why should you be listening to me, a Latin American? Because we know something about flooding a market with paper." He's alluding to such crises as Argentina's repeated bouts with inflation or the loose lending that precipitated Mexico's 1994 financial crisis

U.S. banks went beyond simply lending to unworthy creditors. The increase in the number and kind of derivative contracts--including some, like credit default swaps, that were traded over the counter rather than on exchanges--created a new kind of shadow economy, De Soto argues.

In letting the derivatives market grow to the size it did with little tracking or transparency, De Soto says, Americans breached a law so fundamental that it is unwritten. In the West, ever since feudalism collapsed, "the market made an effort to record everything so that paper meant something," he notes. This happened without the mandate of any central government. "If I asked you, where is the ministry of property in the U.S.? You'd say we have no ministry of property. Sometimes you don't need it."Yet title to every house, car, mortgage, bank account and patent had always been reliably documented. "It's not a fundamental law written into your constitution but an unwritten law that you have not respected, which is that paper means something," he says.

This notion that the legal invisibility of part of the derivatives market played a role in the crisis now has wide acceptance.

Great quote from Lenin. Even Hitler had a few memorable quotes. So did Mao who said “Political power grows out of the barrel of a gun” You can’t become a demonic dictator without having insights into human nature and how society works

Like the late night info-mercial..."BUT WAIT THERE'S MORE!"...

Watch money. Money is the barometer of a society's virtue. When you see that trading is done, not by consent, but by compulsion--when you see that in order to produce, you need to obtain permission from men who produce nothing--when you see that money is flowing to those who deal, not in goods, but in favors--when you see that men get richer by graft and by pull than by work, and your laws don't protect you against them, but protect them against you--when you see corruption being rewarded and honesty becoming a self-sacrifice--you may know that your society is doomed. - Ayn Rand

Absolutely terrific link at #11, dennisw. Thanks. Just glancing at #1 Introduction and #2 Flawed Economic Model. Did you know that Stiglitz was a "leading member" of UN's (UNaccountable bureaucrats) IPCC?

Fascinating. Thanks to you for linking and Tyler Durden at zerohedge. WOW!

Courtesy ping!!! (hey why didn't you guys ping me on this one...WT!*&#@^$) :)

Thank you for the ping. China was recently complaining about the worthless derivatives we sold them leaving some to speculate they may default themselves. If they did we would surely see a Black Swan event.

“For those who have been unsettled by gold’s corrective weakness in recent days, I’ve reprinted a reassuring letter below from a friend and longtime subscriber who also happens to be a U.K.-based gold-dealer and metals trader. Andy, as he is known in the Rick’s Picks chat room, is bullish as ever on gold and sees a potential “black swan” bearing down on the financial system in the form of a Chinese derivatives-default. This is a looming catastrophe that we’ve written about here before, as some of you may recall. The threat surfaced with an announcement byChina a couple of months ago that the government would take no legal action against its own banks if they walked away from derivatives deals gone bad.

Imagine what this would mean if you were running one of those banks yourself. In effect, it would allow you to build extremely risky derivatives positions, but with no exposure if they didn’t work out. Here’s an analogy: Picture yourself being allowed to use counterfeit money in a casino. You make huge bets in roulette, blackjack and baccarat, and although most of these bets lose, the casino pays your winners in real money. You bank the winnings — buy gold bars with it, perhaps — and continue to gamble with funny money until you’ve used it up.

Heads or Tails: Who Cares?

This, in effect, is undoubtedly what some Chinese banks are doing right now: laying highly leveraged bets all over town, knowing they won’t have to cover them if the derivatives market starts to implode again. Moreover, the mere fact that the Chinese government has promised legal amnesty to those who lose big at this game is probably causing the volume of such bets to explode. We’ll find out for sure when reality comes calling once again on the banking system, which, with the help of regulators and the central banks, has done little more than sweep a $600 trillion derivatives problem under the rug.

http://news.goldseek.com/RickAckerman/1260255720.php

http://www.bloomberg.com/apps/news?pid=20601087&sid=aYH5edxx8gvc&pos=5

http://www.economicpolicyjournal.com/2009/09/is-oil-derivatives-default-crisis-just.html

Capitalism always gets the blame and it is not the fault of capitalism. These bankers are pretend capitalists who want to rule the world. Watch the film link and description below...

Edward Griffin - The Capitalist Conspiracy: An Inside view of International Banking Written and narrated by G. Edward Griffin (1960’s) An old film, made sometime in the 60’s. This is an adaptation of a documentary filmstrip tracing the history of a small group of people who control the money systems of the world. It shows how this group is protected by governments and how its wealth is derived by creating money out of nothing. We see how this group wields power through government, foundations, education, and the mass media. It has aided such regimes as Russia and China, not because it is pro-Communist, but because a visible enemy and the threat of war have been useful in persuading the masses to embrace the group’s ultimate goal: a world government which they expect to control from behind the scenes. They are now working to replace fear of nuclear war with fear of global pollution as the motivation for world government. It is clear that the plan revealed in this program continues to unfold. Monopoly...all »

The Capitalist Conspiracy

http://video.google.com/videoplay?docid=6260646431723948415#

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