The derivatives market creates massive fantasy (not real) wealth which becomes concentrated in a few hands and then it is used as a claim on real wealth (real property, portions of paychecks, ban savings, pensions etc of people both living now and yet unborn) through bailouts and various ‘stimulus’ schemes.
Those claims are being made now and will have repercussions for many generations. Here is but one example.
A Huge Housing Bargain — but Not for You
http://www.thestreet.com/story/11224917/1/a-huge-housing-bargain—but-not-for-you.html
The back door bailout of BOA is another example. If they are made whole through FDIC, what, if any, do you think will be left over to cover depositor losses?
Dangerous times.
http://www.youtube.com/watch?v=5Z9eOZpRVuQ
Here is a clip of two British guys doing a comedy sketch on the housing crash. But I think they do a pretty accurate job on describing it in a simple way that an idiot like me can understand. I’ll need to search if they have on on derivatives. But is almost sounds similar.
Paraphrased excerpt:
“So the mortgage seller gives a poor black man in Alabama a mortgage. That mortgage gets combined with other risky mortgages from other poor black men in Alabama. It is then sold as a package as an investment to say somebody in Japan.
They in turn sell it to others, and so on.”
AND YOU MAKE MONEY ON THE SALE?
“Well of course, you don’t expect me to work for free?! And every time it is resold someone takes a cut.”
AND WHY DO PEOPLE BUY THESE FUNDS?
“Because they have good names. No - not the names and reputations of the banks. But good names. Like “High Value Enhanced Capital Managed Fund”
OH - HIGH IS GOOD!
“Yes, a very good name. Better than having ‘poor black man’s mortgage’ in the name somewhere.”
They also talk about the bailouts, etc.