Explaining Derivatives, And Goldman's Dominance Thereof, In Four Simple Charts

Tyler Durden's picture

Attached are several charts used to explain to confused politicians all they need to know about the biggest ponzi scheme market ever created (synthetic derivatives), how these derivatives are created, how the leverage attributed to just one asset can result in infinite amplification of risk, and how Goldman is in the very middle of a web which encompasses tens if not hundreds of trillions in derivative counterparty exposure with virtually every single other financial company in the world.

Amplification: this explains how you take a small pool of
assets (in this case mortgages) and increase the bettable risk almost to
infinity courtesy of synthetic products like CDOs which are nothing but
side bets with an unlimited cap on the total risk exposure. The
original mortgage is cut up into tranches, which are subsequentlly split
up into CDOs, whereby risk can be held, sold off, or side-betted via
CDS (which is what AIG would be doing by selling CDS on milions of
assorted CDO tranches). In the example below the Glacier Funding CDO
2006-4A C has an original value of $15 million which trough
CDO-intermediated amplification, or process in which bits and pieces of
it are repakcaged in various synthetic afterproducts, ends up being $85
million. In theory there is no limit to what the total amplified value
could be, as synthetic products by definition are created out of thin
air, and just need a willing buyer and seller.

Deal Creation: For those who have not spent hours poring over the Abacus org chart, this is a summary of how a traditional CDO was structured and subsequently insured (incidentally, this is not the infamous "John Paulson" Abacus deal for which Goldman is currently being sued). Of particular note here is the box in the lower left, the CDS issuers, AIG, TCW and GSC, who were the dumb money, or those infamously collecting pennies before the housing crash steamroller. As the chart shows, they were collecting $3 million a year in CDS payments, and stood on the hook for $1.8 billion in case the CDO collapsed, or specifically if the underlying reference assets stopped generating enough cash through specific attachment levels.


Leverage: here are the key counterparties on the hook for just the above deal, Abacus 2004-1. No surprise, the biggest counterparty, with total downside loss is AIG, at $1.76 billion. The running annual CDS premium payment? $2.1 million. As the exhibit notes, in the end "Goldman negotiated $800 million from AIG." Other losers included TCW and GSC, and Abacus itself via secondary market holders.

Counterparties: The money chart, this shows who Goldman's key derivative counterparties were as of June 2008. While oddly enough AIG is not on this chart (potentially as this is pro forma for the bailout), it shows just what a great web of interconnected synthetic exposure derivatives create. As of this snapshot, Goldman had $20 trillion in notional counterparty exposure. This number has since ballooned. It also shows that the collapse of any individual actor in this maze would very likely result in the collapse of the entire financial system. While we do not know whether the notional depicted is gross or net, we are comfortable that the $2 trillion in Interest Rate Product counterparty exposure between Goldman and JPM and RBS (for example) would be sufficient to blow up either of these parties should the interest rate complex move violently in a direction and amplitude presumed impossible by either firm's VaR models. We are amused to note that Blue Mountain, a hedge fund, has $590 billion in counterparty exposure to Goldman yet no discount window access. Same goes for Citadel in Equity Products, which incidentally we learn is Goldman's largest counterparty in this category. In the very much maligned Commodity Product category, Goldman's key counterparties are Morgan Stanley with $96 billion, Barclays with $69 billion and Tempo Master with $55 billion, etc. So next time you wonder who aside from JPMorgan is writing all those synthetic gold shorts out of thin air, now you will know. Yet the most notable take home from this chart is that courtesy of its extensive network, Goldman knows full well just how every single bank and hedge fund is positioned, and can easily make prop trading decision based simply on counterparty exposure (Goldman tracks every single trade inception, transfer and novation with all its counterparties to know up to the minute who owns what). Welcome to completely legal frontrunning.

via FCIC

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Gold...Bitches's picture

simple analysis of article: we're fucked

ReallySparky's picture

Gold...Bitches, that was funny. LOL. So true, so true.

MarketTruth's picture

Am sure by WE you also mean Greece, who Goldman Sachs aided in contriving up manipulated financial books and the country is now suffering massive financial loss and riots in the streets on a weekly basis.

DocLogo's picture

If a bunch of mortgages are lumped together and packaged, and say a few default but others don't, how is it determined which way the bet pays? At least a game of craps has dice where everyone can see which numbers come up, how does one know whether these mortgages are being paid or not?

aurum's picture

moody's rated it AAA. thats all you need to know. duh.


sarcasm off

SWRichmond's picture

I put this towards the bottom but I'm reposting it up here to generate comments.

Picture #4 is a perfect illustration of Exter's pyramid.


See, I do understand.

New_Meat's picture

Just the ones that default, and just the amount of the default==the haircut that the "bond takes."

Servicing Co. matches to individual mortgage.

- Ned

suckapump's picture

I'm going to Vegas where I'm going to bet $50,000 on black. The probability of a win is 47.37%. The payout is 1:1. The house edge is only 5.26%, but I will pay you a whopping 7% ($3,500) up front to cover my loss if I lose. Feel queasy about that deal? All right, how about this? I'm going to pay you the same amount ($3,500), but instead of betting $50,000 on black, I'm going to use that money as collateral to borrow $400,000 and bet that on black, but you'll still have to cover my entire leveraged loss if I lose. Okay? No? What if I told you that you wouldn't be able to take part in any of the winnings? Still don't like it? I can't possibly see why.

I'm on a horse.

jkruffin's picture

It's kind of like buying a bag of apples, where the bag in not see through so you can inspect them all before you buy them.  See Goldman and JPM know there are bad apples in the grab bag, but they sell it to you anyway, without revealing there are bad apples in the bag, and they have Moody's tell you all the apples are delicious, plump, and sweet.  You get the bag finally home and open it, and low and behold they are all rotten.  Hope that sums up derivatives for you.

Commander Cody's picture

As synthesized, the rotten apples cost you much more than the alleged good apples.  Multiple whammy.

clymer's picture

Does anyone else find it a slight bit ironic that TD's alter ego is married to a card-carrying member of the CFR?


...just sayin'

Inspector Asset's picture

Maybe now would be a good time, to explain what the fuck all these files that secretly load anytime I go to this site?

For example : secure-us.imrworldwide.com

servers it's all of their embedded bullshit to track their readers.

Nielsen/NetRatings SiteCensus
var pageTracker = _gat._getTracker("UA-11091066-1");


I want  an explantion from TD as who is tracking its users?


It's bad enough that all your sponcers are the same exchanges and banks that you bash all day long.

Are your sponsers really that stupid? I don't think so.  So what's really going on here TD?

Why are the users of this site being tracked(every keystroke) and by whom?  I check back later today for an answer.


Inspector Asset's picture

who is TD alter egO?

who is TD?

Tense INDIAN's picture

am i correct in my belief that India and China were BUBBLES???

whacked's picture

Thanks TD, appreciated.

Rainman's picture

Yes, kudos to TD. I would now like to see a point-by-point refute from the Squid. I urgently do not want to believe they are a gigantic and catastrophic bucket shop.

B9K9's picture

I posted this further down, but it's applicable here as well. The one thing that sometimes surprises me about ZH is that it never seems to consider what, if any, valid points are made on behalf of the ponzi.


Why do dog racing tracks employ mechanical rabbits? To stimulate & engage dogs in order to get them to run. Otherwise, they would most likely lie around all day like most household pets, getting up only now & then in order to eat and/or take a piss.

At a certain level, the power-elite who designed our growth dependent system understand our primordial instinct to become complacent when satisfied ie Maslow's hierarchy of needs. To drive the human herd towards continuous activity (actually, excess productivity) required policy tools that employed both carrot & stick.

The carrot, or hare, is represented by the wealth effect of escalating asset values. The stick, or threat, is the compounding debt loads that keeps everyone running faster & faster on the hamster wheel. Designing, implementing & managing an infinitely leverageable & expandable credit system is indeed "God's work" if one buys the notion that the 'carrot/incentive stick/threat' model is good for mankind. That is, keeping them active, employed & out of trouble.

Our entire existing political system of rewards & entitlements is utterly dependent on this system of ever expanding credit. If the system fails, so too does the state. Once you understand how vulnerable we are to this system collapsing, then it's easy to understand why the PTB will do, and have done, anything, and I mean ANYTHING, to preserve the status quo.

Cognitive Dissonance's picture

"Once you understand how vulnerable we are to this system collapsing, then it's easy to understand why the PTB will do, and have done, anything, and I mean ANYTHING, to preserve the status quo."

And as you stated, the system is utterly dependent upon the system to maintain the system. Thus the system is rapidly becoming extremely unstable and thus vulnerable to collapse, either by intent or by design.

So everyone out there who says there's nothing we can do, that the system will continue in some form or another for a long time, that "they" are too powerful, I say bullshit. The system has never ever been so susceptible to collapse as it is now. And the powers that be understand this and that's what keeps them up at night.

Who wants to be the first domino? Who's ready to be the 134,834th domino? Who would like to be domino 34,827,922? Be the change you want. Apply some pressure to an already unstable system. It's going down. Why not take it down before it's stripped of everything of value? Come on people, grow some balls.

Stop seeing the walls as 100 feet high when the walls are no higher than your neighbors fence. The first 6 feet is real. The next 94 feet is all a part of your conditioning and in your mind. Once you defeat these bastards in your head, the rest is utterly manageable.

Each one of us needs to apply just 5 percent more leverage to the system and it crumbles in a NY minute. We have the numbers and now we have the fulcrum. Push a little harder. I promise you that if each of the 250,000 people who visit ZH tomorrow called their Congress person tomorrow, the system would sit up and take notice.

If each person who visited ZH tomorrow got 2 other people to call their Congress person tomorrow, the system would shake. If each person who visited ZH tomorrow added one extra person each day to start calling, the system would come down in a month. I'm tired of hearing people say we are fucked. No, they are fucked. Get off your ass and fuck them.

Do the math people. Do the math. We have the power, not them.

Boilermaker's picture

Yea, but what about that gay avatar?  Geez.

AccreditedEYE's picture

Do you even know what it means? Learn a little before you insult.

Boilermaker's picture

It was an inside dig and not addressed to you.  But, thanks for butting in.

ColonelCooper's picture

As opposed to your unique and well thought out one?  Where'd you get that anyway?  Hannity store online?  Deep.

Boilermaker's picture

I guess you'll have to steer me toward my statement where I proclaimed my avatar to be 'unique and well thought out'.

I have all day; take your time.

You people are an odd lot, really.

downrodeo's picture

fight club mentality... not always bad though

MayIMommaDogFace2theBananaPatch's picture

C'mon -- just a tiny hint about that last variable there...You can tell us.

B9K9's picture

I'm more passive, sanguine actually, about our prospects. As I've noted on many previous occasions, our entire socio-political-economic model is 100% dependent on growth. No growth, this fucker is coming down, and taking the USA along with it. It really is as simple as that - we don't have to do a dang thing - the outcome is baked in.

That's why I've continually hedged my bets over the last 2 years. I well understand the math, but was always looking for the very miracle(s) coming out of right field that would justify & support extend & pretend. While I enjoy ZH and am constantly amazed at the level of insight & analysis, in reality, it's merely diagnosing symptoms.

No one ever seems to question why the PTB are doing what they are doing. They know they cannot survive deflation (resulting in debt default & termination of entitlements), nor can they survive (hyper)inflation & the destruction of the dollar denominaited (oil) hegemony.

So we're boxed in - the only possible way out is/was growth. No growth, no USA. That's why I don't understand TD getting all worked up about FinReg or any of these other matters. None of the fuckers in Congress (or monitoring this site @ a TLA) seem to realize that they're aren't going to be around in fairly short order.

We are going to be (re)entering the era of warlords. I believe it will be primarily race based, which is why it's important to be thinking through what/which type of support network one can draw upon when the SHTF.

The US was going to fail at some point in the future. At what (distant?) point would that be? What would be the precipitating cause(s)? Why not now?

harveywalbinger's picture

When you say 'we', you seem to want to lump the bankers in with 'we'.  That is an incorrect assumption.  The central bank cartel does not know nationality.  They could give a fuck about 'we'.  When the USA has been wrung out of every last taxpayer dime possible, the bankers will just move shop overseas.  There's gonna be a new world reserve currency or basket of currencies of which the dollar will almost certainly remain a part of.  But the USA will have lost the advantage that's allowed us to reign over the rest of the world for the past 60 years.  

Austerity here we come.   

AccreditedEYE's picture

+1 They have the EM's in their sights now. They are preparing to plunder the next store of wealth.

CD's picture

B9K9, I enjoy your always insightful posts, but am at a loss here - could you elaborate? It seems to me the viewpoint you describe is (at least in the final outcome) none too different from CogDis's suggestion that you seem to disagree with.

In response to 'why bother' - the difference between initiating the ejection sequence now and staying with the plummeting aircraft seems to be that in the first instance, the pilot MAY survive. Certainly not a sure thing, but at least there may be a chance. If the populace  is NOT reduced to the state of complete and utter help/hopelessness (well, at least any more than already is the case, in all senses of the words), there MAY be a chance to rebuild, minimize destruction and perhaps (one can dream) even hold accountable SOME of the operators responsible.

Seer's picture

In a way I feel that I could (almost) answer for B9K9, as we're on the exact same page (review his and my postings).

The angle/path forward is, and always has been, fight or flight.  For each individual it's a matter of his or her preference for dealing with the situation.  There IS NO one true answer.  Fighting WILL take it down.  Walking away WILL bring it down.

Once I thought that the fight response was necesary (perhaps being a former Marine had something to do with it).  Clearly the system will fight back, and it will do so with far more force and destruction.

Now, however, I'm convinced that a flight mechanism makes more sense, but that's for me.  I'd like to think in terms of Aikido: I'll help the system kill itself, but I won't confront it directly (OK, I WILL still speak out against its sanctioned violence, as violence is a big NO).

If there's anything to take out of all of this (no, I don't believe an understanding of today's economics is important at all, that is, other than to monitor the status of the battle), it's that we have to think long-term, think in terms of NO growth, of being honest in our attempts to understand and practice sustainability, for we are only borrowing this world/planet from our children.

To reply to your pilot ejection analogy, yes, in a way this is a flight mechanism, disconnecting from that which does not work.  However, we mustn't be lulled into a sense that we can defy the perils of landing through the thick jungles via parachute with the desire/aim of climbing into another jet.

downrodeo's picture

plan for the 7th generation out...

Gully Foyle's picture

Cognitive Dissonance

"If each person who visited ZH tomorrow got 2 other people to call their Congress person tomorrow, the system would shake. If each person who visited ZH tomorrow added one extra person each day to start calling, the system would come down in a month. I'm tired of hearing people say we are fucked. No, they are fucked. Get off your ass and fuck them.

Do the math people. Do the math. We have the power, not them."

HAHAHA, that is one of the funniest things I read today, also the saddest.
Do you think they CARE about your puny little calls?
During the runup to the IWR vote Clinton;s office was receiving calls 100 to 1 telling her NOT to vote for authorization. Blogs and individual reported the same thing happening in their politicians offices.
We know how that turned out.
I found these pics of you CD leading your fairy tale existence.

If anyone intends to hit a politician hard tell them you will NEVER donate a cent to them or vote for them until actions are taken, real actions with real consequences. Tell them you refuse to ever vote for them or their party until we the people see perp walks and policies to protect the majority interest not the monied minority.
Tell them all your efforts and cash and the efforts of your friends and neighbors will go to electing the Pirate Party, or the Pot Party,anyone but their party.
Take their money away, take their faux support and it hits them right in the balls.

Take those hoofs off CD, put the horn in the closet and heed the immortal words of..

I don't vote. Two reasons. First of all it's meaningless; this country was bought and sold a long time ago. The shit they shovel around every 4 years *pfff* doesn't mean a fucking thing. Secondly, I believe if you vote, you have no right to complain. People like to twist that around – they say, 'If you don't vote, you have no right to complain', but where's the logic in that? If you vote and you elect dishonest, incompetent people into office who screw everything up, you are responsible for what they have done. You caused the problem; you voted them in; you have no right to complain. I, on the other hand, who did not vote, who in fact did not even leave the house on election day, am in no way responsible for what these people have done and have every right to complain about the mess you created that I had nothing to do with.”

“The next time they give you all that civic bullshit about voting, keep in mind that Hitler was elected in a full, free democratic election”"Now, there's one thing you might have noticed I don't complain about: politicians. Everybody complains about politicians. Everybody says they suck. Well, where do people think these politicians come from? They don't fall out of the sky. They don't pass through a membrane from another reality. They come from American parents and American families, American homes, American schools, American churches, American businesses and American universities, and they are elected by American citizens. This is the best we can do folks. This is what we have to offer. It's what our system produces: Garbage in, garbage out. If you have selfish, ignorant citizens, you're going to get selfish, ignorant leaders. Term limits ain't going to do any good; you're just going to end up with a brand new bunch of selfish, ignorant Americans. So, maybe, maybe, maybe, it's not the politicians who suck. Maybe something else sucks around here... like, the public. Yeah, the public sucks. There's a nice campaign slogan for somebody: 'The Public Sucks. Fuck Hope.'"

"I have solved this political dilemma in a very direct way: I don't vote. On Election Day, I stay home. I firmly believe that if you vote, you have no right to complain. Now, some people like to twist that around. They say, 'If you don't vote, you have no right to complain,' but where's the logic in that? If you vote, and you elect dishonest, incompetent politicians, and they get into office and screw everything up, you are responsible for what they have done. You voted them in. You caused the problem. You have no right to complain. I, on the other hand, who did not vote -- who did not even leave the house on Election Day -- am in no way responsible for that these politicians have done and have every right to complain about the mess that you created."

George Carlin

CD's picture

Your more 'realistic' viewpoint may very well be right. But there is a bit of difference between 100 people calling against and 1 person calling for a course of action, versus 5% of the state's citizens calling against and 0.05% for - even though the ratio is the same. If we assume that only half of NY state's population can vote, that's still 10M people. I think (call me a hopeless fairy if you will) that 500K callers in a single day MAY get their attention to pique just a bit. A lot of it is about volume, momentum, inertia. There is a (large) threshold of critical mass that must be gathered, to be sure - but if the numbers are used as a hammer against a spike, transferring it to a concentrated, small area - cracks may be achieved in the largest of monoliths. As the legends say, pop a wooden stake into the resulting hole, pour lots of water, pound in stake further and presto - eventually you have the Pyramids. It would be high time leverage is used in the appropriate, old-fashioned way. Think Archimedes. It's not even the Earth that has to be moved, merely a few thousand parasitic beings.

fiftybagger's picture

A vote is a vote for Diebold, however your real vote, just 20 billion of them could end the game tomorrow....

Cognitive Dissonance's picture


It's always so much easier to tear something down than to build something up, isn't it. There no risk involved, no emotional investment is made, you get to work off a great deal of anger and you can disparage and mock to your heart's content. Calling someone names, making fun of their efforts is so easy even a caveman can do it. Which is what you are showing us you are.

So much easier to stand in the middle of the crowd and scream "Doom, we're all doomed I tell you. We are powerless, impotent and unable to stop the beating" than to stand in that same crowd and try to build support for self improvement, to instill in people the understanding that they already possess all that they need to succeed if only they would look. This frightens you, doesn't it Gully. Because if you recognized this in yourself, you might just be called upon to act on it. Scary stuff Gully.

Does it make you feel powerful when you tell everyone else they are powerless? Do you get off telling people they are sheep and are going to be slaughtered no matter what. What exactly have you built with your comments? What good have you done? What exactly was the purpose of your venom? Certainly not to help, only to pull down and destroy.

Laugh all you want to Gully but all I see is a moral coward in wolves clothing, a bully reveling in other people's struggles, a frightened little boy who is desperately trying to hide his fear. You're more frightened of other people recognizing your moral cowardice than you are of anything else in life. So you destroy, mock, cajole, insult, anything except build morale and belief of one's ability to do anything one wishes to do. 

I see who you are Gully. It's as clear as the sky on a crisp fall day. 

nmewn's picture

Gully is "positively negative" about most things in life...LOL.

Bop over...or up in this case, to Leo's post on "Calpers & Risk" if you would be so kind and view my post there. I would appreciate your thoughts, comments opinion on that topic.

Gotta go to work now as I am one the worker bees ;-)


Alexandre Stavisky's picture

How could people invest in this gargage?  I mean, just read the CDO titles.  Kleros?  Rockbound?

Why not name them deep-six, destined to fail, peonage to a prince?

It is evident that malefaction was intended upon design and dissemination of this debt.

Any central banker or even seasoned financial operator who pleads ignorance or misinformed theories as an excuse to felonious conduct, is a liar.  There is here, an architecture which exposes  the authors as having malice aforethought and NO compunction of conscience in plundering from the "unknown and uncared for" OTHERS. 

Value stripping and wanton graft in disguise.  In fact, those should have been the paper names instead of Cairn Mezz or McKinley Funding.  Wasn't McKinley assassinated shortly after taking office?  And isn't a cairn a memorial for the dead or soon-to-be dead, composed of stacked heavy stone?

What a graft filled, duplicitous, cancerous construction.  The son of morning IS delighted.

After all what is the seeking of riches without merit?  What slakes the inadequate ego more than ill-gotten gain?

Just as it has ever been.  These participants seek that, "all the stars of heaven shall bow low unto ME!".

All is VANITY, CONQUEST, SELF-ASSERTION, and contempt of righteousness.

We can not seek for equity, or pure law, or fairness in life if we DEFY THE SOURCE.

Squid-puppets a-go-go's picture

"If each person who visited ZH tomorrow got 2 other people to call their Congress..." etc etc.

Better idea: how about everyone who visits ZH max out their credit cards and loan extensions tomorrow, then stop making repayments. System will also cease to exist, at the self enrichment of the people who have the intelligence to see through the BS.

Darwinism at work

Inspector Asset's picture

I really like what you have to say CD.

How do we go about delevegering the system. Just pull our money out of the banks? Out of the stock market? AT the same time?


pan-the-ist's picture

*phew* I feel better now.  God has a plan.

Is your contention that the hamster wheel only works on a small(er) percentage of the population who must overproduce to compensate for the slackers who are on the dole?

buzlightening's picture

dead head fed goon gangster bankster paper shuffling 4th reich ponzi milk machiners, don't have you wishing you take something back on a blog 1 day out of the month???  You are not human!! You're a drooling vegetable ready for planting season!! Derivatives? Smoke'em if you've got'em!!  Ashes!  Ashes!  We all fall down!!  I think most people with paper ponzi assets, who trust goon govs, will be able to sweep up their net worth in a thimble!!  SOON!!!

MayIMommaDogFace2theBananaPatch's picture

Those are some gorgeous charts.  THX!

I can't believe you don't brand that stuff -- what would Reggie think?

hooligan2009's picture

and this is at June 2008? a lot will be netted, but as they say "mind the gap". The gap in this case will be an extrication from a restoration of monetary policy settings to those appropriate for a healthy economy running at say 5% nominal and 2% inflation for a healthy 3% real growth rate.

The ten year bond yield would then be c. 5% also, handing those who own ten year bonds a loss of 9 year duration x (5%-spot of 3%) = an 18% loss, mitigated by the spot yield of 3%, ergo a 6 year return of zero.

Welcome to the reason why Japan cannot tolerate a normally measured economy. Economic metrics are dead, we need new ones. Bleh!

In a "normal" economy with those 5% nominal growth rates and yields, you can't even hide in the short end. The five year bond rate would fit part way between a 3% short rate and the 5% ten year, so would have to alos lurch up 2% x four years duration = 8% loss or a 4 year return of zero.

Mind the gap says that if GS does go belly up because of a gap upwards in interest rates of 3% in 6 easy stages of 0.5% from the Fed, then there will not be sufficient capital in the world to secure the margin calls. 3% times 250 trillion is a rather large number needed, and obviously larger than the combined capital of all the major banks put together.

The Fed needs to engineer deflation, screw the rest of us with falling living standards via reduced pensions, higher health care costs and much much lower discretionary income while putting up with the fat cat bonuses while this crap shoot continues.

Let's hope the Fed's version of giving the markets a few decades (like Japan) to figure out what to do is a result of blind faith in a completely new economic system.


DudleyDoRight's picture

Interesting analysis, and also thanks to TD.  Under the Basel 1 analysis, I'm wondering whether the "exposure" #s would be credit equivalent amounts.  And if so, I'm wondering whether goldman (though it was under the SEC's capital rules in 2008) would have enough Tier 1 and Tier 2 capital.  Hmm...off to the annual statement.  But if someone has done this already, please do reply.

jm's picture

Always nice to see you working through the Black Swans, my friend.

It would be easier to see your gap if SwapClear became a clearinghouse for all OTC, contracts were standardized, and there was not only a master swap agreement for IRS, but a master agreement and comprehensive novation triggers for all OTC positions.

When you say the Fed needs to engineer deflation, are you saying they need to raise policy rates? 

By any "market" metric (LIBOR, EONIA, SONIA, etc.) is massively low because the market is dead.  Central bank discount windows and liquidity facilities have replaced the market.  The prospect of defaulting EU states can't even get more than a flattening out of EONIA.  Interbank markets and their derivatives look pretty dead.

In that context, I can't see much chance of bond yields going up.  Governments are the last thing standing and their goal is to preserve a dysfunctional system.  QE works to hold things together, but agreed it won't amount to a real solution.  Prospects are so poor that I'm thinking the next iteration of QE will target bond yields and leave the volume of purchases open-ended. 

So as long as yields stay microscopic, gold is the best money market instrument. Bullion isn't a poor idea.