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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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Wed, 06/30/2010 - 18:29 | 445282 Gold...Bitches
Gold...Bitches's picture

simple analysis of article: we're fucked

Wed, 06/30/2010 - 18:35 | 445295 ReallySparky
ReallySparky's picture

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

Wed, 06/30/2010 - 19:12 | 445377 MarketTruth
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.

Wed, 06/30/2010 - 20:02 | 445456 DocLogo
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?

Wed, 06/30/2010 - 20:49 | 445540 aurum
aurum's picture

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


sarcasm off

Wed, 06/30/2010 - 22:55 | 445703 SWRichmond
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.

Thu, 07/01/2010 - 00:27 | 445810 New_Meat
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

Thu, 07/01/2010 - 00:33 | 445819 suckapump
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.

Thu, 07/01/2010 - 06:08 | 445950 The Rock
The Rock's picture

+1. LOL

Thu, 07/01/2010 - 07:47 | 445997 jkruffin
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.

Thu, 07/01/2010 - 09:56 | 446197 Commander Cody
Commander Cody's picture

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

Wed, 06/30/2010 - 21:53 | 445619 clymer
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'

Thu, 07/01/2010 - 08:27 | 446028 Inspector Asset
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 :

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.


Thu, 07/01/2010 - 08:29 | 446031 Inspector Asset
Inspector Asset's picture

who is TD alter egO?

who is TD?

Thu, 07/01/2010 - 04:57 | 445933 Tense INDIAN
Tense INDIAN's picture

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

Wed, 06/30/2010 - 18:35 | 445299 whacked
whacked's picture

Thanks TD, appreciated.

Wed, 06/30/2010 - 19:22 | 445395 Rainman
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.

Wed, 06/30/2010 - 20:36 | 445516 B9K9
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.

Wed, 06/30/2010 - 21:20 | 445568 Cognitive Dissonance
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.

Wed, 06/30/2010 - 21:26 | 445576 Boilermaker
Boilermaker's picture

Yea, but what about that gay avatar?  Geez.

Wed, 06/30/2010 - 22:39 | 445678 AccreditedEYE
AccreditedEYE's picture

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

Wed, 06/30/2010 - 22:49 | 445694 Boilermaker
Boilermaker's picture

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

Wed, 06/30/2010 - 22:54 | 445705 ColonelCooper
ColonelCooper's picture

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

Thu, 07/01/2010 - 06:50 | 445972 Boilermaker
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.

Thu, 07/01/2010 - 14:28 | 447065 downrodeo
downrodeo's picture

fight club mentality... not always bad though

Wed, 06/30/2010 - 21:45 | 445608 illyia
illyia's picture

-401K x 350 M Sheeple = R

Thu, 07/01/2010 - 00:45 | 445841 MayIMommaDogFac...
MayIMommaDogFace2theBananaPatch's picture

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

Thu, 07/01/2010 - 05:45 | 445945 fiftybagger
fiftybagger's picture

Stolen retirement = revolution

Wed, 06/30/2010 - 21:56 | 445623 B9K9
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?

Wed, 06/30/2010 - 22:18 | 445651 harveywalbinger
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.   

Wed, 06/30/2010 - 22:31 | 445669 AccreditedEYE
AccreditedEYE's picture

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

Wed, 06/30/2010 - 22:37 | 445677 CD
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.

Thu, 07/01/2010 - 05:18 | 445940 Seer
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.

Thu, 07/01/2010 - 15:13 | 447175 downrodeo
downrodeo's picture

plan for the 7th generation out...

Wed, 06/30/2010 - 22:56 | 445706 ColonelCooper
ColonelCooper's picture

+1000 to the tenth, CD

Wed, 06/30/2010 - 23:08 | 445721 Gully Foyle
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

Wed, 06/30/2010 - 23:37 | 445757 CD
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.

Thu, 07/01/2010 - 06:04 | 445947 fiftybagger
fiftybagger's picture

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

Thu, 07/01/2010 - 06:49 | 445970 Cognitive Dissonance
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. 

Thu, 07/01/2010 - 07:04 | 445978 nmewn
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 ;-)


Wed, 06/30/2010 - 23:37 | 445758 Alexandre Stavisky
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.

Thu, 07/01/2010 - 06:16 | 445955 Squid-puppets a...
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

Thu, 07/01/2010 - 08:43 | 446051 Inspector Asset
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?


Wed, 06/30/2010 - 21:23 | 445572 pan-the-ist
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?

Wed, 06/30/2010 - 18:44 | 445318 buzlightening
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!!!

Wed, 06/30/2010 - 18:47 | 445323 geopol
geopol's picture

TD Thankx

Thu, 07/01/2010 - 00:54 | 445855 MayIMommaDogFac...
MayIMommaDogFace2theBananaPatch's picture

Those are some gorgeous charts.  THX!

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

Wed, 06/30/2010 - 18:47 | 445325 hooligan2009
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.


Wed, 06/30/2010 - 20:04 | 445459 DudleyDoRight
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. to the annual statement.  But if someone has done this already, please do reply.

Wed, 06/30/2010 - 22:50 | 445695 jm
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.

Wed, 06/30/2010 - 23:12 | 445727 RockyRacoon
RockyRacoon's picture

The Fed needs to engineer deflation...

No engineering needed.  There is not enough "money" circulating which will fill the voids when all this stuff collapses like the proverbial house of cards.  The Fed's reserves will have to be built to unimaginable levels to even make a dent in covering the deflationary implications.  We give Ben a lot of grief here on ZH, but I can tell you I would not like to have his job.  If he really understands as much as he thinks, he must be scared to death.

Thu, 07/01/2010 - 01:23 | 445865 minsky4ever
minsky4ever's picture

I received two 3.5" floppy disks back in 2000 before the election that contained Webster Tarpley's "Surviving the Cataclysm." In it he went over the successive crises that led to LTCM and the repeal of Glass-Steagall.

In Chapter 2 of that book he went after derivatives and how the growth in derivatives, engineered by Wendy Gramm and actually made possible by Reagan back in 1982, was going to lead to a huge crash in the near future.

Tarpley got every single one of the players that were bailed out by us in 2008 correct right down to AIG and the idea of counter-parties and the federal government (ultimately us) bailing them out.

Interesting book. You'd think people responsible for the financial well-being of the country would have been familiar with what he was saying. And what he was saying is what Minsky was saying back in 1986 - every bailout of a too big to fail entity has within it the seeds of a new bigger bailout in the future. It's moral hazard writ large and it hasn't changed.

And as long as Barney Frank and his opposite numbers in the senate have anything to do with it, it'll never change. Back in 1997 with the world economy spinning out of control, Senate bill 257 called for the complete deregulation of US commodity exchanges and futures markets. The co-sponsors? Richard Lugar for the GOP majority and good old liberal icon Patrick Leahy for the Democrats. Two wings of the same party, the fucking money party.

Yeah, we're truly fucked because so far there have been no systemic changes anywhere in the financial sector. It needs a total root and branch overhaul. But I ain't holding my breath.

Thu, 07/01/2010 - 08:33 | 446037 pan-the-ist
pan-the-ist's picture

Add to it that Tea Party favorite Scott "Scotty" Brown is no different than any other pol.  How long will it take for Rand Paul to jump ship?

Thu, 07/01/2010 - 20:57 | 448034 maddy10
maddy10's picture

No way,

Japan has and had surpluses,People saved and save 30% of income[that's lower now] and their economy was and is tiny compared to global GDP then and now

Moreover they worked in factories that produced exports to survive.

Japan just barely survived their depression last time, now it is global and no one can stall this

so comparison between japan and US is wrong;US cannot do Japanese this time

70% of USGDP is consumption and  nearly 2/3rds is on credit for past 20 years, Yet outstanding debt is only 14 trillion, where has all the money gone?

In early days it should have shown up in general increase in wealth of businesses locally but this time it went abroad increasing wealth in poorer countries.Most of it is still locked in local real estate.Prices have gone up 3-30 times in many places over 20 years and will be up 100% atleast even with depression rates of 50-70% haircut

Americans today are better off than most in other countries and should just accept the fact that normalcy doesn't mean 'a new car every year'.

Wed, 06/30/2010 - 18:47 | 445326 redarrow
redarrow's picture

Nice work TD. Many thanks for that. Despite myself being not bad at analysis, wall st and its deals are just opaque to a non finance guy like myself. Just dont know what I would do without your insights. Being a follower, I have benefited from your articles and have reasonably protected myself from this insane market.


Wed, 06/30/2010 - 18:48 | 445329 pitz
pitz's picture

Just shut the company down before the bonus seekers can do any more damage to the economy.  The public deserves nothing less.

Wed, 06/30/2010 - 18:55 | 445348 MsCreant
MsCreant's picture

They are a gang. They need to be treated accordingly.

Wed, 06/30/2010 - 19:20 | 445392 anony
anony's picture

You can't kill a company. It's only a piece of paper.  You have to begin to think of the Robotoids who run the shop, and those you kill.

Wed, 06/30/2010 - 20:09 | 445470 Cistercian
Cistercian's picture

 "You can't kill a company"...I say we give it our best shot.

 I say YES WE CAN!


  Of course, we could always just drag the corp's officers away in chains.That works too.

Wed, 06/30/2010 - 19:37 | 445421 Cognitive Dissonance
Cognitive Dissonance's picture

Lets see, you've been registered on ZH for 38 weeks and yet you've only been commenting for the past 2 weeks. And nearly all of them are derogatory. So I guess that makes you, or more accurately your ID/Avatar, a tool.

So now the only remaining question is.......who are you working for?

Wed, 06/30/2010 - 19:43 | 445433 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

How the hell did he remember his password if he hadn't signed in for almost a year?!  He must have posted it on a sticky tab on the side of his computer......'will sign in and tell them how I feel one day....'

Wed, 06/30/2010 - 19:49 | 445439 The 22nd Prime
The 22nd Prime's picture

Captcha. He finally got it.

Wed, 06/30/2010 - 19:54 | 445444 The 22nd Prime
The 22nd Prime's picture

A kid a Dennys helped him out.


Wed, 06/30/2010 - 20:00 | 445451 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

He signs in at Dennies?

Well now I know of one person with an ipaduh.

Wed, 06/30/2010 - 20:28 | 445505 Boilermaker
Boilermaker's picture

Oh, we are doing the 'flag as junk' routine like some infants.  OK.  Ewww.  Somebody with 5 weeks 'seniority' is ouchy.  Ewww...

Here, I'll flag my own posts.  That will help move it along.  Then you can feel a sense of accomplishment.

Wed, 06/30/2010 - 21:29 | 445581 pan-the-ist
pan-the-ist's picture

I think with a little encouragement and the right frame of mind you will be able to rise above the flames and make some positive contributions to the general discussion.  Just find a point of view and a little passion.  Try not to dis TD, he puts in a ton of work to add the content here.  You might not always agree with the content, but if that is the case, wait for Marla to post something and unload on her instead.  That's what everyone else does.

Wed, 06/30/2010 - 21:39 | 445599 Boilermaker
Boilermaker's picture

Nobody, particularly me, dissed TD.  It was a bizarre and whacko ambush by a poster who feels some sense of superiority due to his / her 'seniority' and amount of posts.

I was mocking the asininity of the complexity of the situation GS has created.  Then, from left field, comes a self-appointed hall monitor who wanted to make a scene.  Fine by me.  The thrust of my comment was directly toward GS.  That fact that it was lost on some is something I can't control.

Every blog and chat board has those who seem to think they are the policing powers.  It's sad, wierd, and demented, but they are out there.  I seem to have found him.

To be honest, I enjoy Marla's commentary also.  Leo...well...not so much.

Wed, 06/30/2010 - 21:44 | 445606 pan-the-ist
pan-the-ist's picture

I think it is possible that your comment was interpreted as dismissive.  I am happy to hear that it was a misunderstanding.

Wed, 06/30/2010 - 21:50 | 445613 Boilermaker
Boilermaker's picture

Thanks. I'm not even sure how it was misunderstood.  But, morever, it's odd to see the carnage afterwards.

Since Cog. Dis. is alluding that I've been critical of TD's work and has felt it appropriate to comb through my post (why, I don't know).

I'd love to see an example.  Any example will suffice.  Any at all.

Wed, 06/30/2010 - 21:53 | 445620 Cognitive Dissonance
Cognitive Dissonance's picture

If I'm wrong about you than I apologize. But I went back and look at 15 of the 30 articles you posted comments on over the past 2 weeks. And you have been mostly dismissive and derogatory. So like I said, if I have you wrong then I apologize.

What's wrong with contributing to the discussion now and then? This is a community that knows each other well. So when someone walks in and starts dissing, it stands out. When that person has been registered for 3/4 of a year but only has posted for 2 weeks, it stands out even more.

I will back off and shut my mouth.

Wed, 06/30/2010 - 22:20 | 445654 Boilermaker
Boilermaker's picture

Fair enough.

By the way, a 'spaghetti diagram/chart' is used in manufacturing to show flow of materials.  I don't know if other industries use them or not.  But they are quite common and, of course, at the end are ridiculously complicated.

You are probably familiar with the term but here is an example.  Thus my thought/comment.

Wed, 06/30/2010 - 22:52 | 445697 CD
CD's picture

Here is the MOARSD (Mother of All Ridiculous Spaghetti Diagrams):

The DOD is really good at this kind of thing... But my personal favorite (special thanks to anyone who has a link to a hi-res version of the entire thing): biochemical pathways of metabolic processes

Wed, 06/30/2010 - 22:46 | 445688 Dburn
Dburn's picture

Talk about guts and gore.

Wed, 06/30/2010 - 21:29 | 445583 russki standart
russki standart's picture

Methinks doth protest too much. It's not that bad <g>

Wed, 06/30/2010 - 23:16 | 445730 RockyRacoon
RockyRacoon's picture

If I have it right, folks are just trying to tell you that your post did not contribute to the discussion.  Feel free to construct your own diagrams and post a link to it/them.  I, for one, would be glad to look at alternative depictions.  Cheerio.

Thu, 07/01/2010 - 02:32 | 445869 Village Idiot
Village Idiot's picture

Hey, Boilermaker, you are totally within your rights to be pissed. Of the many byproducts that are generated from this site, you have - perceived pecking orders, cliques, power envy, IQ envy, subservience to false "gods," and the list goes on.  Go ahead and make yourself comfortable, as the dogs have already backed away.  And so have their raccoons.  Is that barking I hear?  My post must have been discovered.

Thu, 07/01/2010 - 06:54 | 445974 Boilermaker
Boilermaker's picture

Amen to that.  It seems to happen everywhere though. 

Shall I 'flag' your post for you?  I be glad to get things started.

Thu, 07/01/2010 - 09:13 | 446120 Village Idiot
Village Idiot's picture

Please, be the first.  And enjoy your stay - ZH is a great site.

Thu, 07/01/2010 - 06:47 | 445968 Boilermaker
Boilermaker's picture

There is absolutely nothing wrong with the diagram(s).  They are (I assume) accurate and certainly well constructed.  It was just satire surrounding the fact that it's so busy.  Also, correct me if I'm wrong, but these are actually leaked GS slides, right?

Wed, 06/30/2010 - 18:54 | 445333 Muir
Muir's picture

Candy Man: Let him go! He doesn't have the money.
Sarge: What do you know about it?
Candy Man: My box got hit too.
Sarge: You're kidding! All 'em boxes at the bank got hit?
Candy Man: Not all.
Sarge: Only us?
Candy Man: People like us.
Sarge: What the hell do I have to do with you?
Candy Man: You're in the same boat.
Sarge: Not me! I'm not connected with you in any way.
Candy Man: Can you go to the police and report it? Huh?
Major: He's right.
Sarge: You shut up! The Candy Man's right. Whoever it was, if we can't call a cop... neither can they. Okay, Mr. Candy Man, you're the brains here. Who?
[the Candy Man suddenly sees a photo of Dawn Divine and the Sarge together and he reconizes her]
Candy Man: When we know how... we'll know who.





Wed, 06/30/2010 - 22:19 | 445652 Muir
Muir's picture


Thu, 07/01/2010 - 10:44 | 446341 WaterWings
Wed, 06/30/2010 - 18:50 | 445335 Miramanee
Miramanee's picture

I have an even easier way to explain this crap to the know-nothings on Capitol Hill:


Welcome to the cautionary tale of the Global Poker Tour.

The GPT, or Global Poker Tour, had humble beginnings. Back about 11 years ago or so, a few high-stakes Texas Hold ‘em aficionados got together in a dark room somewhere and began to hatch a plan that would change the poker world forever. Their birth child: The GPT.

It was a simple proposition really. The founders---we’ll Blithely refer to them as “the Masters” for lack of a better moniker---the founders each called a couple of their friends from Vegas and Monte Carlo and Macau and planned to meet one evening for a game of poker. They rented a room at the local Holiday Inn Express, rented a table and some chips, and they were ready to rock!

So, on this pretty starlit evening in 1997, all of the players descended upon room #1600 at the Holiday Inn and the game was on. And it was a good game, with lots of big pots and exciting show downs. And the game went on well into the wee hours of the morning. And by dawn everyone was pretty beat and hungry and in need of fresh air, and so they decided to settle up their accounts and come back tomorrow night for another game.

Now, one of the really groovy parts of the new GPT was that none of the players actually had to bring cash with them. The Masters figured that all were good for their markers, and besides, carrying a lot of cash around ain’t so safe these days.

So at the end of the inaugural game of the GPT, over 3 million dollars had changed hands. (Well you know what I mean. 3 Million chips we'll say.) The big winner this night was poker giant HP who had won over a million dollars in chips! Many others hovered around the break even point, and only AG found himself in the hole over $500,000. Of course, no debts were settled on this evening. The game would continue tomorrow, and trust among fellow gamblers runs as deep as blood.

Night 2 arrived, and 8 more players joined the game! And so the Masters went out and rented another table, and a few more poker chips, and took a bigger room at the Holiday Inn Express, and as the clock struck 8pm it was game on! And what a spectacular night it was for poker lovers!! Over 15 million dollars gambled, with BB finishing the night as the big winner with over 5 million in chips. Again, most players hovered close to even, and only 2 or 3 players had losses over 1 million $$.

Again, as this was a small game and everyone at the tables was considered good for their debts, no actual money exchanged hands. A few IOUs were scratched out on napkins and torn pieces of dominoes pizza boxes, but that was primarily just for references sake. The GPT was off to a rousing start, and the game was just beginning!!

Well as I’m sure you can imagine, the GPT really took off. Soon games were organized all over the country, and no longer were mere rooms at the local Holiday Inn Express sufficiently large enough---now we were talking ballrooms, and even auditoriums and arenas for the really huge events. And thousands of players had joined the ranks of the GPT brethren, and tens of BILLIONS of dollars was changing hands. And so the Masters met one night and penned a few rules to keep things running smoothly.

The 1st rule of the GPT was that all members were considered absolutely good for their debts. The 2nd rule of the GPT was that no member could cash out and leave the tour without the permission of the other members and particularly without the blessing of the Masters. As such, none of the tens of billions of dollars in debts and winnings needed to take place in cash. It was perfect! And all of the IOUs and markers and debts were recorded in a central repository run by the Masters---and all of the players trusted the Masters as they trusted their own family members. In fact, the GPT became a sort of surrogate family for the members, and loyalty ran deep.

So one day the Masters were discussing how they could grow the GPT without adding too many more actual players. You see, the games had gotten so unwieldy and massive---sometimes involving 10,000 players or more---that entire city blocks had to be rented out to accommodate not only the players but also the growing crowds of spectators.

And then it hit them! The Masters decided that they would create two new parts of the GPT: one would be a method by which spectators could wager with each other on who each thought would win the tournament, who would survive longer in the tournament, who would win a given hand, even who would finish their free cup of coffee first! The spectators could bet on anything and everything that pertained to the GPT! The second part would be a program by which players AND side-betting spectators could purchase insurance against their bets AND debts, just in case some member of the GPT or some member of the spectator group had unexpected bills to pay or, god forbid, broke rule #2 and asked for cash instead of the usual and expected IOU.

Well this idea took off like a jet plane! Soon Trillions and trillions of dollars were being bet and "swapped" by players and spectators and insurers and side-bettors. The excitement was palpable, and the GPT became the world’s highest "grossing" institution. My gosh, at one point it was estimated that the Global Poker Tour was worth, in total assets, almost half a QUADRILLION dollars!!! Of course because the rules were clear, and because a member's word that he could pay his debts if absolutely necessary was good, of that 500 Trillion dollars in assets, only a very small fraction existed in cash, or equity. The rest was debt, or leverage. What a great institution the GPT had become!!

But as we must remember, the 2 rules of the GPT were sacrosanct. All of the transactions were accounted for through IOUs and promissory notes and contracts and everyone in the GPT abided by these rules, and all grooved along quite swimmingly….that is, until the fateful day. The fateful day to which I refer----it makes me shudder to remember that awful day---that fateful day was the day that Bobby Lehman, one of the tours rising stars, realized that he couldn’t pay some of his bills…and he broke the 2nd rule! He went to his friend and fellow star, Franky Goldman, and told Franky that, as unfortunate as it was, he needed to cash in on Franky’s IOU to Bobby----an IOU totalling 22 billion dollars.

Franky was stunned. Franky didn’t have 22 billion dollars in cash!! The only way Franky could pay Bobby was to find his buddy Tommy Stearns and demand the 56 billion dollars that Tommy owed Franky.

Well I needn’t tell you what happened next. T’was a sad day in not only the life of the GPT, but also for the whole wide world. The avalanche of margin calls and requests for payment of debts and requests for payments of side bets and demands for payments of insurance policies exploded. And while theoretically the whole thing added up to zero---many people just figured that it wasn’t a big deal because everyone could just get together and exchange all the money and everything would work out---there were lots of flies in the ointment.

First it was discovered that the clearing house created by the Masters for all of these IOUs hadn’t really done a great job of accounting for everything. There were lots of holes in the books and strange entries and "fuzzy math" and missing pages. Second of all, the web of IOUs and debts was so tangled and so huge, that there was no way for everyone to be able to work out their debts with everyone else simultaneously and in a way that would leave everyone back at zero. Thirdly, literally MILLIONS of players and spectators and side-bettors had used their IOU "winnings" as collateral to buy stuff like houses and yachts and airplanes, and so the IOUs really didn’t represent the zero-sum dynamic that everyone said it did. And fourthly, some of the players and side-bettors and insurers were more entangled than others---just like O’Hare airport is more entangled with flights that the airport in West Lebanon, NH----and so lots the more entangled players ended up getting so overwhelmed that they----I hate to say it---took their own lives and left all of their counterparties holding IOUs that had no way of being paid.

What a disaster this was. What a mess! What had begun so innocently and had been so small at first became the engine that ended up bringing the entire world’s economic system tumbling down. And all of the leaders of the world got together and decided that they still wanted the GPT to exist, because it made them really really rich, but that they could never ever let anyone break rule #2 again! And so there would be no more Tommy Lehmans. Anytime a player was broke and needed cash for some reason, the governments of the world would give them the money and the people of the world would pay back the government through taxes. And that way the Global Poker Tour could survive and live on forever! Because the survival of the GPT, after all, is best for everyone.

Wed, 06/30/2010 - 20:17 | 445488 boooyaaaah
boooyaaaah's picture


Wed, 06/30/2010 - 21:30 | 445585 mee-mee-mee
mee-mee-mee's picture

thanks, great post for us laymen.

Wed, 06/30/2010 - 23:20 | 445735 RockyRacoon
RockyRacoon's picture

Is that you Dennis?  Where ya been?  No CNBC appearances lately.

Just kiddin' -- glad to see you on board.

Wed, 06/30/2010 - 21:31 | 445586 KTV Escort
KTV Escort's picture

Well done. Somebody get Miramanee a ZH t-shirt

Wed, 06/30/2010 - 21:32 | 445588 russki standart
russki standart's picture

Excellent post Miramanee. Even a dummy like me can get it.<g>

Wed, 06/30/2010 - 22:34 | 445671 bigkahuna
bigkahuna's picture

Thanx for the good post. I wonder how much of other peoples money can be spent before there is no more left. I bet our sociopath politicans wonder the same thing--because they will all be buying estates in other countries ahead of this--like senator dodd already has.

Thu, 07/01/2010 - 00:05 | 445787 Joe Sixpack
Joe Sixpack's picture

Great story. Here is a shorter, less complete one (summary- I think I originally saw it here):


Guy buys a horse for $100. Sends the $100 electronically. Says, deliver it to my house. The seller calls up a day later and says, I got a problem. The horse is dead.

Buyer says, refund tthe $100. Seller says, can't I spent it. Buyer says, ok, send the horse over anyway. I'll raffle him off.

Buyer sets up raffle, sells 80 tickets at $10 each. Collects $800.

A few days later the original seller says, how'd the rafflle go?

Buyer says, good. I collected $800, got my $100 back plus more.

Buyer says, wasn't the winner pissed? Seller says, yea, but I refunded him his $10.

Wed, 06/30/2010 - 18:51 | 445338 sheeple
sheeple's picture

whoa cool post

Wed, 06/30/2010 - 18:52 | 445341 MsCreant
MsCreant's picture

Goldman Sachs must die. On a long enough time line...

Wed, 06/30/2010 - 19:18 | 445387 buzlightening
buzlightening's picture

LOL! Great humor but based in fact!!  Are a gang treat then as such!!  Great stuff!! Thx Ms

Wed, 06/30/2010 - 19:59 | 445450 AccreditedEYE
AccreditedEYE's picture

They hold too much power. If our "Representatives" had any interest in looking out for the COUNTRY, they would have stood behind breaking these scum bags. Instead, we have to hear about global competition, the banking lobby, watered down amendments and, let's not forget the most frustrating: the collapse of the global financial system.


Like every other group throughout history that has amassed too much power and influence, they will be torn down. When and how is the question. Their manipulations can be covered for only so long. Deflationary forces are our ally.

Wed, 06/30/2010 - 20:18 | 445490 Cistercian
Cistercian's picture

 Welcome to Mordor, the land of the dark lord.Note, the gulf was too attractive so it is being remodeled to better reflect the new theme....widespread destruction based on an unholy unslakable thirst for money and power.

 GS and the other super criminals of our time must be defeated.The nov elections could be interesting...if every incumbent loses to an independent.But there I go again, being overly optimistic....


Thu, 07/01/2010 - 05:44 | 445943 Seer
Seer's picture

Those positions that you wish to replentish ONLY work if operated with an "unslakable thirst for money and power."  Anyone who violates that rule will encounter poor airplane maintenance, scandals and other means to squelch them, for they are only cogs in the system.  The only way to not be a cog in this system (of corruption and greed) is to, well, NOT be a cog in the system (change come from without, and needs to focus on being without).

Wed, 06/30/2010 - 20:58 | 445549 docj
docj's picture

Goldman Sachs == Wolfram & Hart

So, who's our "Angel"?

Wed, 06/30/2010 - 18:53 | 445342 sheeple
sheeple's picture

Hi fellow ZH readers, any updates on the oil gusher? appreciated thx.

Wed, 06/30/2010 - 19:18 | 445389 anony
anony's picture

Sold my Volvo years ago, never again.

Thu, 07/01/2010 - 08:31 | 446035 Rusty Shorts
Rusty Shorts's picture


Wed, 06/30/2010 - 19:26 | 445399 nmewn
nmewn's picture


From what I understand the A-Whale is undergoing government inspection/certification as it does NOT return 99.99% pure sea water back to the GOM...just 90-95% sea the impeccable government logic here is 100% of the spilt oil is preferrable...apparently. Of course they (government) are still trying to figure out the Jones Act implications of once the A-Whale is FULL will the Taiwan owned vessel be allowed into port to disgorge it's cargo and return to the spill site.

Elsewhere, the Jones Act is being circumvented by private party's BUYING foriegn skimmers and reflagging them as U.S. ships. The domestic fleet of 20,000? oil skimmers is FINALLY moving after the illogic of bureaucrats saying "what if a spill happens where they are currently DOCKED" was overcome by the reality of the situation.

Maybe we should treat it like everything else we do lately and nuke it and see what unintended consequences arise from THAT PROGRAM as well ;-)

Your welcome.


Wed, 06/30/2010 - 18:53 | 445344 bull-market_3.0
bull-market_3.0's picture

Wow, I understand derivatives completely but those graphs complicate the fuck out of things. 

Wed, 06/30/2010 - 18:56 | 445350 fThis
fThis's picture 


Thanks TD!

Wed, 06/30/2010 - 19:19 | 445391 faustian bargain
faustian bargain's picture

+1 Rothbard

Wed, 06/30/2010 - 20:24 | 445502 sgt_doom
sgt_doom's picture

Great Avatar symbol, fThis, and how fitting it is exactly the same symbol one finds at the ELX Futures site, financed by JP Morgan Chase, Morgan Stanley, and naturally, Goldman Sachs.

Great post, TD.

When those in the realms of forensic accounting and forensic economics have been pooring over all those balance sheets, etc., for over a decade, and see where debt has been listed as assets, and that debt-asset (leveraged loan) has then been used as the basis for generating ever more layer upon layer of debt, some of it entered in the liability column, which is then purchased by another and marked as asset, and then infinitum.

One begins to begin to appreciate the ungodly, almost infinite amount of BS out there which hasn't even begun to be accounted for, nor yet deleveraged.

Geez, it makes one crap in one's pants.

Wed, 06/30/2010 - 23:25 | 445743 RockyRacoon
RockyRacoon's picture

It's a good thing the internets don't have an olfactory functionality...

Thu, 07/01/2010 - 01:05 | 445861 New_Meat
New_Meat's picture

Then I'd be for the kill switch.

Wed, 06/30/2010 - 18:59 | 445356 BennyBoy
BennyBoy's picture

Oh crap!

When Blanky sees this he's gonna make me ramp up  the FED's ponzi scheme.

It'll be QE2 and 3 all at once.

Wed, 06/30/2010 - 19:06 | 445364 Nolsgrad
Nolsgrad's picture


Thu, 07/01/2010 - 01:24 | 445867 MayIMommaDogFac...
MayIMommaDogFace2theBananaPatch's picture

There should be a QE2 over under poll on ZH.  Just sayin'.

Wed, 06/30/2010 - 19:17 | 445385 anony
anony's picture

Sometimes I wonder when I'm going stop reading and reacting to ZH and than along comes this Pulitzer magnet from y'all and I forget about ever leaving.

MegaProps, you geniuii.

Wed, 06/30/2010 - 19:17 | 445386 SayTabserb
SayTabserb's picture

So one question comes to mind. You can sort of understand the mortgage itself as a legitimate financial instrument, maybe even the aggregation of mortgages to improve the risk profile.  But what the hell social utility does anything else provide? Isn't this more or less exactly like a place in Reno that once ran a craps table, but then decided to add Keno and Poker Slots so they could woo the blue rinse Social Security crowd? How did things ever get so far out of control?

Wed, 06/30/2010 - 19:38 | 445417 anony
anony's picture

"Social Utility"??

You presume these people are structuring their contrivances for the common good?  There's the door to naivete over there by the typing cubicles.

You have guys and gals (like the Kagan 'droid going thru motions on Capitol hill (Cohen, Cahn, Coen, all the same family)) who work or worker for Godman Sux who apparently are born with quite a few more synapses than the average bear, being recruited emphatically NOT to use their awesome brains to move their fellow men and wimmin forward on this momentous Sufi journey but instead train themselves in the Alchemy of Money. 

By the genetic code of their Levantine ancestors, who were really pissed about Jesus upsetting their pelf tables in the temple,  they vowed to get ALL of it, then use it to create MORE of it, into infinity, and were anointed to carry out this work. Lord Blankfein said so hissownself from the Mount at 85 Broad.

Wed, 06/30/2010 - 20:25 | 445503 Dr. Sandi
Dr. Sandi's picture

Yeah, those damned Jews. Thank the Christian god that the Goyim aren't a bunch of greedy, self-serving bastards, or the world's finances would REALLY be screwed up.


Wed, 06/30/2010 - 21:37 | 445595 pan-the-ist
pan-the-ist's picture

Jews have do have amazing solidarity when it comes down to it.  Obviously there is no 'hidden agenda' perhaps just chance run ins at the Synagogue.  You know, like my son needs a job, do you have any openings at your firm type of stuff.  I think Christians need to be a tad more .... cohesive as a group.  That might level the playing field a tad.

Thu, 07/01/2010 - 00:15 | 445796 Alexandre Stavisky
Alexandre Stavisky's picture

Of course, what, what?  That is how Rahm, Frankel, Kagan, Summer, Bernanke, and Greenspan came to their ascension in the USA.  What other country can boast a predomination in media, entertainment, politics, finance, or law?

And we have such a fruition of freedom, abundance, true liberty, and capture of elusive happiness, as a result.

Think.think. thiCk.

Will these names (as inheritors of this globe's greatest societal experiment) serve to enlarge the founder's imaginations for future generations or will they defile, deconstruct, and desecrate (for TRIBAL advantage) a full populace's birthright?

History gives full-place testament.  We are entering a time of buffetting and tyranny.

Thu, 07/01/2010 - 07:02 | 445977 Seer
Seer's picture

“We must find new lands from which we can easily obtain raw materials and at the same time exploit the cheap slave labour that is available from the natives of the colonies. The colonies would also provide a dumping ground for the surplus goods produced in our factories”  -- Cecil Rhodes

This is what the System knows...

Wed, 06/30/2010 - 21:40 | 445600 DudleyDoRight
DudleyDoRight's picture

++ Kudos Dr. Sandi, definitely time to call out that BS baiting!

Wed, 06/30/2010 - 21:52 | 445616 nmewn
nmewn's picture

Still waiting on the much discussed "dual citizen" list of government employees and they're lofty positions inside.

Wed, 06/30/2010 - 20:10 | 445475 AccreditedEYE
AccreditedEYE's picture

I believe the PR answer to this question would be: To maximize profits so our stock will rise which benefits all hard working police, fire fighter, teacher etc. through pension funds holding our securities. Heaven forbid anything being more important then our capital structure...

Wed, 06/30/2010 - 21:47 | 445609 nmewn
nmewn's picture

Been thinkin bout that.

Someone splain to me again why it is that the taxpayer has to take the hit on SSI.

Where is it written that government employees are exempt from the pain THEY have caused?

If Social Security is bankrupt...and it most assuredly is...there are funds to help bridge the gap.

Those funds are in the government employee pension plans. Once those are tapped and evenly distributed to TAXPAYERS as money that was STOLEN from them, then we can start talking about raising retirement age, cutting benefits and deciding how much money to LEAVE for government pensioners.



Thu, 07/01/2010 - 06:55 | 445975 fiftybagger
fiftybagger's picture

Who do you think is rioting in Greece?  Who do you think will be rioting here?  There are many groups and sub-groupings, but they all have one thing in common, they all feed at the public trough...

Wed, 06/30/2010 - 19:22 | 445394 scratch_and_sniff
scratch_and_sniff's picture

Reading some names of the GS Linked CDO's; Point Plesant, Lochsong, Abacus etc. Humm, so i suppose the only people who get to rip off GS are the advertising agencies?

Wed, 06/30/2010 - 19:29 | 445408 mkkby
mkkby's picture

Tyler, your graphics don't show up correctly in firefox latest version.  Anything posted near the top of a page is covered over by the blue right hand side bar.

Wed, 06/30/2010 - 19:32 | 445413 Tyler Durden
Tyler Durden's picture

Click on the pic for it to expand in its own window. Alternatively increase your monitor resolution or reduce the zoom factor of the website.

Thu, 07/01/2010 - 01:33 | 445870 MayIMommaDogFac...
MayIMommaDogFace2theBananaPatch's picture

Tech support even...Sheesh.  Can you believe this?

Take a bow, Tyler.

(and I'll once again say "gorgeous charts -- should be branded")

Wed, 06/30/2010 - 19:37 | 445423 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Which politicians view these charts?  So they are working, but incompetent?  Or they merely could care less whether they fund a black hole of debt or not as long as they continue to be employed by the instrument of government known as US CONgress?  Or they wish that their own eminent demise weigh on the entire world?

These graphs are great!

This is easily the most badassed report ZH has ever done.  I think this shows it all.  As a visual person the record charts are very informative.

Wed, 06/30/2010 - 20:31 | 445513 B9K9
B9K9's picture

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 this the 'carrot/incentive stick/threat' is good for mankind.

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.

Wed, 06/30/2010 - 20:36 | 445518 Mr Lennon Hendrix
Mr Lennon Hendrix's picture
"People say I'm stupid....givin' my money away..."


John Lennon - Watching the wheels:

Wed, 06/30/2010 - 20:06 | 445464 zen0
zen0's picture

So the "investors"  that buy this crap are all government or what? Who buys this stuff? Why would they do it?

Be gentle, number crunch make me swoon.

Wed, 06/30/2010 - 20:36 | 445519 sgt_doom
sgt_doom's picture

Geez, you're a bit late to this, huh??

Pension funds of all sorts and globally (especially superannuation funds), insurance companies, banks and financial institutions, hedge funds, various private equity funds, foundations, various types of trusts (structured for tax avoidance), and all of these are financially interlocking as well....

Wed, 06/30/2010 - 21:57 | 445627 zen0
zen0's picture

Not totally, but over the last two years I have, as a simple layman reading on the net, known these things were toxic. What is up with the professionals buying them.? I kept a 1998 article about derivatives destroying the banking system on my bulletin board for ten years, and then threw it away because nothing came of it by then. Its not like no one knew.

Wed, 06/30/2010 - 23:31 | 445750 RockyRacoon
RockyRacoon's picture

Money was being made, so knowing the process was long-term flawed was pushed to the background (see LTCM).  Perhaps I could overlook a few infractions of the rules for enough millions or billions of bucks?

Thu, 07/01/2010 - 05:21 | 445941 joe90
joe90's picture

There's also; safety in numbers, many buyers and sellers, complexity in the math which is correct in the absence of systemic factors.  Professional buyers and sellers and no one outside the circle really understands what they actually did . . even now

Wed, 06/30/2010 - 20:12 | 445479 jal
jal's picture


one billionaire losing his fortune, to another billionaire ...


It's too bad that they are using grand ma's savings



Wed, 06/30/2010 - 20:18 | 445491 three chord sloth
three chord sloth's picture

Someone needs to tell me why we can't freeze the entire synthetic derivatives market and then unwind the whole thing. Send the remaining money back to those who paid it in.

Wed, 06/30/2010 - 20:30 | 445510 Dr. Sandi
Dr. Sandi's picture

Just unwind it all and pay everybody .00001 cents on the dollar. That would only cost what, one, maybe two billion dollars. Chump change, and 99.99% of the population comes out ahead.

Of course, there's that ever-present problem of the promised financial collapes if anybody rocks the boat. But I say let's do it!

Everybody, 1...2...3...

Wed, 06/30/2010 - 20:40 | 445526 sgt_doom
sgt_doom's picture

"Someone needs to tell me why we can't freeze the entire synthetic derivatives market and then unwind the whole thing."

This is your lucky day, bub!  The reason is quite simple: they use the "profits" to buy up congress, and pay them to allow the banksters to continue using this fraudulent Ponzi-Tontine scheme to make easy money and screw everyone else. (Not to mention massive ongoing wealth transfers and furthering that global neofeudalist plan.)


Wed, 06/30/2010 - 23:43 | 445762 RockyRacoon
RockyRacoon's picture

Someone will have to explain why you might not be correct -- I cannot.

The definition of a Ponzi Scheme is fairly obvious (right down to the unregistered securities part):

The Ponzi scheme usually entices new investors by offering returns other investments cannot guarantee, in the form of short-term returns that are either abnormally high or unusually consistent. The perpetuation of the returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from investors to keep the scheme going. Usually, the scheme is interrupted by legal authorities before it collapses because a Ponzi scheme is suspected or because the promoter is selling unregistered securities. As more investors become involved, the likelihood of the scheme coming to the attention of authorities increases. While the system eventually will collapse under its own weight...

The only thing missing is "the authorities" intervention.   When the authorities are part of the plan it's tough to break up the party.

Thu, 07/01/2010 - 00:13 | 445794 Joe Sixpack
Joe Sixpack's picture
Proclamation on the Federal Reserve System of the United States of America March 2008

WHEREAS, Article I, Section 8 of the Constitution of the United States of America authorizes Congress "To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures";

WHEREAS, on December 23rd, 1913 the US Congress enacted the Federal Reserve System;

WHEREAS, the Federal Reserve System is considered an independent agency within the federal government, with oversight of Congress and containing appointed public officials on its board of directors;

WHEREAS, the Federal Reserve System Controls the Federal Reserve Note, the official currency of the great nation of the United States of America;

WHEREAS, there may be controversies regarding the legality and constitutionality of the Federal Reserve System, it is recognized that the said system has operated continuously as the central banking system of the United States since the inception of the Federal Reserve Act of 1913;

WHEREAS, the Constitution of the United States of America granted Congress the authority to create the current Federal Reserve System, it also does grant Congress the authority to modify or revoke the Federal Reserve System;

WHEREAS, the actions of the Fedreral Reserve System represent the credit and currency of the United Stated of America to the citizens of this great nation and to the world;

WHEREAS, the Federal Reserve System, acting independently within the federal government allowed, supported, and even promoted parasitical and non-productive uses of the money and credit of the United States of America;

WHEREAS, the United States and likely the entire world's financial system is undergoing massive de-leveraging of the said parasitical and non-productive uses of the credit and money of the United States of America (as well as other nations' currencies);

WHEREAS, the US dollar, the "Federal Reserve Note" is declining in value due to these parasitical activites, as well as potentially other causes;

WHEREAS, it is recognized that the citizens of the United States and other nations did willingly participate at some level in the creation and propogation of said parasitical activities;

WHEREAS, it is also recognized that the United States of America, a sovereign nation, has the legal, moral, and God given authority to take actions to benefit its citizens and to protect its good name, credit and money in times of difficulty;

WHEREAS, it is recognized that the current time is such a time of great difficulty;

WHEREAS, it is recognized the parasitical financial institutions and their activities are at odds with citizens of the United States of America and the good credit and money thereof;

WHEREAS, the current indications are that the Federal Reserve System is acting to preserve the financial system currently flooded with the parasitical activities;

WHEREAS, the current indications are that the neither the Federal Reserve System, nor the Congress of the United States, nor the people of the United States have access to the books of the institutions being preserved by the Federal Reserve, and therefor the degree of inter-connectivity and risk associated with the institutions and other entities cannot be determined;

WHEREAS, the Federal Reserve System is accepting non-performing assets as collateral for credit with ultimate taxpayer responibility to entities not under its legislative mandate;

IT MUST BE CONCLUDED, that the Federal Reserve System is not acting to the benefit of the people of the United States of America, its credit, money, and good name;

WHEREAS, it is recognized that the political will and capability of the government of the United States of America may not be up to the task of prosecuting this proclamation ; It is also recognized that this may be the only hope for the continued survival of the United States of America as the great nation as it has historically existed.

NOW THEREFORE, it is PROCLAIMED by those supporting this Proclamation that the Congress of the United States of America FULLY NATIONALIZE the Federal Reserve System, and take full control of the credit and money of our great nation; The Congress must take whatever action necessary to seperate out, sequester, disown, or otherwise neutralize the effect of the parasitical financial activities which led to the current crisis; The Congress of the United States of America must reorganize, replace, or terminate the Federal Reserve System as appropriate; or otherwise devise a system for creation of the national currency.

IT IS FURTHER PROCLAIMED, that the Congress of the United States of America in cooperation with the Executive of the United States of America contact allied nations and any other nation willing to participate in the overhaul of the failing and parastical financial sytem currently in operation and create new treaties and alliances as necessary to create a sane and productive system of finance with the express goal of supporting a productive national, and by extension and through voluntary cooperation, world economy;

FURTHERMORE, it is PROCLAIMED that it should be the goal of such an international effort to maintain fair international trading practices allowing for protection in national interest of labor, resources, and productive capabilities;

WHEREAS, it is recognized that such a move on the part of the United States of America may result in the necessity of an isolationist policy IF the other developed nations do not follow our lead; If such occurs, so be it.


Thu, 07/01/2010 - 07:10 | 445981 Seer
Seer's picture

Changes NOTHING.  Doesn't remove the concentration of power (power will just shift elsewhere), doesn't change the built-in self-destruct grow-and/or-die nature of the system (from which powers such as the Fed rise).

Wed, 06/30/2010 - 20:30 | 445512 Steve Garrison
Steve Garrison's picture

Thanks, Tyler.  Now do the same thing with NYSE market manipulation.

Wed, 06/30/2010 - 20:38 | 445521 Alcoholic Nativ...
Alcoholic Native American's picture

Goldman seldom has a negative day correct?  What a firm, what a firm, I would say stop hating, if I didn't hate them for it.

Wed, 06/30/2010 - 20:42 | 445529 Akrunner907
Akrunner907's picture

Absurdity in motion.............

Wed, 06/30/2010 - 20:45 | 445533 sgt_doom
sgt_doom's picture

There's a most elegant and eloquent summary (just two pp.) which uniquely captures the financial fraud construct utilized by securitizations (CDO, CLO, CMO, CBO, CDS, CPDO, etc.), hedge funds and leveraged buyout funds which was done by an engineer/scientist-type at the University of Sydney (Dr. John L. Goldberg), and dovetails very nicely with this monumental post by Lord TD.  [Please pay close attention to the three bulleted items on page one.]

This refers to the public-private partnership, but that's simply yet another securitized financial instrument construct.

Wed, 06/30/2010 - 22:57 | 445708 sumo
sumo's picture

This matter becomes more serious when it is realized that the variables which give rise to the cash flows do not take account of the time value of money.

WTF!? Did they hire Mr Economics, Kartik Athreya, to do the modeling?


Wed, 06/30/2010 - 20:51 | 445543 nopat
nopat's picture

There are very few opportunities, save for Marla's recent analysis on the Middle East, in which we're privilaged to bonafide, weapons-grade ZH material.  The last sentense is particularly compelling.  They were able to monetize counterparty risk in such a way that a) they were able to make a shitload of money doing it since no one [still] knows how to price it, thus making it highly popular/addictive; b) instead of insuring against risk, and thereby at least some isolation against shrapnel and debris, they strengthened the interdependencies amongst various parties; and c) just toxic enough that they won't kill the host [immediately], but toxic enough that companies are now required to manage the levels of these products and thereby send instantaneous signals to the market who know how to listen for such things.  Add some homing devices to get that unit-level granularity, and their perfect trading quarter save for two days suddenly becomes almost pedestrian.

In effect, they've injected contrast dye into what was once thought to be an opaque and nearly uniform organism and are now just looking for the faint radioactive glow moving from one system to the next.  Or to put it more biological terms for our Gaia contingency (you know who you are, you communist dirt-worshipping tree hugers), like a spider they've extended a web throughout the financial system and just sit there waiting for one of the threads to move.  Now before Team Alex Jones gets a boner over one of the single grandest conspiracies ever crafted...while they certainly employ enough cost-no-object raw brainpower, I doubt this was intentional, at least at first, and doubt the nefariousness, at least to any serious degree beyond survival and profit-taking.  But shit, you have to stand in awe over them having figured out how to hi-res the near-seemingly random gyrations of the financial markets, if not predictive.  Who knew all it would take is a product that forces the buyer into a specific patter of behavior.

I, for one, welcome our financial-cold-sore bearing overlords!

Wed, 06/30/2010 - 22:15 | 445647 CD
CD's picture

While I am a bit uneasy at the last line, nopat has just hit the nail squarely out of the ballpark... ;-) My only quibble is with your allowance of "doubting this was intentional". Sure it was intentional, my take is that they may have been surprised by how well it worked, how rapidly it caught on, and how fast the flies/moths/small birds were being deposited into the ever-growing web...

Wed, 06/30/2010 - 22:40 | 445681 nopat
nopat's picture

Just to be clear, when I mean "intentional" I mean by design this was the goal from planning all the way through execution.  I don't doubt, as often happens in all organizations, some analyst stumbled on a particular set of data by accident and realized the market was behaving in a certain way.  Since then it's been a matter of project feedback and maintenance.  Hell, it happened to me once.  Nevermind the fact that their offices are probably the single highest concentration of top-.5% IQs in the world, statistically they were bound to come up with something eventually.  

This of course assumes the poster is stating something as fact, which, know...still makes for a trendy techno-thriller starring some day-glo stereotyped british/scottish actor forcing an American accent.

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