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5 U.S. Banks Each Have More Than 40 Trillion Dollars In Exposure To Derivatives
Submitted by Michael Snyder of The Economic Collapse blog,
When is the U.S. banking system going to crash? I can sum it up in three words. Watch the derivatives. It used to be only four, but now there are five "too big to fail" banks in the United States that each have more than 40 trillion dollars in exposure to derivatives. Today, the U.S. national debt is sitting at a grand total of about 17.7 trillion dollars, so when we are talking about 40 trillion dollars we are talking about an amount of money that is almost unimaginable. And unlike stocks and bonds, these derivatives do not represent "investments" in anything. They can be incredibly complex, but essentially they are just paper wagers about what will happen in the future. The truth is that derivatives trading is not too different from betting on baseball or football games. Trading in derivatives is basically just a form of legalized gambling, and the "too big to fail" banks have transformed Wall Street into the largest casino in the history of the planet. When this derivatives bubble bursts (and as surely as I am writing this it will), the pain that it will cause the global economy will be greater than words can describe.
If derivatives trading is so risky, then why do our big banks do it?
The answer to that question comes down to just one thing.
Greed.
The "too big to fail" banks run up enormous profits from their derivatives trading. According to the New York Times, U.S. banks "have nearly $280 trillion of derivatives on their books" even though the financial crisis of 2008 demonstrated how dangerous they could be...
American banks have nearly $280 trillion of derivatives on their books, and they earn some of their biggest profits from trading in them. But the 2008 crisis revealed how flaws in the market had allowed for dangerous buildups of risk at large Wall Street firms and worsened the run on the banking system.
The big banks have sophisticated computer models which are supposed to keep the system stable and help them manage these risks.
But all computer models are based on assumptions.
And all of those assumptions were originally made by flesh and blood people.
When a "black swan event" comes along such as a war, a major pandemic, an apocalyptic natural disaster or a collapse of a very large financial institution, these models can often break down very rapidly.
For example, the following is a brief excerpt from a Forbes article that describes what happened to the derivatives market when Lehman Brothers collapsed back in 2008...
Fast forward to the financial meltdown of 2008 and what do we see? America again was celebrating. The economy was booming. Everyone seemed to be getting wealthier, even though the warning signs were everywhere: too much borrowing, foolish investments, greedy banks, regulators asleep at the wheel, politicians eager to promote home-ownership for those who couldn’t afford it, and distinguished analysts openly predicting this could only end badly. And then, when Lehman Bros fell, the financial system froze and world economy almost collapsed. Why?
The root cause wasn’t just the reckless lending and the excessive risk taking. The problem at the core was a lack of transparency. After Lehman’s collapse, no one could understand any particular bank’s risks from derivative trading and so no bank wanted to lend to or trade with any other bank. Because all the big banks’ had been involved to an unknown degree in risky derivative trading, no one could tell whether any particular financial institution might suddenly implode.
After the last financial crisis, we were promised that this would be fixed.
But instead the problem has become much larger.
When the housing bubble burst back in 2007, the total notional value of derivatives contracts around the world had risen to about 500 trillion dollars.
According to the Bank for International Settlements, today the total notional value of derivatives contracts around the world has ballooned to a staggering 710 trillion dollars ($710,000,000,000,000).
And of course the heart of this derivatives bubble can be found on Wall Street.
What I am about to share with you is very troubling information.
I have shared similar numbers in the past, but for this article I went and got the very latest numbers from the OCC's most recent quarterly report. As I mentioned above, there are now five "too big to fail" banks that each have more than 40 trillion dollars in exposure to derivatives...
JPMorgan Chase
Total Assets: $2,476,986,000,000 (about 2.5 trillion dollars)
Total Exposure To Derivatives: $67,951,190,000,000 (more than 67 trillion dollars)
Citibank
Total Assets: $1,894,736,000,000 (almost 1.9 trillion dollars)
Total Exposure To Derivatives: $59,944,502,000,000 (nearly 60 trillion dollars)
Goldman Sachs
Total Assets: $915,705,000,000 (less than a trillion dollars)
Total Exposure To Derivatives: $54,564,516,000,000 (more than 54 trillion dollars)
Bank Of America
Total Assets: $2,152,533,000,000 (a bit more than 2.1 trillion dollars)
Total Exposure To Derivatives: $54,457,605,000,000 (more than 54 trillion dollars)
Morgan Stanley
Total Assets: $831,381,000,000 (less than a trillion dollars)
Total Exposure To Derivatives: $44,946,153,000,000 (more than 44 trillion dollars)
And it isn't just U.S. banks that are engaged in this type of behavior.
As Zero Hedge recently detailed, German banking giant Deutsche Bank has more exposure to derivatives than any of the American banks listed above...
Deutsche has a total derivative exposure that amounts to €55 trillion or just about $75 trillion. That’s a trillion with a T, and is about 100 times greater than the €522 billion in deposits the bank has. It is also 5x greater than the GDP of Europe and more or less the same as the GDP of… the world.
For those looking forward to the day when these mammoth banks will collapse, you need to keep in mind that when they do go down the entire system is going to utterly fall apart.
At this point our economic system is so completely dependent on these banks that there is no way that it can function without them.
It is like a patient with an extremely advanced case of cancer.
Doctors can try to kill the cancer, but it is almost inevitable that the patient will die in the process.
The same thing could be said about our relationship with the "too big to fail" banks. If they fail, so do the rest of us.
We were told that something would be done about the "too big to fail" problem after the last crisis, but it never happened.
In fact, as I have written about previously, the "too big to fail" banks have collectively gotten 37 percent larger since the last recession.
At this point, the five largest banks in the country account for 42 percent of all loans in the United States, and the six largest banks control 67 percent of all banking assets.
If those banks were to disappear tomorrow, we would not have much of an economy left.
But as you have just read about in this article, they are being more reckless than ever before.
We are steamrolling toward the greatest financial disaster in world history, and nobody is doing much of anything to stop it.
Things could have turned out very differently, but now we will reap the consequences for the very foolish decisions that we have made.
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OK tbond investors, keep it hedged and watch the whipsaws. The big banks, big corps, big sovereigns AND the fed holding tons of treasuries. My spidey senses tell me something is up. Lean bullish, just not too far.
It's a sick joke. I always read derivative as someone is getting pounded.
Are you talking like a cop hitting someone with a nightstick while yelling "stop resisting! Stop going for my gun!"?? Or something else?
So perhaps not a Jefferson quote, but first by inflation then by deflation is their greatest scheme after all. One last pop and all the worlds wealth will be theirs. Long guillotines.
Question: How can we predict the next financial crisis?
http://www.planbeconomics.com/2013/06/how-we-can-predict-the-next-financ...
OK.. so BFD..
How do they compare to DoucheBank?
Methinks like only 75 percent or so.
Indeed. Also, derivative trading is a zero sum game. If the TBTF are racking up "enormous profits" who is taking the enormous losses?
..some little old black lady in D'toilet.
or some grape farmer in Espankya.
Who cares about the too-big-to-fails? And who cares about the global financial ponzi scheme? I've got other fish to fry. At least beer is still cheap. If you see me on the side of the road selling pencils, throw me a sandwich.
"Who cares about the too-big-to-fails?"
..just do not have much there when the SHTF.
trillions of worthless script, its all worth zero to me.
Under early 2000's changes to bankrupcy laws, derivative claims are higher than most other claims in bankrupcy court. Counter party risk is a bitch. Very profitable when used 'properly' though. It's part of a larger 'Plan B' strategy of course.
http://www.informationclearinghouse.info/article30016.htm
There needs to be a better common definition of derivatives. It is always portrayed as like gambling on a baseball game or even any sport. But it is far worse. A game ends, it has innings or quarters and everyone knows the score.
Derivatives allow someone to bet without showing their bet against a scorecard that is different for each firm. More like a bunch of bets against a season of games, all waiting until the end of the seaon to settle up...
It makes you wonder with the trillions of derivatives what the real value of Gold and Silver are
Doofus guy, how about:
Wearing the Bearing?
Drunk in Grease?
The Component?
;-)
Who is taking the enormous losses?
Banks can make money from derivatives in only a handful of basic ways (in ascending order of risk):
1. Custodial fee;
2. Brokerage fee in which they incur no risk exposure;
3. Liquidity fee in which they believe they incur little or no risk exposure because of hedging;
4. P&L from unhedged, directional exposure.
The vast majority of the numbers quoted in this blog post fall into the third category. The 'enormous losses' are incurred by various market participants using banks for liquidity.
All is well here folks! You can move along..
Hey keeping this derivative golem from unraveling at all costs is better than having tanks in the street. Those Abrams' are a real bitch to parallel park too, man. Traffic jams up the ass. Then throw in an Asian behind the wheel and then let's talk about unimaginable chaos.
Oh come on... it's only 40 coins minted up at the Treasury Dept for each bank.
damn you.. now I have to try to get a singing Eric Idle out of my head. :-)
When the derivatives bomb blows up, there is no way in hell the big banks are going to pay out money they do not have. They will get together and have a derivatives jubilee as long as the involved banks agree to forgive each other. God help those whose are not part of the jubilee as they are declared insolvent immediately.
"even though the financial crash of 2009 proved how disastrous this can be"
And just how was it so disastrous for them? They were rewarded,made whole, and given MORE!
What you subsidize, you get more of.
Yep. A society hell bent on living on credit will get the banking system it deserves.
they are called "depositors" or better.. "unsecured creditors".
this isn't idiocy, nor ignorance, this is Evidence.. of an agenda .. to destroy the US economy
Since these derivatives are OTC, I wonder how many of these things are based on demographic data..
If x amount of people die within a certain amount of time in x amount of square miles...PAY OFF IS 340453 Trillion!!!
Until I can trade CDS on single and multi entitys through my retail account in ny moms basement after ripping the bong, FUCk THE BANKS!!
~DipshitmiddleclassWhitekid
When I play, I play at the $10 min tables......
Good on you. I look for the $5 min tables.
I stick to the nickel slots. They still come around with drinks every couple hours. No babes or blow tho.
I moved to the quarter slots...drink lady silently shows up once an hour on a bypass run to the tables, keeps me on my toes. And the babes are as young as 50 around me. Win big, three or four hundred, and the dentures come out. Talk about blow!
Bend over, please, and kiss your ass goodbye.
What - watch the dirivatives... You mean Bob Chapman was right all along back in 2008 :D - ;)
They're not exposed, the shell companies they house the "asset" in are exposed.
"so when we are talking about 40 trillion dollars we are talking about an amount of money that is almost unimaginable. "
What is this number?
¥ 1,092,528,004,875,913
Imagine.
"After the last financial crisis, we were promised that this would be fixed.
But instead the problem has become much larger."
Lay that up against the now almost-explicit backing of the Fed to bail these big banks out (which they will ALWAYS do, for the same reason they did it in 2008- the alternative is too hideous) and you have the modern question of what happens when an unstoppable force collides with an immovable object.
If you knew your losses would always be covered, why wouldn't you bet big?
Hey, ND. Pass on my regards to the shark jumper. I think he is right again.
Enjoyed your posts over this last year. Same holds true for the Doc, EB, Yen.EKM1, Miffed.....and so forth.
What the fuck am I doing here? Nothing. What could I be doing? A lot more.
Adios, Amigos.
Understood, GT. I'll let him know. I have a feeling you're heading out for a similar reason reason he did. At a certain point you've said all you can say, you find you're repeating yourself a lot, and there's just better things to do with your time. The Fed and central banks have made such a mockery, it's like playing a rigged game and trying to pretend it's not rigged. After a while, you run out of gas in the tank.
Vaya con dios, my friend. Sorry to see you go, but I understand.
Just in case you ever want to drop a line privately: dnickle@comcast.net
I say let them fail. Let the FED bail them out with funny money. Enjoy the revolution. No longer honor the dollar nor any debts related. All those people with gajillions of Fedbux in an electronic system can have the ones and zeroes emailed to them (hint: the landscaper, chef, chauffeur, poolboy, au pair, and the cleaners are not going to accept emailed ones and zeroes as payment so have fun maintaining your estates and feeding yourselves). The rest of us just start over with whatever we have.
I can't figure out how the whole economy would just grind to a halt if 5 banks cease to exist. I for one would be willing to give it a shot.
That day I stood on the precipice with anxiety and wonder. As I stared into the abyss at my feet, my father walked up and stated, "There's only one way to know for sure." And with that, my body was propelled off the dock and into the cool deep blue below. After the coughing and desperate gasping for life, to my amazement, I did in fact survive while learning to swim. What a great lesson from a good man.
...still pissed me off though.
Good old Yankee knowhow! Yankee banking:-)
BTW Yankee is like a "quicky" but you are alone at the end -- very alone.
"For those looking forward to the day when these mammoth banks will collapse, you need to keep in mind that when they do go down the entire system is going to utterly fall apart."
By "entire system" I think he means e-v-e-r-y-t-h-i-n-g...
Even football?
Even (gasp!) Zero Hedge.
So I hope you have been paying attention to all the survival advice we have been giving out...
Tall building, check.
Nailgun, check.
Rope, check.
Shitgum... errm uh...
At this point our economic system is so completely dependent on these banks that there is no way that it can function without them.
If we die the day Loyd Blankfein and Jamie Dimon are hung then so be it. Give me liberty or give me death.
"Give me liberty or give me death."
Those are 7 words you should never say to a cop...
Or my wife.
She didn't mind when I said it this morning after you left for work.
Relax. I'm just kidding. She was mad as hell.
be careful, dude's got no pension. that's just one notch below postal.
Or UPSal.
You forgot something when you left....
Her
+1T
Unless the system changes, there's always more psychopaths to take their places.
The system is designed to remove all but psychopaths.
Is a short position in a stock a derivative?
No. The most basic of derivatives could be considered to be simple puts and calls (stock options). They get more exotic and complicated (by a lot) from there.
I'm a drag racer (my hobby). So I'll try to make a quick (imperfect) analogy. If you have a race car and you enter a drag race competition you hope to win the trophy and perhaps a cash prize by beating the other racers. You have skin in the game- your car, your fuel, your health, your reputation. That's like owning something (stocks) and hope you will make a profit on it.
But up in the stands, among the spectators (where the big money is, just to let you know), there are all kinds of side-bets going on. Who's going to beat who, by how much, who's going to turn low ET, who's going to turn the highest MPH, etc. THOSE ARE DERIVATIVES CONTRACTS. Those betting have no direct skin in the game, but can profit on certain outcomes. And if some of those betting are doing so with borrowed money, that's a leveraged derivative.
Hope that helps.
That was great. Do it again with another mystery term/phrase/acronym. Thanks.
Ok, one short one, then it's off to bed. FUBAR: Fucked Up Beyond All Recognition. Like the joke that the US financial system has become, and by extension, the entire country.
Keep some powder dry. You'll need it some day. Maybe we get a good reset point, maybe not. If we do, I look forward to the challenge of the rebuild (assuming I'm still young enough to be worth a cup of warm spit). If not, it's your nest egg to find another place to take the family and start over.
Don't let the bastards beat you down. Always keep a little part of yourself they can't have.
Thank you ND for making a dumbshit like me, completely understand the basics of derivatives in less than 60 seconds... Great analogy too! Kind of like a prop bet?
Silly
Same here, thanks ND. Now, let's roll up our collective selves & go hunt down these Criminals.
ND
That's a great analogy. Best stripped down explaination I've read.
only if it's naked
It's a bet for sure, but, is it the same ? When I short a stock, I need to borrow it from someone who already has one and I'm on the hook to give the owner of the stock back what is his. I am definitely on the hook for the bet, but, the pool of bets or the amount of shares in play doesn't change. With derivatives, I think the pool of bets is infinite because the bookies just make them up as they go along without any limits... Maybe I'm missing something ?
See NoDebt's explanation below, much better...
I mean NO disrespect , but you actually take the trouble to BORROW the stock or commodity first?
Well now, we see where your fucking up.
Real playa's naked short. Unlimited supply, no downside.
Class dismissed.
Derivatives are more or less insurance policys on events happening to an underlying security.
if you think a stock will go up in a few weeks you buy a call, you use half the money and have lots to gain and little to lose (relatively speaking)
exotic derivatives are insurance policys on certain events happening within an event (stock maintaining an average price over a certain amonut of time, someone defaulting on their mortgage, etc)
As was mentioned above, derivatives are like buying insurance policies for events that take place in the future and I agree completely with this analogy. We all know how many stupid scenarios insurance companies can cook up to sell odds (via premiums) and big banks are even more creative. Now imagine if the insurance company you were paying premiums to (as well as all the others nationwide) never really had the money to cover the insurnace they were selling. Next imagine if the government decided that everytime there was a natural disaster, there would be a public bailout for those insurance companies that your taxes would fund. Then imagine if all insurance companies across the globe were in on that game...........THAT is why derivatives are so deadly to the world economy. This is litterally the largest game of musical chairs in the history of the world. The emperor truly has no clothes, but until the financial markets agree, the whole charade just keeps chugging right along.
Its all bullshit.
why waste your time here then? go do something better.
$40 trillion bucks, thats Chump Change !!! The US Gov has exposure to 202 trillion dollars of debt !!!
What kind of exposure do you think banks have over the same time frame (75 yrs)?
A ridiculous forecast anyway
What kind of population and resource consumption would be required to support all that weight in 75 years... how many planets can we colonize in that timeframe?
Derivatives are more than just gambling. they are a place to store wealth after all the good stuff has been taken and further bidding would reveal the inflation that extreme dollar creation has caused.
The end will come, not when someone loses but when important people decline to play.
If the Chinese know that they are never going to get 1.2 trillion is real wealth then at this point they are just biding their time. they can afford to lose paper if they have squared away gold and oil and mines and fields of food....after all it is real things that make wealth not the paper we use to buy these things with. When the producers of the world have accumulayed what they can then they can just walk away from their US treasuries knowing they are leaving nothing on the table.
For now derivatives fill a role, that's all. They are place holders that allow the banking system to continue. The underlying will either become unimportant or be siezed by those who can. Would the world really care about half a quadrillion of interest rate swaps if the dollar was dead?
As long as all the folks on the other end of the bank derivatives are deceased upon the conflagaration of world war III, ... no problemo, no complaints, profit booked.
I'm starting to think Zeroshit is part of the Problem-Reaction-solution with a whole lot of intellectual bullshit.
Then no wonder you found yourself here
I think ZH has been a great resource to school a luddite like me on how this financial fuckery really works.
Most times, the commenters are interesting and often display sharp biting wit, and it's nice to find a community of straight, liberty minded, self-made, pro-gun cats that seem to be telling it like it is. Is it gospel? Fuck me if I know, but it sure seems to make a hell of a lot more sense than that tripe gurgling out of televisions worldwide.
I'm a visual effects artist and a musician. I don't fuck around with Wall Street. My job is to make up crazy shit that entertains people. I keep my banking, legal, and medical systems exposure to near zero, but you have to find out how the system operates in order to understand how badly you're being cornholed by it. I prefer to stack water, silver, ammo and other items instead of paper issued by the NYC/City of London Skyscraper People.
Keep things as simple as possible in case you have to hit the reset button on your life. Free your mind, OhNo, and your ass will follow.
It comes down to counter party risk. I take a derivitive you take one he takes one, we all make money. When it blows he owes you you owe me, down the line til the last guy. Opps no chair for you.
700 becomes 7 trillion just like 500 became 5 last time.
Whats to worry every one got rich nobody goes to jail, one company under the bus, and we do it again.
I don't get it. How can banks make money off derivatives? My understanding is derivatives are a zero-sum game. That is they are a contract between two parties. Therefore any gain from the one party is necessarily a loss to the other party. If the banks are making billions of dollars on their derivatives trading, then who are the counterparties? It can't be the other banks, because they all seem to be making profits, so where are the losers? It can't be that they will lose in the future, because derivatives are zero sum games always at all times, right? If someone is taking money, somone else must be giving it, so who is it? But who has the equally massive money losing derivatives book on the other side of the ledger?
Could it be pensions and insurance companies?
The banks competitors for your savings?
If they are using US dollars to trade, then the US Treasury - taxpayers - have the equally massive money losing derivatives book on the other side of the ledger.
Juggalo1..derivatives are mostly used to create apparent wealth out of the system, wealth that otherwise wouldn't exist, just to keep the system itself going a little longer and keep it solvent. We know that is is all make believe, but the banks are all tied together by this umbelical cord of bogus virtual bets that they keep going inventing money that stays in the shadow banking dark pools. This way, banks can postpone having to deal with their incompetence and keep the game going, a little bit longer. As Max Kaiser said in the documentary Inside Job : " trading a derivative is like trading a coster, all is well until someone wakes up and says: " wait a minute, this is not a billion dollars, this is just a coster" ..!!
Banks are tied together in the normal course of fractional reserve lending. If one bank goes under, the whole system can collapse. That's why they created central banks to extend the game longer. Derivatives are just another bastardation in the bastard world of fractional reserve lending.
They aren't a zero sum game and that's the real problem........this isn't like a bookie, it's more like selling insurance where there is no one on the other side because the government has pledged to cover any cashflow problems.
... when Lehman Bros fell, the financial system froze and world economy almost collapsed....
In The Great Deformation, by David Stockman, this concept is convincingly debunked. In reality, any losses would have been inflicted primarily on Wall Street, where they were richly deserved. If there lies ahead another bailout for these greedy bastards, it will only be because the Treasury Secretary and Executive Branch and Judicial Branch and Legislative Branch have been bought and paid for by the financial sector and because the legal containment safeguards in place are either not understood or purposely ignored, which a "crisis" atmosphere can facilitate. We don't (or shouldn't) allow ourselves to get rushed in important business deals, and our politicians shouln't either.
I am reading this book. Isn't what you mentioned (i.e., the bail out of Wall Street) partly because Hank Paulson was running around with his hair on fire so that he could protect his GS buddies, among others?
Yes. He and his staff were not professionally or ethically up to the task at hand.
Derivatives are bets. 50% for and 50% against. It is self-cancelling. This article is hysteria.
That presumes losses are booked at the event . They are pushed later (debt -like) and the wins are booked . How else would it grow to this size ?
Zeta, "Self Cancelling" is exactly what I would understand theoretically. You would think that the Federal Reserve and all Central Banks would orgainse the cancellation (contra off) of all these derivative positions against each other. The question is once the derivatives would be contra off which banks would be bust and which still solvent?
Buffett took bets on market value on future dates. If below he pays if above he keeps the payment.
This is only a problem if he cant pay on that future date.
His main business is insurance.
It's a zero sum game. Still, someone has to lose and who will that be?
A moronic statement, Zeta. Each time you swipe a credit card, you create a derivative. You create a debt. Someone pays that debt. Either you pay it, or the lender eats it, but someone comes up short on that derivative. There is no self-cancelling.
If you don't pay it, what happens? If both sides agree to forgive the debt, nothing happens. Does the sky fall? Does the earth open up and swallow cities? No. Life goes on.
You are forgetting about liquidity risk Zeta. It's only a zero sum game if everything can promptly clear. Any delays and gross becomes net, the Lehman crisis proved this.
A lot of the paper in the global derivatives pool is exotic and highly illiquid, thus guaranteeing a crisis unless the CBs step in to buy it at original value, which eases liquidity concerns for Wall St, whilst creating them for Main St.
I would think if you can make big money with derivatives, then you could lose big as well. Seems logical.
To learn about the danger of derivatives, all should read this article by a super Ellen Brown !!
"Financial Armageddon is Building in the Shadows, And You Bear the Risk"http://www.alternet.org/economy/financial-armageddon-building-shadows-and-you-bear-risk
Not that it matters too much because if it goes it will wipe out everything but those numbers are way low
Unfortunately if I disclose the real ones that I do know they would be able to narrow down who it was that disclosed it
And I have no interest in shooting myself with a nail gun or jumping off a tall building because I'm distraught right after I text my wife I'm on my way home
Let's just say 1 of those 5 is approximately 50% of the real number today. And the number showing is pretty close the number in 2008
Not if they revalue all financial assets in real asset terms, which practically speaking can only be done through gold because it is the only real asset on Central Bank balance sheets not materially dependent upon cash flows.
"If derivatives trading is so risky, then why do our big banks do it?
The answer to that question comes down to just one thing."
Yeah.
Paulson, Clinton, and Greenspan.
Well, three things.
Sure it can. Revalue all financial assets in real terms. It is the ONLY semi stable path to fix the financialization mess.
Derivatives of this mass of a scale drastically reduce risk not increase it. It's like $1 million bet on the roulette table and one number is much more risky to the casino as opposed to the million dollars being spread out amongst all the different numbers and colors. It's somebody divide their million dollars evenly amongst all the numbers the casino is guaranteed to win.
Derivatives of this mass of a scale drastically reduce risk not increase it. It's like $1 million bet on the roulette table and one number is much more risky to the casino as opposed to the million dollars being spread out amongst all the different numbers and colors. It's somebody divide their million dollars evenly amongst all the numbers the casino is guaranteed to win.
Except in this casino, there is $10 trillion on each number, and the minute you spin the wheel there is going to be a contract impossible to fulfill, regardless of what number you land on.
..it's the hypothecation and then the re hypothecation of those derivatives that make them so unstable to any rational economy, (another little game that would land you or I in max).
$40 trill - I've seen bigger!
If it is about contagion then it is about derivatives! The more and more I study derivatives it now appears the main goal of QE may have been to hold up the underlying value of assets that feed into and support the massive derivative market more than help the economy.
QE has up to now stopped an implosion of derivatives and the resulting contagion and shock that would have spread throughout the financial system. In postponing this collapse the Fed has created a whole slew of new problems. More on this subject in the article below.
http://brucewilds.blogspot.com/2014/03/derivatives-house-of-cards.html
Break the motherfuckers up!
This way, if one bank goes down it won't take the entire system with it!
Indeed. I do believe that that there are actaully quadrillions of whatever involved. I guess I should run out a buy up a bunch of Syrian bonds because the yield must be 800% per day. I already have enough bonds though which amount to some jackasses telling me something i know will never come true. Well, fuck, I forgot to buy any bonds at all. All of those naked ladies that I like so much, I will keep them around and if I have to I will trade some dead presidents but do not bet on it. Leverage to me is a crow bar.
I bet those fuckers think we forgot about that derivative pile of black pool shit and the fact that they ripped everyone off. You can see that they are gearing up to do it again. Yeah, well, we forgot NOTHING.
Fuck 'em. Let the fucking banking system crash. I've been waiting too long for it to happen!
People, the system depends upon our participation. Tell everyone you know that 2-3% of assets should be in old fashioned Benjamins. Pull that it off the banking system and they'll start to realize they don't really have infinite leverage...
The synthetic financial profits are out of control. WS is stealing resources from the rest of us simply to perpetuate the financial asset ponzi. Convert all your bubble stocks to gold (assuming you already have 2-3% physical cash and 10-20% total) and you'll be fine.
"Grasping all , they lose all"
But they can become smarter and find a way out .
See http://andreswhy.blogspot.com/2014/09/prodigies-update-i.html
ANOTHER EXCELLENT ARTICLE.
Totally tragic that it is true!
The MAD Money-As-Debt system was always inherently social insanity, since it was the triumph of the application of the methods of organized crime that dominated the political processes, in order to legalize the counterfeiting of the public "money" supply, as a system of frauds by private banks, that were enforced by governments. The privileged people who had the power to make "money" out of nothing as debts for everyone else constantly found more excuses to do more of that, as well as constantly corrupted the government to legalize even BIGGER ENFORCED FRAUDS, by eliminating any laws that would limit that, or emasculating the regulators which were supposed to apply any legislated limits that still existed.
This article above was CORRECT that the monetary system has become a totally metastasized cancer, which can not be treated without killing the society that suffers from that cancer. The people who can create money out of nothing to gamble with (i.e., derivatives, etc.) control the government to force everyone else to operate inside of that monetary system. Therefore, the same "money" that everyone uses to pay for food or fuel, and so forth, has also been created by ratios of about 100 to 1 to be used to gamble with. The foundation of our political economy has become enforced frauds, in which context all of the affairs of all the ordinary people have become relatively trivial, compared to the magnitude of the amounts of "money" made out of nothing to gamble with. Flesh and blood people have become insignificant compared to the legal fictions which have taken control of civilization.
The runaway vicious feedback spirals of the funding of the political processes eventually become so extremely unbalanced that there is no longer any practical way to stop that from automatically getting worse. AFTER the systems are set up so that a privileged few can make the public "money" supply out of nothing as debts for everyone else, those who are first in line for that new "money" therefore have extreme advantages over everyone else, and then that political leverage automatically becomes a more and more extreme ratio.
Indeed, things are now unbalanced to a degree of about 100 to 1, due to the effective privatization of the public "money" supply. Money is the mother's milk of politics, or the oxygen to political fires, and the SOURCE of that "money" supply has become 99%+ corrupted. The objective facts are that it is no longer feasible for there to be any politically practical ways to compete with those who have ALREADY gained privatized control over the creation of "money" out of nothing as debts. There has been a vicious spiral of the triumphant application of the methods of organized crime to the political processes, which has driven feedback loops where the profits from legalized frauds could be reinvested in more legalized frauds. There are NO practical political ways to fix the basic problems of the funding of the political processes becoming so extremely UNBALANCED. After the creation of a political economy in which "money" made out of nothing as debts becomes a deeply established feature, then those who benefited from that have too great an advantage, such that nobody else can compete with them!
Go to look at any kind of political campaign about anything anywhere, and one of the first things one will notice are the efforts made by that campaign to raise funds. Put that in the context of the situation that the groups which already are dominant CAN make "money" out of nothing, compared to how everyone else has to work for that in some way or another, and it becomes obvious that we have already reached the point where the established systems of enforced frauds, or legalized lies, backed by legalized violence, have NO practical political ways to be fixed. Sure, there are lots of theoretically possible treatments, or theoretically possible solutions. However, there are no practical ways to ever get those actually implemented through the political processes, when the funding of those processes is already so totally lopsided, to a ratio of about 100 to 1 in favour of the established frauds, against any more radical truths.
The creation of exponentially more "money" made out of nothing as debts "paid" for the strip-mining of the planet's natural resources, and so, running into the real limits of diminishing returns from being able to strip-mine the planet shall crash the financial systems, in ways which never happened before in known human history. Theoretically, we should go through a series of intellectual scientific revolutions to understand better how we really got into this predicament, in order to maybe resolve that better. However, instead, it is the case that the overwhelming vast majority of people have no clue, and feel like they do not want to know, while the few that do somewhat understand continue to recommend bullshit "solutions" which are based on going backwards to some old-fashioned religion or ideology, or more likely continue to try to take personal advantage of the established systems.
Although I like reading Zero Hedge, because it is light years ahead of the asinine "news" one gets from the mass media, I continue to find here the pattern of relatively good analysis of the problems, followed by bullshit "solutions." ... Which I guess makes sense, since fully facing the magnitudes of the synergistically amplifying problems indicates that the real "solutions" are for things to go out of control, and collapse into chaos in extremely unpredictable ways.
The basic contradictions all revolve around natural selection being internalized as cultural forms of artificial selection, the most important of which was warfare, where success was based on deceits, which then became the foundation for a political economy based on frauds. Progress in science and technology has primarily been employed to become better at backing up lies with violence, as demonstrated by the established systems of debt slavery backed by wars based on deceits, which have generated numbers which have become debt insanities, where the notational value of the derivatives combined to be an order of magnitude greater than everything physically real, because the ability to make "money" out of nothing to gamble with has run away at an exponential rate, since it was always based on enforcing frauds.
The established systems of enforced frauds were fantastic for the few who could maximize their short-term profits from doing that. However, at the same time everything done was also maximizing the longer term costs. The runaway triumphs of controlling civilization by backing up lies with violence have relentlessly, ruthlessly, and recklessly been able to privatize the profits, while socializing the losses. Meanwhile, the attitudes of evil deliberate ignorance that surrounded that fundamentally fraudulent financial accounting system allowed for the development of irreconcilable social polarization, along with way worse irreparable damage to the natural world.
On a deeper layer, the realistic solutions are diametrically opposite to what all the various controlled opposition groups tend to propose, as they continue to operate within the same frame of reference of false fundamental dichotomies, and the related impossible ideals. In fact, since the debt controls were backed by the death controls, and the debt slavery systems have driven their numbers to become debt insanities, the only realistic resolutions are for that to provoke death insanities as their real consequences. Therefore, the only genuinely realistic solutions to those problems would have to be to attempt to catalyze those transformations towards better death controls to back up better debt controls.
The deepest dilemmas that human beings face are with their murder systems developing to be based on the maximum possible deceits, which included that the controlled opposition groups to the established money/murder systems were compromised to agree to stay within the same frame of reference of the biggest bullies' bullshit social stories about those things. What we theoretically need are a series of intellectual scientific revolutions that would enable society to become more scientific about itself. However, that would require society facing the ways that human realities were always organized lies operating robberies, because human beings were always entropic pumps of energy.
At the present time, we are seriously stuck in the ruts of understanding everything in terms of the language and resulting thinking about those problems through the biggest bullies' bullshit world view. (While that includes the controlled opposition groups just as much as it does those who operate the established systems.) Understanding how enough "money" could be created out of nothing to gamble with that the total amounts are now measured in the quadrillions takes changing the basic paradigms regarding how we understood everything. The essential difficulties are that the powers and capabilities of progress in science and technology were pumped into social pyramid systems based on backing up lies with violence, such as the current absurd State Religions of the monetary system and national security, being based on astronomically amplified frauds and deceits.
The dilemmas are due to warfare being the oldest and best developed social science, whose success was based on backing up deceits with destruction. Militarism is the supreme ideology about how to operate the murder systems. Those murder systems are what back up the established monetary systems. However, almost all of their social success is based on the vast majority of people not understanding that, and not wanting to understand that. Moreover, in that context, the controlled opposition groups to the established systems continue to promote the same basic bullshit world view that the biggest bullies always did.
The kinds of orders of magnitude numbers found in physical sciences, where trillions are often normal, or even small, numbers, has managed to get transplanted into the world of finance, which is supposed to be related to the physical economy. However, the legal fictions have run away to create things like financial derivatives, as the aptly named "financial weapons of mass destruction."
Pretty well nobody fully understands any of that, nor even wants to understand any of that, other than those few who attempt to take advantage of driving even bigger feedback loops of enforced frauds, and they only understand it for those practical purposes. Almost nowhere in those runaway processes are anything remotely close to the kinds of intellectual scientific revolutions which would be necessary for a technologically based society to become a more scientific society. In theory, there is nothing more important to a technologically based civilization than the philosophy of science. However, the current mainstream philosophy of science has been just as much of victim of the biggest bullies' bullshit world view as every other social enterprise.
Natural selection was internalized as human intelligence, which then made an appropriate priority out of warfare, and its develop of weapons. That became the foundation of the current civilization, in which enforced frauds could become electronics backed by atomic bombs. The chronic political problems inherent in the nature of human life have had expedient sets of solutions developed based on the maximum possible deceits and frauds, such that any more rational public debates about those issues is practically impossible.
Instead, we observe the creation of exponentially more "money" made out of nothing to gamble with, while nothing can be done to fix that problem, because any genuine solutions would require facing the facts that money is measurement backed by murder. Rather than develop better debt controls backed by better death controls, we are on the paths towards debt insanities driving death insanities. When that happens, while that happens, the human species will have the back-up systems of natural selection euphemistically instructing the currently established systems of artificial selection regarding how they must be transformed.
The great ironies of the human condition are innate to the issue of a being that can build a mental model of its world, with a model of itself inside of its model of the world. Since natural selection always existed, that drove the development of intelligence and systems of artificial selection. However, we are now faced with the paradoxical problem of final failure from too much success at operating the murder systems through the maximum possible deceits, in order to back up the money systems thereby enabled to operate through the maximum possible frauds. ... Apparently, there is nothing else we can do but continue to have to muddle through the madness of the dynamic equilibria of different systems of organized lies operating robberies, while the biggest bullies and their controlled opposition groups continue to operate through discussing those matters in ways which depend upon maintaining the maximum possible deceits and frauds regarding what they are really doing.
The last two lines of this article above summarize the problematic pattern of relatively good analysis, followed by apparently promoting bullshit solutions, which are not consistent with the analysis:
"We are steamrolling toward the greatest financial disaster in world history, and nobody is doing much of anything to stop it.
Things could have turned out very differently, but now we will reap the consequences for the very foolish decisions that we have made."
ORGANIZED CRIME MAKING AND MAINTAINING GOVERNMENTS SHOULD BE UNDERSTOOD QUITE DIFFERENTLY THAN THINKING OF THAT AS "FOOLISH!"
GENUINE SOLUTIONS REQUIRE BETTER SYSTEMS OF ARTIFICIAL SELECTION THAT UNDERSTAND NATURAL SELECTION BETTER, WHICH RIGHTLY RECOGNIZED THE CENTRAL ROLE OF THE DEATH CONTROLS, OR THE MURDER SYSTEMS, THAT BACKED UP THE DEBT CONTROLS IN THE MONETARY SYSTEMS.
Militarism was not a mistake. Militarism is the supreme ideology because it deserves to be, as well as self-actualizes to be so. All political economy should be seen as operating inside of human ecology. There are no ways to resolve our real problems now which can continue to deliberately ignore general energy systems as much as possible, in order to enable the social insanity of making "money" out of nothing to gamble with, such as through various derivatives, et alia ... At the present time, the profound contradictions of progress in science and technology being pumped into social systems based on backing up lies with violence keep on getting bigger and BIGGER. However, the genuine solutions can NOT be found in any sort of impossible ideals being finally realized.
Rather, my view is that we are necessarily headed through the runaway debt insanities driving death insanities, which situation MIGHT enable real radical revolutions to occur. However, obviously the chances of enough people going through enough intellectual scientific revolutions, so that the political economy and human ecology become more consistent with better understanding of general energy systems, seem very small, especially since our basic understanding of general energy systems has itself been inverted and perverted by the degree to which the biggest bullies' bullshit world view has dominated the philosophy of science.
Although one might suppose that human beings creating real systems of electronic frauds, backed by atomic bombs, wherein enough "money" made out of nothing to gamble with has become leveraged to become like 10 planet Earths backed by the power to destroy 10 planet Earths, should cause people to think more profoundly about that problem, however, so far, the only things that I ever see are sometimes relatively good analysis of those problems, then typically followed by bullshit "solutions," which proceed from refusing to remain consistent with their own previous analysis, when turning towards proposing solutions for those problems.
The real price we appear to have to pay for the runaway debt insanities is the resulting death insanities. One would hope that thereby enough human beings MIGHT learn to think differently about those issues, after going through those sorts of severe social storms. However, we are still managing to stay within the apparent calm before those storms, while more and more energy is constantly being pumped into the social pyramid systems, which are based on legalized lies, backed by legalized violence, whose essential problem is that the violence never makes those lies become true constantly increases its intensity.
The biggest banks have hundreds of trillions of dollars of exposure to derivatives because those banks are fundamentally based on enforced frauds, which have been amplified to more astronomical sizes by progress in science and technology. However, so far, almost none of that kind of progress in science and technology is allowed to be manifested through political science, or the study of the political economy, because that would take too profound a series of intellectual scientific revolutions, which almost none of the people operating the established systems, nor their controlled opposition groups, would like to begin to think about, while the vast majority of people have already been conditioned to also not want to think about that either.
We are in for one hell of a rough rude ride in the foreseeable future, as the forces of natural selection correct the kinds of artificial selection systems that we have so far developed, on the paradoxical basis of social success through maximized frauds and deceits. Better resolutions of those dilemmas would require changing the basic ways that we think about political science far more than we have already changed the ways that we think about physical sciences. The facts that we have developed globalized electronic frauds, backed by the force of atomic bombs, are driving us willy-nilly towards coping with the consequences of having done that!
A.....I.....G
Will this foolishness ever stop?
It could , if even a small percentage of humans get smarter
See http://andreswhy.blogspot.com/2014/09/prodigies-update-i.html
Because derivatives get their value from an underlying security, their mere existence creates the incentive to manipulate security prices. As long as manipulating causes higher prices, the practice is compatible with the goals of Washington. Incentives are acted upon in the absence of meaningful deterrents. The danger to banks is that they will lose their ability to goose underlying securities in order to profit on derivative positions. Basically, to win they must cheat and they are losing the ability to cheat.
Common Sense Economics http://quillian.net/blog/
"As long as manipulating causes higher prices, the practice is compatible with the goals of Washington."
If those tools of manipulation are used in the PM market, they are not used to increase the underlying security. They are used to hold it down or lower it.
Most probably cancel out each other.........
Not to burst your bubble but the fact for the matter is that the real exposure is way different from the sensationalists bs................
disclosure............
I agree that all big banks need to be broken up...
Just use real reasons not hedges...........
Simple derivitive calculator
http://m.wolframalpha.com/input/?i=derivative+x+sin%28x%5E2%29&dataset=
Well of course no one's doing anything to stop it because that would be imminent destruction. And loss of power for our overlords. So I suspect we will have many more campaigns such as "save the children, we need the guns" in an attempt to make us a non-threat BEFORE it happens.
As throughout history........humans are fucking nuts. Always have been, always will be.
I am no speed reader but I can't see where anyone has mentioned the ISDA committee which decides whether a "credit event or default" has occurred.
The derivatives are only triggered when the ISDA says so.They tried several times to get the Icelandic public to assume the debts of the private banks,but no dice.
Also no one has mentioned that much of this daisy-chained debt,counterparty to the next guy,etc.,needs only one link in the chain to break,and that's it fellas.
This whole mess is about propping up New York City.Without the finance industry,there is no tax base.Look how much they lost when WTC went down.Everyone says let the banks fail. NYC has been in bankruptcy court several times and keeps getting bailed out.
The question should be whether we can continue to fight these overseas conflicts (wars are inflationary).
The question should be do we value the survival of our society enough to destroy the people who keep us all trapped on this train to nowhere....--
Now you get it....the banks rely upon the .gov to expand, grow, continue its operations (regulations, bailouts, etc) and then the .gov rely upon the banks to loan money into existence so that the tax base can grow. This tax base growing allows dept to grow thus a perpetual financial expansion.
They both rely upon each other. If one or the other fails, then the system fails. We are doomed financially. Prepare accordingly because nothing is perpetual.
"If you knew your losses would always be covered, why wouldn't you bet big?"
Exactly.
"The big banks have sophisticated computer models which are supposed to keep the system stable and help them manage these risks.
But all computer models are based on assumptions.
And all of those assumptions were originally made by flesh and blood people.
When a "black swan event" comes along such as a war, a major pandemic, an apocalyptic natural disaster or a collapse of a very large financial institution, these models can often break down very rapidly."
Ok what happens when the great computer models encounter an event that they cannot handle? Such as the continuing retirement of the baby boomers? Changing consumer choices/preferences or something else that no one expected? When the air is let out of the balloon, or the guts out of the whale in Norway, what do we do? Here are my questions for the bankers:
1.) In the event that the Derivatives market collapses, how will we rebuild the economy?
2.) Since the 1930s the public has been led to believe that the government regulates the finance industry or will try to prevent financial accidents, how come the government has been allowing the major financial industries to become over-leveraged in derivates?
3.) If derivates are so risky, why are we allowing the major financial organizations in our country to engage in derivative speculation? What is the reassurance that there will not be a black swan that will cause major havoc in the financial markets. How can financial instruments that succeed on particular outcomes in the economy are able to make a return if the environment that they function in is not manipulated to allow them to succeed in the first place?
Just asking.
I REPEAT one of the crucial quotes
which I have found explains things:
http://www.conspiracyarchive.com/NWO/silent_weapons_quiet_wars.htm
Silent Weapons for Quiet Wars
"Energy is recognized as the key to all activity on earth. Natural science is the study of the sources and control of natural energy, and social science, theoretically expressed as economics, is the study of the sources and control of social energy. Both are bookkeeping systems: mathematics. Therefore, mathematics is the primary energy science. And the bookkeeper can be king if the public can be kept ignorant of the methodology of the bookkeeping.
... In this structure, credit, presented as a pure element called "currency," has the appearance of capital, but is in effect negative capital. Hence, it has the appearance of service, but is in fact, indebtedness or debt. ... if balanced in no other way, will be balanced by the negation of population (war, genocide)... They must eventually resort to war to balance the account, because war ultimately is merely the act of destroying the creditor ... War is therefore the balancing of the system by killing the true creditors (the public ...)"
My answers to your points:
1.
In my opinion, the established systems will not collapse until the diminishing returns from being able to make "money" out of nothing to "pay" for strip-mining the planet make any more real exponential growth impossible. At that tipping point, it will be extremely difficult to restart the economy, because we will have high-graded ourselves to hell, by building everything on the basis of being able to strip-mine the natural resources of a fresh planet, that was never before raped and plundered by the technologies made possible by the industrial revolutions.
2.
The government has had its real control more and more captured by the funding of the political processes. The surviving successful politicians are all puppets of the people with the most wealth, that have dominated the funding of political campaigns. The real job of the political puppet politicians is to perform for the masses of muppets, through the puppet shows put on by the mass media. The politicians become successful by being the best professional liars and immaculate hypocrites, that bridge the gaps between doing what the people who give them money want to actually get done, while fooling enough of the people enough of the time in order to win elections.
3.
The risk has been assembled into larger units, and spread out across them. As this article above stated, anything that caused the big banks to fail would probably be associated with world war, or worse. Since civilization is controlled by lies backed by violence, in ways which have become criminally insane, it is impossible to predict what would happen should those aggregated, globalized risks finally trigger their house of cards to collapse. In my opinion, the only thing keeping it going is the terror of what would happen when it could not keep going. Every day of delay makes the final collapse worse, but most people want to postpone that as long as possible. The younger you are, the more you are being lied to, cheated and robbed by the political systems you were born into, because the younger you are the more probable it becomes that you will live long enough to see the shit hit the fan!
THE FUNDAMENTALS ARE THE ABILITY TO STRIP-MINE THE NATURAL RESOURCES OF THE PLANET AT AN EXPONENTIALLY ACCELERATING RATE. WHEN THAT STOPS BEING POSSIBLE, THEN THE FINANCIAL SYSTEM WILL BE THE FRONT LINES OF THAT MANIFESTING!
Exponentially more money as debt will stop working when it is no longer possible to grow the economy by strip-mining the planet's natural resources. When that finally happens, in some significant enough ways, it will happen relatively fast, and cause worse consequences than we can currently comprehend! Derivatives are merely fancy forms of speculative gambling, dressed up to look like sensible insurance. However, the basic overall system that derivative are inside is criminally insane, and will therefore end by going through psychotic breakdowns.
"If derivatives trading is so risky, then why do our big banks do it? The answer to that question comes down to just one thing. Greed."
Gee, you think so? They listened more to Gordon Gekko than they were paying attention during bible class.
Well, the exposure to derivatives is already bad but what makes it worse that the assets of these banks are overvalued and inflated.
For as long as they configure liabilities as assets, yes.
We are on a thinking time bomb really.
I remember back in 2008/9 going around saying to people "guess what the derivative exposure of the big banks is?" At that point it was 50 trillion, and I found that amazing, and the reaction of the people I said it to was "wow, that won't end well."
https://en.wikipedia.org/wiki/New_York_Clearing_House
In the decade before the Clearing House was founded, banking had become increasingly complex. From 1849 to 1853 –years highlighted by the California gold rush and construction of a national railroad system–the number of New York banks increased from 24 to 57. Settlement procedures were unsophisticated, with banks settling their accounts by employing porters to travel from bank to bank to exchange checks for bags of coin, or “specie.” As the number of banks grew, exchanges became a daily event. The official reckoning of accounts, however, did not take place until Fridays, often resulting in record keeping errors and encouraging abuses. Each day, the porters would gather on the steps of one of the Wall Street banks for their “Porters’ Exchange.”
In 1853, a bank bookkeeper named George D. Lyman proposed in an article that banks send and receive checks at a central office. There was a positive response and The New York Clearing House was organized officially on October 4 of that year. One week later, on October 11 in the basement of 14 Wall Street, 52 banks participated in the first exchange.
On its first day, the Clearing House exchanged checks worth $22.6 million. Within 20 years, the average daily clearing topped $100 million. Today, the average is in excess of $20 billion.
The formation of the New York Clearing House brought order to what had been a tangled web of exchanges. Specie certificates soon replaced gold as the means of settling balances at the Clearing House, further simplifying the process. Once Clearing House certificates were exchanged for gold deposited at member banks, porters encountered fewer of the dangers they had faced previously while transporting bags of gold from bank to bank. Certificates also relieved the strain on the bank’s cash flow, thus reducing the likelihood of a run on deposits. Requirements placed on member banks–weekly audits, minimum reserve levels and daily settlement of balances–further assured more ordered, efficient exchanges.
...
Between 1853 and 1913, the nation experienced rapid economic expansion as well as ten financial panics. One of the Clearing House’s first challenges was the panic of 1857. When the panic began, leaders of the member banks met and devised a plan that would shorten the duration of the panic–and more importantly, maintain public confidence in the banking system. When specie payments were suspended, the Clearing House issued loan certificates that could be used to settle accounts. Known as Clearing House Loan Certificates, they were, in effect, quasi-currency, backed not by gold but by discounted county and state bank notes held by member banks. Bearing the words “Payable Through the Clearing House,” a Clearing House Loan Certificate was the joint liability of all the member banks, and thus, in lieu of specie, a most secure form of payment.
The certificates appeared in smaller denominations during the panic of 1873, and continued to be used as a substitute currency among the member banks for settlement purposes during panics in subsequent decades, including the Panic of 1893. Although they represented a potential violation of federal law against privately issued currencies, these certificates, as a contemporary observer noted, “performed so valuable a service…in moving the crops and keeping business machinery in motion, that the government…wisely forbore to prosecute.”
In 1913, Congress passed the Federal Reserve Act, thus creating an independent, federal clearing system modeled on the many private clearing houses that had sprung up across America. The new monetary system, with its stringent audits and minimum reserve standards, assumed the role that clearing houses had played in offsetting the nation’s fears of future panics.
...
Since the inception of the Federal Reserve System, the New York Clearing House has concentrated on facilitating the smooth completion of financial transactions by clearing the payments involved. The clearing process, while highly structured, is in theory, quite simple. Member banks exchange checks, coupons and other certificates of value among themselves, after which the Clearing House records the resulting charges to their accounts. Entries are posted on the books of the Federal Reserve Bank of New York to settle any differences. Settlement is prepared each business day at 10:00 a.m. after approximately three million pieces of paper have been presented for payment. The Clearing House also facilitates exchanges among non-member banks. Through the City Collection Department, non-member institutions can gather their checks and other items, which are presented to the Clearing House by member banks and the Federal Reserve Bank of New York, and pay for the items received.
In recent decades computers have been performing the payment clearing that once required paper processing. The Clearing House Interbank Payments System, or CHIPS, began operation in 1970. The New York Automated Clearing House, or NYACH, followed in 1975 and became the Electronics Payment Network in 2000. The Clearing House Electronic Check Clearing System, or CHECCS, was added in 1992.
The derivatives, when they go south, are not actually going to be paid. These people are way too rich to pay for anything.
All of this economic smoke an mirrors is all just feeble justification created by the global elite to justify their existence in the universe. When the derivatives blow up nothing will happen, it's like Y2K it's just a concept that exists in human brains. The financial elite and the politicians will all jump to their deaths, and many others unnecessarily, but the most tribal amongst us will continue on with their lives. The world will change as it always has and always will.
I suspect the jumping idea would be too honourable from them, they'd need pushing.
bank of america is the next lehman. it's going to get split up and bought up in the next crisis.
it will be PRECISELY like the lehman crisis. a bear stearns will happen ( get bouhgt up) then bank of america will go insolvent.
reinse wash repeat.
I should have thought the lesson was there to be learnt from the Drexel Daisy Chain all those years ago.
the TBTF banks --and their structured vehicle counterparts in shadow banking, doing all the "skimming " for their rich clients in carry trades based on ZIRP and QE funding, will be constrained by the real economy when :
1° The CB money dumping plays hit the asymptote of real economic slowdown in ALL sectors of the global economy; aka first world and BRIC world. We are heading there. And, the US is now desperate to create an artificial "winner takes all" MIC asymmetric war economy to continue priming the FED pump via huge arms contracts, through their ME/FE clients fighting for their territorial integrity in the vital oil patch.
2° Sooner or later the FED Zirp pump will collectively face, in the continuing currency wars raging, the upcoming wall of RM/food/real estate inflation and its resultant collateral, which spells risk asset deflation that WS dreads more than anything else. When the 10 year US bond goes north of 4% interest wise the derivative bubble will start going "pop" under the twin pressure of interest rates and inflationary pressure in energy/food prices. There is NOT enuff stretch in the real world economy to keep pumping the paper "risk asset" economy beyond current hyperinflated P/E levels.
We still don't know what could trigger this spiral beyond tipping point, but the geo-political risks of ME/Putin-US stand-off will not alleviate this momentum, only accelerate it.
I don't think the perpetual war machine can alleviate the real economy but I may be wrong if we look at the big bang that occurred around the world in 1939.
Oppenheimer's toy and big bangs...Kairos moment for the West.
Its one or the other : Inflationary war spiral or deflationary economic collapse and painful reset.
Listen. Remember that guy Reggie who use to contribute his "FREE" retail and commercial perspectives to The Hedge?
He use to belly ache, howl at the moon, and jump about regarding the evils of the banks and "how could they accumulate such enormous, irresponsible amounts of net notional derivative exposure".....
Then he goes out and tries to create a Bitcoin Derivative Exchange.
Makes my skin crawl, that's all. Just wanted to warn you guys to watchout for the frauds. Like Reggie Milton, or whatever his name was.
Reggie Middleton
"Now WE will reap the consequences for the very foolish decisions WE have made"? I didn't do any of that shit, OR buy a subprime house, or get a loan. Who the hell is "we" sucka? No. I'm just the serf at the bottom that gets the shaft when the bankers are done doing what they do.
If you really want to lose your mind - read up on the 2005 changes to US bankruptcy law which gives derivatives "safe haven" - which means that derivatives get paid before anybody else when the bank goes bust including account holders!! Basically in a fire sale, the derivatives are paid first - and are even exempt from stay orders. Account holders will likely see nothing when the music stops...
https://www0.gsb.columbia.edu/faculty/moehmke/papers/BoltonOehmkeDerivat...
We know complex derivatives trades are bets between traders in different banks.
So we also know one person wins and one loses, with an overall zero nett sum within banking as a whole.
This is the arguement put forward for why massive deriavtive exposures are safe, they effectively nett to something much, much smaller and safer.
But as we know that they should nett to zero, we should be able to see the profits and losses of all the major tarders netting to pretty much zero.
But all will be declaring profits on their derivatives books, this profit sum = the fraud within the derivative system.
It should always nett to zero.
It is surprising betting shops have not followed the banking derivative model.
i.e. closed their doors to the public and just bet amongst themsleves, it works for banks after all.
"Things could have turned out very differently, but now we will reap the consequences for the very foolish decisions that we have made."
I've nothing to do with it. I have not decided just warned over and over and over again.
If this is known, why is it that our astute congress doesnt know, or care, or understand. Im tired of getting financially beat up every four years.
A two-step summary of our banking and monetary system:
Step 1 - "He who does not punish evil commands it to be done." - Leonardo Da Vinci
Step 2 - “It's easier to fool people than to convince them that they have been fooled.” - Mark Twain
Nahh... just more alarm and FEAR mongering here. If there is a derivative implosion. JP Morgan will owe BofA 70T and BofA will owe JP Morgan 80T. They'll cancel the 70T out and JP Morgan will type into their balance sheet asset column that 10T is owed them by BofA. The Fed, the Treasury, the IMF will jump in to smooth out any problems by changing the rules. No worries. Just electronic digits in cyberspace. Worry about something real and important. Such as... is my lifestyle conducive to a healthy and disease free later life? Or, have my wife and I acquired enough assets to support us in old age? Do I have a resource for clean water and food if the system ever goes down? Etc.
This is the Best damned bold faced headline in history thus far. It should be THE masthead for ZH, and all the other genuine reality blogs on the interweb net.
D E R I V A T I V E S! The achilles heel, the superman, the entire global flat earth map, that reads, at all 4 of the borders: "Beyond here be dragons"!
Nothing even comes close tu summarizing tightly ALL that has occurred since 1980.
This should be if it isn't already a 5 credit course at any respectable university and MANDATORY for all Students to have completed in the freshman year, no exceptions.
Bumper stickeers should be everywhere with a diagonal Verboten sign right thru the word Derivatives and on every car on every lot and street in the world.
The danger these things represent is more annihilating than an H-Bomb in Manhattan.
Who shived Lehman Brothers paving the way for Obama to get elected undercutting the neoclownz and McCain's presidential bid...
http://www.zerohedge.com/news/2013-03-03/did-jpms-cio-intentionally-and-...
If it was nothing other than JPM pushing Lehman over the edge, they would have had to salt the other debt market players first, (including Uncle Sam).
Since the entire den of thieves as a whole left Lehman hanging, it becomes a question of risk and collateral. Not that there is any ethics there, but there is a common goal of making money. If someone could have, they would have, especially with the US backstop.
Who ownz JPM and is also shareholders in the Federal Reserve Bank of NY.
They shived 2 warring factions of owners at the same time with taking out the Lehman Brothers.
Oviuously bullish news, just buy more stawks on margin and get rich qiuck /s