Can Anyone Explain the Idea of a 1.4 Quadrillion Derivatives Market/Bubble?

Think about how leverage is used to move very large, and heavy objects.

Now think about what happens when the lever snaps off...

The heavy large object is the economy.. And The lever is the derivatives.

Closer to $2.6 Trillion these days; if not more. There is no central registry or exchange so no one really knows...

But.. The purpose of derivatives is Economic Destruction. They are The Refinement of the neutron bomb principle. Cost nothing but laser ink, paper, lawyer fees & broker commission. They were used to LOOT the national treasuries of the world and foment financial destruction.

Understand that neither party to a derivative has paid Real Money, pledged assets, or performed a service/sold something to other party. Derivatives are Entirely A Fraud.

Their purpose is to Loot and Destroy.

Like developing a Nuclear Weapon at cost of a few thousand dollars rather than the hundreds of millions it took to develop Oppenheimer's Bomb...

OK, You get a $100,000 30 year mortgage and the bank gives you a check for $100,000 You agree to pay lets say $734 a month back to the bank for 30 years! Thats $264,240... This $264,240 is what the bank chops up and magically transforms it into a Bond and sells to other people assuming you are going to pay the mortgage off. The Bondholder is buying this Bond because he is getting a guaranteed rate of return on his investment. Now the Bank has managed to count their chickens before they hatched! They made their money back before you had a chance to default on your mortgage essentialy passing their risk off to investors.

SOUND LIKE THEY ARE MAKING MONEY OUT OF THIN AIR?

Its because thats exactly whats happening!

Now imagine the sum of planet Earths mortgage notes paid in full at the end of the note (mortgage agreement) Pretty large sum of money huh! 1.4 QUADRILLION!!!

Danny Boy,

You are talking fractional reserve banking and collateralized securities. These are not derivatives. Might be bundled into somebodies derivative down the road, but they ain't in the beginning.

Hypothecating assets and money is also something else.

A derivative is mechanism which ostensibly serves to mitigate risk. AIG was the world's largest independent insurer of special risks. AIG was conned into becoming a derivative insurer. Hank Greenberg, founder/builder of AIG wanted nothing to do with derivative insuring. Greenberg was maneuvered out of the company he founded. AIG was the mechanism to loot the US Treasury. Basically what was perpetrated there was insurance fraud; since derivatives have no equity value and neither party committed assets or funded the instrument, there was no loss or fractions of a penny per dollar of loss..

The derivative never had any "value". The derivative was never audited to prove any value. Yet, former US Treas Secy Henry Paulson threatened there would be "tanks in the streets" if AIG wasn't bailed-out and derivative holders paid off...

America has been systematically looted since Oct 2008. Bush II could have declared an investigative moratorium on settlements; but the purpose was to loot Our Treasury and foist more debt on America...

There is no cash-value to any derivative, no settlement value; essentially they are a pigeon-drop with our Congress and Executive Branch, plus Judiciary all in on the scam.

America is being destroyed by design. Derivatives were designed to be the no-cost means of financial ruin.

wow these are good. i didn't expect any answers!

So it seems like they are just bets without collateral? I read about a person placing a "put option" on the Volatility Index in April, but these are not derivatives correct?

I do understand they are complete garbage. Not worth anything but the 'good word' of two individuals. But where do you sell a derivative because they aren't stocks? they're instruments, financial packages (I always think mortgage-backed derivatives) and I don't know who the eff would want to buy these.

and does it all get out of control because of the interest rates? Or is it like gambling, where if you bet a large amount you can win 10x that amount? sorry for all the annoying questions but these answers have been fantastic, and I hope it helps others too

Is this starting to crack up?

See signs of a deflationary wave around.....

It's going to be one hell of a creme pie in the face. More like something out of ghostbusters.

Of course, have you studied fractional reserve mechanisms?
Please do.

This is how they over leverage the original dollar loan.

lol i like your name btw...
"It was then that Tobias realized what his play was missing"

This is exactly all you need to know put very simply. the bankers who are very smart, decided at one point to insure they would never go down. They created these derivatives, or basically insurance against going under. They all created so many insurance policies against each other that if the govt ever discovered how much corruption or failure was happening at a bank that the all the CEO has to say is go ahead and take us down and we will take the entire world with us. See how that works? It's called TO BIG TO FAIL and they did this on purpose to make sure they are never taken down. They forgot one thing though, there is always the possibility of the govt declaring ANY AND ALL derivatives worthless and null and void. I doubt that will happen...... You will never hear of a major bank going down.....they will have so many trillions in derivatives that it will start a domino effect that will crash the worlds banks.

The only idea is to rip the man on the street off.

This was posted on GLP two weeks ago so I saved it.

I wrote this description of the world’s biggest financial problem so people could understand "in layman’s terms" why we are in trouble ! Please chime in if you can add to the understanding here. I use the dollar in the description of Credit Default swaps for a basis as they could be denominated in any fiat currency.

Understand that the dollar is the defacto “Reserve currency – Petrodollar” that the world uses to transact business. As that dollar becomes more encumbered with "leverage" its ability to be a store of value has less conviction and faith. The "only" value that a fiat paper currency can retain "is" that conviction and faith.

So, let's look at the reason all faith will be lost in that currency at some point in the future. Since the creation of the FED in 1913 the currency (Dollar) value has been controlled through inflation/deflation. In 1944 the U.S. Dollar through the Bretton Woods agreement was granted “exclusive reserve currency status”.(that status meant that any country wanting to buy oil, food or commodities would have to buy dollars “first” and then they could go into the world market to make their purchase “on” the world market (with those reserve currency notes) also it meant that "If" any country lost faith or trust (through debasement or any other reason) in that currency they could go to "any" central bank in the world and trade that paper currency for physical Gold of equal value.
(Good as Gold) In 1971 Nixon suspended Bretton Woods and took us off the Gold Standard telling other nations that they could not "now" exchange the dollar for Gold as previously promised.

Here is the key to it's downfall:

The U.S. dollar (debt) from 1971 through around 1995 was able to be removed from a balance sheet with little implication through accounting techniques claiming (debt) as a loss and could be written off through tax levy accounting and that was the end of it.

Here (around 1995) comes Blythe Masters from JP morgan and she creates what is called a "Credit Default Swap" This is essentially an insurance policy on a default to pay back a debt or loan. So, let’s say for shins and giggles Greece is lent 1 trillion dollars by another country. They promise to pay that money back at a set interest rate over time. The CDS (Credit Default Swap) enables financial institutions to purchase a put (Default insurance or a bet against the underlying asset (loaned debt or CDO – Collateralized Debt Obligations) never being paid back. This would be OK if only "ONE PUT" was taken out against the chance of that debt not being paid back. The problem "of the whole planet situation right now" is that this debt can be leveraged by 100 "PUTS" or in layman’s terms (for each dollar that was lent to Greece there are $100 betting against "each" one of the dollars lent, that it will default and not be paid back) So, now you have 100 Trillion dollars leveraged against the default of a 1 Trillion dollar loan. So, now Greece cannot pay back the loan (CDO-debt) triggering the CDS from the default on the CDO and now everyone that bought a "PUT" wants’ to get paid on their bet. The next problem is that those financial institutions that sold those "PUTS" are only required to have a 6% reserve (Money held in escrow to pay claims) So, in reality those institutions only have .06 cents per dollar to pay those claims and not the “whole” dollar "required or needed" to pay those claims.

This is why all of these bailouts are created so "NO ONE" is allowed to fail "Triggering" these Credit Default Swaps. The original debt is maintained through interest payments from "newly created" debt (bailouts) because the money to pay those claims does not even exist.........Yet.
So, you say why can’t they just unwind them.
Answer, is that you can't because everyone that purchased these "PUTS" on “CDO’s” wants’ to get paid because they are classified as an asset on "their" balance sheets.

When the discussion turns to CDS/CDO's at parties, I ask if anyone can explain them so that we can have an educated discussion. No one can, so I give this analogy and everyone sees a little better what the problem is. I know it's not a perfect description but conveys the basis.
So, GK wants to buy a house, so GK goes to Joe banker and says hey Joe can you lend me a 100K to buy this house. Joe says sure GK here is your 100K you can pay me back over time with interest.
Then Joe gets back from the closing and says to himself, Hey "what if GK doesn't pay me back, I will be out a 100K. So, Joe calls Allstate and talks to Al the broker and says, "Hey Al I want to buy a 100K insurance policy incase GK doesn't pay me back. Al says sure Joe here is your 100K default insurance policy (CDS). Then after Al gets off the phone with Joe, Al says to himself "wait a minute" "what if Joe doesn't pay me back" and Al quickly calls jerry at AIG and says hey jerry I need an insurance policy for 100K incase Joe doesn't pay me back. Jerry says sure Al here is you CDS for 100K incase Joe the banker doesn't pay you. Then Jerry gets off the phone with Al and says "wait a minute" "What if Al doesn't pay me back and then he quickly calls Zurich and talks to Chad and says "hey Chad" "I need to purchase a 100K policy against Al not paying incase GK defaults on his mortgage. Chad says here you go Jerry a 100K CDS for you and the Chad says to himself......................................................​.........you see were this is going.
So, let’s say this goes 20 CDS contracts deep. So what we have is 2,000,000 dollars worth of credit default swaps written on a (CDO) 100K depreciating asset that is now only worth 60K. Now the leverage went from 20 to 33 because of the deflation in the housing prices. (That’s why there is no mark-to-market)
Now GK's employer just called and is laying GK off "permanently".
The problem is now that the financial institutions that wrote all these CDS's (a ton of American banks) were only required to have a 6% reserve on this 100K worth of exposure (each). So, you see the money does not even exist-yet (our anti deflationary kryptonite backstop and tribute to JS for the saying "QE to infinity") to pay these claims and all these entities must be bailed out to stop the contagion before wiping out everybody.

I used a house as an example and it actually is a physical asset. Most of the CDO's are written against debt (paper, but classified as an asset on balance sheets with "no" underlying physical nothing) Here is where the problems lay. It's the reserve of 6% that is the problem. Let’s take our old friend JPM that has a leveraged balance sheet of 44 to 1. If they are in the wrong chain position on the CDS loop and let's say that they have to pay out 5x of that leverage but only receive 2x of the leverage back. ???????????????????
Alot of people say, why dont they just repudiate the debt and not pay it and we can get over this whole debt debockle. There is no way, to not pay this debt. If they were to they would have to print 42 new leverages (dollars) for every dollar of debt they want to retire. Capice?

Where does the money come from to pay that net 3x's exposure? (it does not exist...yet, remember the 44 to 1 leverage) hence the bailouts to keep this thing from going full balls out.

There it is, and it's called "Contagion"

So the deflation will trip the balance sheets into default causing the printing of currencies to try and save the system.
This can be proven by the labeling of the 70% haircut on Greece’s debt not being classified as a default, hence delaying the massive printing of money to honor them.

Deflation would only occur if there was a free and open market reflecting price discovery. The law of supply and demand would deflate prices depending on reserves, production, storage costs/duration or demand. The price discovery mechanism of the markets all around the world has been removed and since the price of everything is being controlled there will be no deflation in anything. There will be temporary moves up and down in price, but this would reflect chart painting for chartists and the media pundits for debating those charts. The nature of the dollar says it has to inflate to survive, through the fractional lending banking scheme to expand credit to pay the maintenance on the money that was created before it. Deflation is de-leveraging and inflation is multiples of leverage. The only way to maintain that created leverage (generational wealth) and keep it from default, is to leverage that generational wealth again and again and again.
Fiat money has a limit to the leverage it can sustain by it's continued expansion. When everyone is running around trying to beat his neighbor buying anything that will store his generational wealth in, while casting that fiat currency aside, this is the point inflation turns to hyperinflation or a loss of confidence in that currency (hyperinflation isn't the over printing, but the faith and confidence in the governments that control it's rate of inflation). Has happened every time, to every currency, ever created, since the beginning of man.
In an hyperinflationary transition everyone will try to find a medium of exchange before the guy next to him as the price and scarcity of that element increases; to store their generational wealth in. Something that is non-corruptible, can't be printed, is timeless, doesn't rot, rust, decay, spoil, degrade, hard to contaminate, is portable, is accepted all over the world through all language barriers.

There is only one element that meet this criteria.

I have been trying to explain this to you but, you don't listen!!!

Once again, here ya go.

It is eight parts and 2.5 hours long. Sorry but that is how long it takes to tell.

Thread: The Cockbag Power Loving Elites Are Scared Shitless!!!

Just watch it man. You won't regret it!!

Oh yes, Lester the molester, we do know!!!

Remember Enron?

I was sitting at my desk and an offer came through from them offering "Bankruptcy Futures". So I'm thinking WTF?

In other words they were offering a bet on how many bankruptcies would be filed in the next month.

Thats a derivative.

And we know what happened to Enron.

In other words, its a bet with no underlying asset to back it like a stock or real estate.

What happens in Vegas...............................

Fraud

wow I just posted another thread and this helped explain quite a bit. thanks for using such a realistic example