The Beginning Of The End
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The Coming Derivatives Panic That Will Destroy Global Financial Markets

When financial markets in the United States crash, so does the U.S. economy.  Just remember what happened back in 2008.  The financial markets crashed, the credit markets froze up, and suddenly the economy went into cardiac arrest.  Well, there are very few things that could cause the financial markets to crash harder or farther than a derivatives panic.  Sadly, most Americans don't even understand what derivatives are.  Unlike stocks and bonds, a derivative is not an investment in anything real.  Rather, a derivative is a legal bet on the future value or performance of something else.  Just like you can go to Las Vegas and bet on who will win the football games this weekend, bankers on Wall Street make trillions of dollars of bets about how interest rates will perform in the future and about what credit instruments are likely to default.  Wall Street has been transformed into a gigantic casino where people are betting on just about anything that you can imagine.  This works fine as long as there are not any wild swings in the economy and risk is managed with strict discipline, but as we have seen, there have been times when derivatives have caused massive problems in recent years.  For example, do you know why the largest insurance company in the world, AIG, crashed back in 2008 and required a government bailout?  It was because of derivatives.  Bad derivatives trades also caused the failure of MF Global, and the 6 billion dollar loss that JPMorgan Chase recently suffered because of derivatives made headlines all over the globe.  But all of those incidents were just warm up acts for the coming derivatives panic that will destroy global financial markets.  The largest casino in the history of the world is going to go "bust" and the economic fallout from the financial crash that will happen as a result will be absolutely horrific.

There is a reason why Warren Buffett once referred to derivatives as "financial weapons of mass destruction".  Nobody really knows the total value of all the derivatives that are floating around out there, but estimates place the notional value of the global derivatives market anywhere from 600 trillion dollars all the way up to 1.5 quadrillion dollars.

Keep in mind that global GDP is somewhere around 70 trillion dollars for an entire year.  So we are talking about an amount of money that is absolutely mind blowing.

So who is buying and selling all of these derivatives?

Well, would it surprise you to learn that it is mostly the biggest banks?

According to the federal government, four very large U.S. banks "represent 93% of the total banking industry notional amounts and 81% of industry net current credit exposure."

These four banks have an overwhelming share of the derivatives market in the United States.  You might not be very fond of "the too big to fail banks", but keep in mind that if a derivatives crisis were to cause them to crash and burn it would almost certainly cause the entire U.S. economy to crash and burn.  Just remember what we saw back in 2008.  What is coming is going to be even worse.

It would have been really nice if we had not allowed these banks to get so large and if we had not allowed them to make trillions of dollars of reckless bets.  But we stood aside and let it happen.  Now these banks are so important to our economic system that their destruction would also destroy the U.S. economy.  It is kind of like when cancer becomes so advanced that killing the cancer would also kill the patient.  That is essentially the situation that we are facing with these banks.

It would be hard to overstate the recklessness of these banks.  The numbers that you are about to see are absolutely jaw-dropping.  According to the Comptroller of the Currency, four of the largest U.S. banks are walking a tightrope of risk, leverage and debt when it comes to derivatives.  Just check out how exposed they are...

JPMorgan Chase

Total Assets: $1,812,837,000,000 (just over 1.8 trillion dollars)

Total Exposure To Derivatives: $69,238,349,000,000 (more than 69 trillion dollars)

Citibank

Total Assets: $1,347,841,000,000 (a bit more than 1.3 trillion dollars)

Total Exposure To Derivatives: $52,150,970,000,000 (more than 52 trillion dollars)

Bank Of America

Total Assets: $1,445,093,000,000 (a bit more than 1.4 trillion dollars)

Total Exposure To Derivatives: $44,405,372,000,000 (more than 44 trillion dollars)

Goldman Sachs

Total Assets: $114,693,000,000 (a bit more than 114 billion dollars - yes, you read that correctly)

Total Exposure To Derivatives: $41,580,395,000,000 (more than 41 trillion dollars)

That means that the total exposure that Goldman Sachs has to derivatives contracts is more than 362 times greater than their total assets.

To get a better idea of the massive amounts of money that we are talking about, just check out this excellent infographic.

How in the world could we let this happen?

And what is our financial system going to look like when this pyramid of risk comes falling down?

Our politicians put in a few new rules for derivatives, but as usual they only made things even worse.

According to Nasdaq.com, beginning next year new regulations will require derivatives traders to put up trillions of dollars to satisfy new margin requirements.

Swaps that will be allowed to remain outside clearinghouses when new rules take effect in 2013 will require traders to post $1.7 trillion to $10.2 trillion in margin, according to a report by an industry group.

The analysis from the International Swaps and Derivatives Association, using data sent in anonymously by banks, says the trillions of dollars in cash or securities will be needed in the form of so-called "initial margin." Margin is the collateral that traders need to put up to back their positions, and initial margin is money backing trades on day one, as opposed to variation margin posted over the life of a trade as it fluctuates in value.

So where in the world will all of this money come from?

Total U.S. GDP was just a shade over 15 trillion dollars last year.

Could these rules cause a sudden mass exodus that would destabilize the marketplace?

Let's hope not.

But things are definitely changing.  According to Reuters, some of the big banks are actually urging their clients to avoid new U.S. rules by funneling trades through the overseas divisions of their banks...

Wall Street banks are looking to help offshore clients sidestep new U.S. rules designed to safeguard the world's $640 trillion over-the-counter derivatives market, taking advantage of an exemption that risks undermining U.S. regulators' efforts.

U.S. banks such as Morgan Stanley (MS.N) and Goldman Sachs (GS.N) have been explaining to their foreign customers that they can for now avoid the new rules, due to take effect next month, by routing trades via the banks' overseas units, according to industry sources and presentation materials obtained by Reuters.

Unfortunately, no matter how banks respond to the new rules, it isn't going to prevent the coming derivatives panic.  At some point the music is going to stop and some big financial players are going to be completely and totally exposed.

When that happens, it might not be just the big banks that lose money.  Just take a look at what happened with MF Global.

MF Global has confessed that it "diverted money" from customer accounts that were supposed to be segregated.  A lot of customers may never get back any of the money that they invested with those crooks.  The following comes from a Huffington Post article about the MF Global debacle, and it might just be a preview of what other investors will go through in the future when a derivatives crash destroys the firms that they had their money parked with...

Last week when customers asked for excess cash from their accounts, MF Global stalled. According to a commodity fund manager I spoke with, MF Global's first stall tactic was to claim it lost wire transfer instructions. Then instead of sending an overnight check, it sent the money snail mail, including checks for hundreds of thousands of dollars. The checks bounced. After the checks bounced, the amounts were still debited from customer accounts and no one at MF Global could or would reverse the check entries. The manager has had to intervene to get MF Global to correct this.

How would you respond if your investment account suddenly went to "zero" because the firm you were investing with "diverted" customer funds for company use and now you have no way of recovering your money?

Keep an eye on the large Wall Street banks.  In a previous article, I quoted a New York Times article entitled "A Secretive Banking Elite Rules Trading in Derivatives" which described how these banks dominate the trading of derivatives...

On the third Wednesday of every month, the nine members of an elite Wall Street society gather in Midtown Manhattan.

The men share a common goal: to protect the interests of big banks in the vast market for derivatives, one of the most profitable — and controversial — fields in finance. They also share a common secret: The details of their meetings, even their identities, have been strictly confidential.

According to the article, the following large banks are represented at these meetings: JPMorgan Chase, Goldman Sachs, Morgan Stanley, Bank of America and Citigroup.

When the casino finally goes "bust", you will know who to blame.

Without a doubt, a derivatives panic is coming.

It will cause the financial markets to crash.

Several of the "too big to fail" banks will likely crash and burn and require bailouts.

As a result of all this, credit markets will become paralyzed by fear and freeze up.

Once again, we will see the U.S. economy go into cardiac arrest, only this time it will not be so easy to fix.

Do you agree with this analysis, or do you find it overly pessimistic?  Please feel free to post a comment with your thoughts below...

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  • MichaelfromTheEconomicCollapse

    I promised that I would try to write about derivatives more. I think it is so important that people understand them, and they are going to play a central role in the upcoming financial crisis.

    Also, please check out my new article about UN control of the Internet…

    http://thetruthwins.com/archives/un-control-of-the-internet-would-mean-un-control-of-free-speech

    If the UN is given authority over the Internet that would be a very frightening thing for all of us.

    Michael

    • richard

      I UNDERSTAND THEY ARE TRYING TO GET GUN CONTROL THROUGH THE U.N. TO. HAVE YOU HEARD THAT?

      • franko35758

        yes,that is true. thanks to hillary and obama, they are doing everything to get our gun’s and make us “defenseless”!!!
        but , now obama will take our gun’s with an executive order.
        george soros is the manipulator, obama is the puppet.
        sad,sad,sad, to see America go down by these idiot’s.
        old sarge,’nam vet,’68,’70
        lrrp/abn

        • RICHARD

          They have all sold out franko, there is no such thing as the party for the people. Viet nam 68-72 Three tours

  • rentslave

    Hopefully,Vanguard will still be solvent.If not,where’s the cyanide pill?

  • MeMadMax

    Wowzers, looks like goldman sachs is a company full of meth fiends… I can only just shake my head at that one… and avoid them at all costs ^.^

  • Martin Dixon

    If I count zeroes right, Goldman’s assets are 144 billion not million (you can delete this) thanks

    • MichaelfromTheEconomicCollapse

      Yes you are right – thanks for catching that.

      I need to learn to count my zeroes better. :)

      I have corrected that mistake, and all of the other statistics in the original article were correct.

      Michael

  • L33tmoaf

    In before that moron 2Gary2 regurgitates non-economical BS and incites the Liberal Californian Cult Creed of Doom! ^___^
    Just remember guys, don’t believe in this stupid two party jargon, it’s a distraction from the real problem: the Federal Reserve and elite special interest groups from oversees. When it comes to the privatization of the prison system, the national debt, international wars, drone strikes, NDAA, Patriot Act, and budget spending and the economy.. Democrats and Republicans are literally one in the same.

    • jenniferlovescorruption

      Bingo! Demicans and Republicrats

    • Hambone

      I actually enjoy reading Gary’s comments. I admit, most of the time he lashes out at anyone with conservative ideologies with child-like attacks, but some of his comments are quite intelligent and contain food for thought. I think if he stayed in the arena of ideas instead of just posting, “you suck,” we could have some meaningful exchanges. He’s clearly an intelligent guy.

      Pre-second coming, some disagreement is good. It’s when everyone agrees on everything that we should be worried.

      • HecatesMoon

        If you ask Gary questions, if you ask him about his ideas or why he feels the way he does, the defenses come down, and he’s very quick to just talk and explain what his stand is, and yes, he does show himself very intelligent.
        We all ultimately want the same things. We all just have different views as to how to go about achieving those things. I know that so I don’t allow politics to determine how I judge a person or whether or not I find them likable.
        I find him a little scary sometimes, but I like him fine.

      • mainstreeteconomist

        When everyone is thinking the same thing, no one is thinking!

    • otter1111

      I have to disagree. While there are some Republicans who are fiscally conservative, there are no fiscally conservative Democrats. Many Republicans are pro-life, just about all Democrats are pro-abortion-they even booed putting God back in their party platform. We wouldn’t have Obamacare if the Democrats didn’t control both houses of congress and the presidency. We’d have the Keystone pipeline with all the associated jobs with a Republican president. I doubt a Republican president would force religious organizations to violate their conscience by forcing them to pay for abortifacients, contraceptives, and sterilizations against their free will. Would we have the 4 highest budget deficits in history (over 1 Trillion each year) with a Republican president? Maybe, but I doubt it.

      • franko35758

        wouldn’t nothing surprise me anymore.
        since the ’70′s, all professional politicians have run on a liberal ticket.
        NONE have put AMERICA first!
        nov. ’70, I returned from my 2d tour in ‘nam to a bunch of protester’s at ‘frisco intl.
        some of these protesters are or have sat in the congress or senate.
        wouldn’t surprise me that two of them was pelosi and harry reid or maxine.,feinstein,boxer, sheila jackson-lee
        ohhh do not forget wasserman -shultz and all of the “black communist party caucus”.

        what some disgusting people to all themselves AMERICAN’sold sarge,’nam vet,’68,’70
        lrrp/abn

        • Michael Ratcliff

          We’ve had a couple politicians attempt to run for office that did believe in America first. We idiots of a country just didn’t elect them. You remember Ross Perot? He was all about getting the country back on track. But he had to much common sence for many that he seemed like a crazzed man and a joke. We did the normal thing and voted party lines instead like the robots we are!

      • mmowens

        yes we would..stop drinking the koolaid

      • Masterlock2020

        None of the issues you describe are more fundamental to the fate of this country than that of the Federal Reserve central banking system generally, and the risk-taking actions of too-big-to-fail private banks specifically.

        Obamacare, abortion, etc., none of that matters if the dollar collapses and loses all value. Where is the republican outcry on these issues? Everything else is secondary.

  • George Boyas

    so what do we do? If you have a little bit of money in IRA’s say Aviva?

  • http://www.facebook.com/JungleJsiPod Justin Richtmyre

    I just want to express my appriciation for all of the articles posted on this page

    • http://www.facebook.com/people/Mark-Brander/100000698733746 Mark Brander

      Read the Obama Antichrist Prophecies from Jesus! Very frightening info…Prophecies Org

    • MichaelfromTheEconomicCollapse

      And thank you for reading them. :)

      Michael

    • Hambone

      Ditto that. This is only one of two blogs I read. It’s nice to hear the ideas and opinions of like-minded folks.

  • mainstreeteconomist

    Unlike stocks and bonds, a derivative is not an investment in anything real.
    Michael

    Not entirely true. If you have an option (a derivative) to buy stock, you can exercise that option and obtain the stock.

    Nobody really knows the total value of all the derivatives that are floating around out there…
    Michael

    Since bets are placed in both directions, total derivative exposure and risk may be less than some people think.

    So who is buying and selling all of these derivatives? Well, would it surprise you to learn that it is mostly the biggest banks?
    Michael

    Small investors that are buying ETF’s (exchange traded funds) with 2X or 3X leverage are also investing in derivatives. These funds are becoming more numerous and popular. Use these funds with caution!

    A Secretive Banking Elite Rules Trading in Derivatives
    Michael

    Before any public panic over derivatives, this secret organization will decide which financial institutions will survive or fail.

    This secret organization met in Switzerland recently and developed new rules for gold bullion reserves which will increase bank liquidity and reduce the risk of a future credit freeze.

    Without a doubt, a derivatives panic is coming. It will cause the financial markets to crash. Several of the “too big to fail” banks will likely crash and burn and require bailouts.
    Michael

    Before another big bank fails, the US government is going to crash. All large banks have been told to develop plans for remaining solvent without a government bailout.

    • davidmpark

      Yeah, that’s true about the value of derivatives. It’s a contracted option to buy and contracts can be sold at some value. What I’d like to know is how many contracted option to buy’s can be made around 1 stock. Haven’t found info on that.

      • mainstreeteconomist

        How many contracted option to buy’s can be made around 1 stock?

        If you own the stock, then you sell covered call contracts with no risk.

        If you don’t own the stock, then you sell naked (or short) call contracts. The risk here depends upon the cash in your trading account and how your broker monitors this cash (margin requirements).

        The contracts made (open interest) depends on demand and the margin requirements of your broker.

        • Ralfine

          That means, since I don’t own you, I can only sell a naked call contract on you. I will only be in trouble if someone actually wants to buy you from me.
          Is that right?
          But in the meantime I can sell as many contracts on you as I want and as people are willing to pay ?

          I can spend alll the money on booze and holidays and if the SHTF I declare bancruptcy?

          • mainstreeteconomist

            In the real world, you would need a large brokerage account so bankruptcy would not be a good idea.

    • JustanOguy

      Somebody certainly knows what’s going on.

    • Blair T. Longley

      The average leverage of the big USA banks is about 30 to 1. (Goldman Sachs, which practically controls the government, as the ultimate insiders, are leveraged over 400 to 1.) Therefore, anything that unbalances the biggest banks could easily amplify through their leverage ratios.

      The central banks may well be able to make more money out of nothing, as debts, to distribute to their buddy banks. However, the whole thing is building interconnected systemic risks, so that everything will be alright, until it all is pushed past some unknown and unpredictable threshold, where it will all collapse into chaos.

      The most probable future is that the runaway financial frauds, which are the fundamental basis of the whole system, and its actual structural foundation, will keep on runaway away, creating more and more money out of nothing to gamble with, because those doing that can keep on winning and winning … until they do not. THEN, the only possible alternative is genocidal wars, along with democidal martial law.

      The whole system was debt slavery, backed up by wars based on deceits. That has become debt insanity, backed up with wars and martial law that are even more insane.

      I wish that your expectations were not delusionally out of touch with the basic structural reality of the systems which you appear to still have confidence in!!!

  • http://www.facebook.com/leanne.gerhardt Leanne Gerhardt

    They will simply print more $$$ after the crash/panic.
    The cost of goods will go out of control and may require a reset of currencies or some kind of jubilee.

  • Milton William Cooper

    The question you need to delve into is why are they taking actions that will guarantee the destruction of the Dollar and the world economies worldwide. The answer is that it’s part of their plan! It’s time to wake up because they plan to enslave us all in a one world government.

    • Ralfine

      Well, first you need to define who “they” are.

      If you mean by “they” the gamblers, then I can tell you, they will go down either way. It is the system that makes them gamble and bet higher and higher for more and more profit.

      Gambling means you can get money from people who believe they can get more money back than they paid in, because there are still people around that are more stupid than they are.

      It just takes an extraordinary event like rising fuel prices or a storm that makes some money unavailable to gamblers. Then a panic will set in. “nobody wants to buy my worthless paper, so I need to sell it before anybody elso notices”.

      The price will go spiralling down and “wealth is destroyed”.

      Actually, you destroy wealth the moment you buy that piece of paper printed with a promise of paradise on earth.

      Now, are there really people who telll you there is no free lunch? And you are blaming them for robbing you of your hope?

      My home is my castle. Want to get wealthy? Get yourself a “castle”. Not in a river bed, not on an earth quake fault, not on the ocean beach. Make it last. Make it survive rain and snow and ice and wind. Put your savings into your “castle” and make it better every year. More beautiful, more secure, more energy efficient, cheaper to run.

      • swamiolsson

        You raise some very true points, here.
        the “They” in conspiracy theories do not conspire. They’re in most cases incapable of that. “They” are just opportunists pursuing the available goals. And they’re many.
        Greed has in the US been converted from one of the “Seven deadly sins” to a heavenly virtue. History clearly shows it is destructive of freedom, health, prosperity and happiness. But people don’t believe in history, they forget. And make the same blunders once again.

    • G.

      Finally! Someone said it.

  • richard

    THANKS FOR ANOTHER GREAT ARTICLE, MICHEAL.. WHEN IT COMES TUMBLING DOWN THIS COLLAPSE WILL CATCH ABOUT 85% OF THE PEOPLE OFF GUARD. I CAN’T EVEN CONVINCE MY OWN FAMILY ON WHAT IS GOING ON THEY THINK I AM NUTS, ESPECIALLY MY OWN WIFE. THAT’S OK, I JUST KEEP PREPPING. GUESS WHO WILL SHOW UP AT MY DOOR WHEN THE SHTF..

    • MichaelfromTheEconomicCollapse

      I think we all need to brace ourselves for our family and friends to come knocking on our doors when the time comes.

      So we should take that into account when making our preps.

      Michael

  • MichaelfromTheEconomicCollapse

    Very nice comment Mondo.

    Michael

  • davidmpark

    1.5 Quadrillion dollars! This is the quagmire of legalized boardroom counterfeiting. Is that acceptable; equating heavy fiat debt via banking instead of Dept of Treasury to counterfeiting?

    Gonna look into bartering…

  • Ralfine

    Actually, banks can write things off and won’t be any poorer for it. That “crash” doesn’t just destroy anything. It just lets the hot air out of some fancy ballons. And these are not hot air ballons or air ships that carry people or goods. They are fancy party ballons. The party will look a bit duller and there will be heaps of trash lying around, but that’s about it. Cleaners will be more busy.

  • Ralfine

    Well, just stay away from the financial market. Especially, do not invest in financial “products”. Invest in tangible goods, like clothing, accomodation, food production, food preservation, food preparation, and skillls.

    Hands-on techniques like massage will be in demand. And you don’t need to be naked to receive a good massage. Traditional Chinese Accupressure and traditional Thai massage is done while you are clothed.

    Any skill around the house, food and clothing, mending and reparing and cleaning willl also be in demand.

  • chilller

    I look forward to the biggest financial train crash man can produce. It will provide fog for the “realignment” to commence.

  • http://twitter.com/1913Intel Matt

    Very often when doing things you are defeated even before you have started. That is because you made bad strategic decisions. In the case of derivatives, the bad decisions occurred in the development of the equations. The equations assume that people act independently. Overall this seems to work out just fine, until there is a crisis. In a crisis people start herding in a big way. It is the herding that causes the derivatives to crash and burn. Herding means that a 1 in 200 year event is really like a 1 in 20 year event. 1913Intel.Com

  • JustanOguy

    I knew about the derivatives fiasco before mainstream America even knew about them…. 2008 was all about fear cleverly marketed by those that had the most to lose when it came time to pay the bets… and the most to win by selling fear that if they were not bailed out that life as we know it would end.

    So honestly ask yourself…. If AIG was not bailed out (to pay off the banksters at Goldman Sachs and Goldman Sachs also going down) would the U.S. have survived?

    Absolutely…

    People need to be educated on where their money is sitting / invested and if it’s one of the big bankster corps. making these bets, get your money out of there and you’ll do just fine.

    Because fact of the matter is…. the vast majority of Americans are going to do what they do every day after the big players get burned and that’s get up to go to work and do what Main Street does: produce. Fact of the matter is… there are numerous corporations sitting on boatloads of cash.

    Let Wall Street burn down. Should have been allowed to happen back in late 2008 and we’d all be better off today.

    B of A / JP Morgan go down with their 100 Trillion plus of exposure to derivatives? So what… I’m going to work and for those too stupid to know… I’m putting what I have to work to buy up all of their junk for pennies on the dollar as they sell it for money to eat.

    Wall st. can shut down tomorrow and I’m in the position to actually be better off.

    You need to keep in mind that when there are losers in the derivatives game… there are also winners.

  • http://www.facebook.com/dutch.uncle.david David C. Oechsle

    I know what a derivative is, but i don’t understand who’s creating them, who’s buying them, and how can there be more $ in derivatives than there is money on the globe? Is there a website that discusses derivatives on an elementary level? And lastly, is there a website that sort of tracks their value, like NASDAQ, DOW, etc? I heard a trustworthy source state that we should all watch the derivatives market, and that there may well be a sign that the S is about to HTF. I don’t know how to “keep an eye on the derivatives market.”

    • David Woolley

      The people who create these things are called market makers. Anyone licensed by the FEC can act as a market maker.

      Its probably easier to understand derivatives if you stop thinking about them as casino gambling and more like insurance. The casino gambling metaphor highlights the risks involved and the amoral or immoral nature of the beast. The insurance analogy is how the market makers refer to what they are doing, and, more importantly, the justification for why they create markets in derivatives or INSURANCE.

      It goes like this: Citibank loans 20 billion dollars to Spain. Prior to 2008, that was a no brainer. Governments never default. And they always pay their yearly interest at, say 5%. But just to be sure, Citibank goes shopping for some insurance against any possibly default by Spain. If Spain were to default Citibank would go out of business overnight, so they have some motivation to find some insurance. JP Morgan says, hey, we’ll be happy to make a market in derivative insurance for your 20 billion dollar loan to Spain. Give us quarter of a percent per year, you keep 4.75% of your yearly interest payment and we’ll insure you against a Spanish default. In this example JP Morgan is the market maker. But Citibank is the market maker for other loans. And Goldman Sachs is the market maker for other loans. In fact, its all about insurance of debt instruments. Every financial instrument is actually an instrument for debt. One man’s asset is another man’s debt. And every financial instrument, even the little ones that you have as an individual, have been bundled together by banks, or the banks who do business with the smaller banks, until everything everywhere has been “insured”.

      The problem is that no one has the money to pay for the insurance. These banks are collecting yearly fees for insurance that they could never pay-on should the defaults actually go through. That’s why these things are weapons of financial destruction. It works like a dominoes falling over. If Spain defaults, then the four or five banks that have loaned Spain loads of money, run to their insurers and demand that they pay up. Those insurers, which are actually other banking and financial companies don’t have the money. So they run to the other banks (sometimes the same banks that are coming to them for payment) to collect on insurance that they have should they go belly up on loans and insurance promises that they’ve made. The effect is a sudden, massive, fast-moving, fire-storm of demands for payment. None of which can be honored because no one really has that kind of money to begin with.

      The derivatives market is estimated to be about 700 trillion dollars of worthless promises which no one can honor. That’s why some serious hand-wringing is going on among the elite financial power brokers.

      Financial institutions have actually have established a clearing house which determines if a default has actually occurred and orders the insurance payment due. If this clearing house, which is made up of representatives from financial institutions, looks the other way when, say, for example, Spain is in default and instead they declare Spain not to be in default out of fear of triggering another world-wide financial melt down, then the banks in the Germany or the US or whoever loaned Spain the money in the first place will try to get their money by some other means. In financial terms that’s called taking what belongs to you by theft. In sovereign nations terms we call that world war III.

      • Ralfine

        I find it quite interesting that savings are liabilities and loans are assets.

        How?
        If Joe has a savings account at a bank, the bank is liable to pay him the money, if he wants it back.
        If Joe has a loan at this bank, the bannk has the right to own this money.

        To increase they assets, the bank is interested in giving more loans. And if you want to give them money to look after, they will charge you for it, and they put restrictions on your money as to how much you can withdraw per day.

        We started to spread our money over several banks. So if one computer goes down, then you still can pay bills from the other account. We also have cash at home, but you can’t use cash to pay utility bills and mortgages. And you don’t want to miss a payment.

  • Syrin

    Careful. These are our overlords. Goldman Sachs owns Europe and the entire Obamugabe administration. GARY is in love with all of them,

  • sharonsj

    The derivatives problem is not new. There was a big bust more than 20 years ago that wiped out municipalities and school systems. But nobody learns from history and the politicians will never rein in Wall Street. The system is too corrupt.

  • stmess

    If an illusion crashes, then, there is no crash at all – unless your life was built on that illusion.

  • Jared16

    These Banking people are something else! They do not want to make money with loans and services, they want to gamble! Now here is on the news Michael Corbat the new CEO of Citibank will layoff 11000 thousand people to make his bank “More efficient” They made 6.3 billion dollars in profit so far this year, but that was not enough for them! Let me tell you, terrorists will blow us up and kill us! This guy and others like him are economic terrorists who will take your job and ruin your life! This scumbag is getting paid millions every single month while he throws thousands of people out of work!

  • Jared16

    Turning to religion at the time we are all in terrible peril is a bit like believing Santa Claus is going to bring us wonderful gifts this Christmas! I f we do not help ourselves no one else will!

    • Mondobeyondo

      If we can’t turn to religion, what else is left?

      Seriously…Yes, we need to help ourselves, with assistance from God.

      And God does indeed exist.
      How do you think this country became as great as it is, um, once was?

      Need to take some time off, birthday preps are in order…

      • Swamiolsson

        “How do you think this country became as great as it is, um, once was?”
        A: Ruthless exploitation of a wonderful, virgine continent!

    • swamiolsson

      To many people religion is a consolation that enables them to go on. Religion is a good thing when it’s not abused by Fundamentalism etc.

      • Jared16

        Sure! Some consolation! Why don’t you research how many people have killed each other for the sake of ” Religion” Countless millions!

        • goodgravy

          Name some wars based on religion.

  • El Pollo de Oro

    And a tsunami it will be. I sure hope I’m wrong, but the evidence (if one looks at it honestly) strongly suggests that the forthcoming tsunami will not only be worse than Sept. 2008—it will make 1929 pale in comparison.

  • Jerry

    Great article, Michael. Now, how concerned should I be about my 2 401k’s? Will they survive the collapse or will they simply vanish? Is there anything I can do to better protect them? Any recommendations are greatly appreciated. Thanks!

  • Mark

    You should check out over at zerohedge.com an article claiming that Deutche Bank hid 12 billion in losses during the financial crisis. It gets better, their General Councel at the time is now the chief of enforcement at the SEC. The former chief of enforcement at the SEC is now their General Councel. Talk about the fox guarding the hen house. The losses that they hid were derivatives. lol

  • charlestonvoice

    Overly Optimistic

  • three_chord_sloth

    So Michael, you wonder “How in the world could we let this happen?”

    Well, we didn’t “let this happen”… we consciously CHOSE this outcome. Or more precisely, our betters in DC, Wall Street, and academia chose it for us.

    You see, when a nation chooses to deindustrialize, it must replace those industries with something else… if it wants to continue eating. We chose finance to replace the factory.

    In the eyes of our technocratic elites in DC and academia, the industrial economy was a horror show. Industry is dirty; finance is clean. Industry is downscale and blue collar; finance is all collegy and bookish (like them). Industry is too concrete and hard to fake (products must work and actually exist); finance is easily manipulated and often nicely abstract. And most of all, industry needs too many regular Joes and not enough technocrats… and we cannot have that, can we?

    So contrary to the mainstream narrative, the banks did not foist this mess upon an unsuspecting Washington… Washington, Wall Street, and the Ivy Halls of academia built this mess together, on purpose, to take complete control of the nation’s economy. To remake America in their own image. For our own good, no doubt.

    Excelsior, babycakes!

    • Ralfine

      Actually, this trend to financial companies controlling farming, mining, all production, all life was already foreseen by people like Marx and Lenin.

      But you remember how these guys are demonized by the ruling class aka financial companies and the filthy rich?

      Wonder why?

      Did you ever read the “Manifest of the communist party” which was published 150 years ago?

      Or “The Origins of the family, private property and the state”, by Engels, 1884

      or “The condition of the working-class in England in 1844″, by Engels

  • http://twitter.com/DanielRopp Daniel Ropp

    Just where did these big banks place their derivatives bets? That money has to go some place. Where? We really aren’t being told the whole story here!

  • http://www.facebook.com/mark.wandrey Mark Wandrey

    I spent a few hours last week explaining to my 14 year old how the US economy (and thus the world economy) was hours from melting down in 2008, and how the only thing that saved it was a last minute phone call to the Fed and their then offering hundreds of billions in FREE cash to any bank that felt it was in danger. Thus began the great 2008 debacle of bailouts that we now know from the watered down Fed audit literally sent trillions of our dollars overseas to unaccountable foreign banks. They saved everything with a tidalwave of fake fiat money.

    But then I tried to explain derivatives and swaps and how all these guarantees against loss were sold, resold, cross sold, shared, etc, etc, and I simply couldn’t but it in completely understandable words. If a sci-fi writer, a college graduate like myself can’t really put it all into sense to explain to his kid…we are well and truly screwed.

    • Blair T. Longley

      Yeah, the astronomically amplified size of this social insanity, headed towards psychotic breakdowns, is something that most “adults” can not understand!

  • energizedmortal

    In the U.S suicide is the leading cause of injury related death.

  • countyguard

    Anyone who doesn’t understand how the fiat currency system… (smoke and mirrors, and fraud) can’t possibly sustain itself, is in for a major loss. The mathematical probability that a fake currency supported by nothing but “hope” can survive is an impossibility, and anyone hoping this system will save their assets are fools. Prepare with all the essentials, and then put money into tangible assets like silver (not gold), land, local industry that will provide food, water, etc. This is as serious as it gets, folks.

  • Blair T. Longley

    I have been seriously worrying about the fact that our monetary system was insane, and backed up by even more insane weapons of mass destruction, since I was a teenager, several decades ago. Due to arms race to build as many more atomic bombs as possible, which peaked back in 1986, I became involved in registered political activities, which then led me on to study the funding of politics. That preoccupation caused me to talk to thousands of different people about that for a few decades, plus undertake a couple court cases against the government about the laws that control the funding of the political processes, which took up 15 years, during those few decades.

    However, after spending all that time thinking about these problems, my conclusions are that I am about 100% objectively depressed.

    In my opinion, people who think that they can be “prepared” for these social storms and megadisasters are deluding themselves. All ideas that one can effectively prepare for those events are based on not believing, or not understanding, that those problems have been amplified to astronomically sizes!

    Having gold and guns, or stored food, etc., makes sense for minidisasters. However, there is NOTHING that can prepare for the kinds of megadisasters that this article rightly raises are real possibilities.

    The runaway triumph of controlling civilization with huge lies, backed by lots of violence, reaching the scale where there are quadrillions of units of funny money, backed by nothing but weapons of mass destruction, means that there is enough money to buy 10 planet Earths, and enough weapons to destroy 10 planet Earths!

    The idea that anyone can be prepared for the psychotic breakdowns of “real” systems which have been amplified to that size indicates a failure to understand the actual magnitude of those insanities.

    Possessing gold, silver, guns, stored foods, seeds, or whatever else, ONLY works if the actual events continue to be relatively trivial. However, what we are talking about are MEGADISASTERS, which wipe out the ability of almost everybody to be “prepared.”

    It would take multi-trillion dollar bunkers to have a reasonable hope of surviving through such megadisasters. Even then, the world that one may emerge to afterwards may still not be survivable.

    THE PROBLEM is that, after one understands that there is a runaway global fiat electronic money FRAUD, backed by nothing but the threat of the FORCE of weapons of mass destruction, the “solutions” are collapse to chaos beyond imagination, after which there is nothing left inside of the normal frame of reference to still believe one could prevent, or prepare for!

    The same ways that most people have been able to deliberately ignore the insanity of weapons of mass destruction, and ignore the insanity of having a fundamentally fraudulent financial system, while still living inside of those, while they all automatically got BIGGER, they are already TOO BIG for almost anybody to understand, and way too big for any ordinary people to prepare for the coming MEGADISASTERS.

    Those who think they can prepare by having guns and gold and stored food are in the wrong order of magnitude. I do not say that people should not prepare for minidisasters. However, I do assert that it is NOT possible to “prepare” for the probable size of the MEGADISASTERS.

  • Blair T. Longley

    Yeah, insects and grass are about the only creatures that could probably survive a full scale nuclear war, triggered by the collapse of the global financial fraud systems.

  • GURIK

    Why was my posting of some 10 minutes ago removed ?

  • Jonathan Beagle

    I recently resigned from a derivatives brokerage firm in Manhattan.  We lost 50% of our business overnight due to the Dodd-Frank legislation alluded to in this article.  Then Hurricane Sandy hit, which made things even worse.  I am glad I won’t be around when the big bubble finally pops.

  • Sadpatriot

    QUIT saying ‘we’… We the people didn’t have anything to do with the Gov’t and corrupt banks and Fed Rsv… destroying the greatest nation on earth – intentionally.

  • http://twitter.com/opeyradio Opey Radio

    If it all goes boom, can we all stop paying our mortgages?

  • Ivan

    nice thanks

  • http://www.facebook.com/people/Bayard-Waterbury/100000233673443 Bayard Waterbury

    I’ve been talking about this for some time. Now that we are in the debate regarding the validity of issuing a trillion dollare platinum coin. If the derivatives market crashes, the government won’t even be able to consider a bail out for all of the banks that will crash. This kind of potential economic tragedy is real and terrifying in its massive potential to completely and utterly destroy society globally. This deadly sin of greed may ultimately prove to be mankind’s undoing.

  • Jason Gervais

    I know many people are panicked at an oncoming crisis. Hopefully we are just being hypersensitive and all will be fine. Thanks for sharing this post though!

  • JUST THE FACTS PETE

    THIS IS ALL BS. JUST GO TO FDIC WEB SITE AND GET THE LATEST INFO ON THE STATE OF THE BANKING INDUSTRY IN THE US FROM THE PEOPLE WHO’S FUNCTION IS TO INSURE YOUR
    DEPOSITS. I MEAN REALLY! COME ON.

  • Orin Thurgood

    LOL! Well the funny thing is that it has already blown up. Can you say haircut in Greek (or Cypriot Greek)? Only they fudge it so that these defaults didn’t trigger a “credit event” that would have taken all of them down. They can only continue there shenanigans for a little while longer before it all blows up!

  • John Loo

    “When you start to believe that you can create something out of nothing, it is very hard to stop.” ~ Singaporean president. But take his words with a pinch of salt, he might be betting with derivatives too. Maybe he’s talking about himself.

  • Michael Bobier

    now imagine if you will how scarey it would be when these big banks come to you all of a sudden and say you can no longer buy, sell or obtain access to your money unless you do as we say. your debit cards, credit cards and everything else that one is used to buying suddenly dries up. can’t pay your bills, power gets shut off, gas dries up can’t get to work. can’t obtain food, water or anything. all the while these fat hogs sit back in their big mansions sucking the people dry of their hard earned and worked for money while using these same people and their money as a pawn in their game of one upmanship. yeah it is scarey which is why a person is a fool to put their trust in a government, politician or in the banking industry today. i can guarantee you that the elitists and the people in charge of these conglomurates will continue to eat their 200 dollar steaks and will continue to drink their 300 dollar bottles of wine and bourbon long after they clean you out. these guys are the worst form of terrorists there is. DOMESTIC.

  • Truthisalieandtheselieswill…

    Prior to what I said before I found out that I had to have an account for this I will say it again. Lol feel free to make fun of me about that. Ok on a serious note It’s all on the back of the dollar bill.. Now here me out and this and please no one person get offended because you’ll understand what I’m talking about later this isn’t suppose to be offensive in any way. “Gay right’s marriage” ok hold on.. “Gun control” Still reading? Alright now i’ll say it all for “Indefinate detention”, “Countless New World Order saying’s from President’s and U.S Constitution” OK. Now remember the purpose of the government is suppose to be a world WITHOUT God? A world without hope, a world without faith, a world without peace. They encourage these law’s so that people will obey the “Novus Ordo Seclorum” Which transfers literally to a “New World Order” We’ve been asleep way to long and it’s time to wake the hell up people. The thing is the fact’s are all in front of us but we think of these conspiracy FACT’S as conspiracy theories when in reality the term theory was just made up by some random guy when he heard about a conspiracy think about now, and do some research yourself before you think I’m Conspiracy theorist. The truth of it is men have wanted to rule the world, since Beelzebub “Lord of flies” Or Lucifer “Angel of Light” This deceiver has tried to rule the world. Why though? His own free will. God let’s man choose HIS OWN FREE WILL. If you’re still reading listen to this cause it is important. Your FREE WILL MAKES A DIFFERENCE. WILL is a decision chosen by man. Notice how in prayer it’s “Let your will be done, Lord, Not mine” Because the man’s will is foolish, it’s self-centered, lying and deceiving at most but when we put God into our hearts and want to do his will it is holy and it’s moving. Point I’m making is the government by their own free will want to create this Novus Ordo Seclorum or this New World Order. There plan is simple. “Order-out-of-chaos” A lot of times you’ll see in movies or in commercials that they promote KILLING, RAPING, SUICIDE, Etc.) IN whatever will get you to except this “MARK OF THE BEAST” Which is soon to be. Don’t get scared because this may not happen for a while but it’s very possible it’s about to happen. Economic collapse “Financial collapse” Dollar will collapse soon, that means CHAOS, that means people from everywhere stocking up on food supplies, “GUN SUPPLIES” Ammunition, everything and everyone WILL panic. People will Run or flee abroad as the bible says. Just read your bible if your a Christian. God predicts the end times, and if it’s coming soon, he’s right about all of it. We have what I myself call the worst society in history. The worst president in history! And worst thing is the U.S constitution and U.N founders make up the rules as they go along. Watch interviews with Aaron Russo. If you don’t believe me after that you won’t ever believe me. It’s a very serious war though folks, what people have talked about for 10 or 11 years now. A world war III a final war, or a new world order, I don’t care what you call it, but I call it like I see it. And the way I see it …. I see destruction… In the hand’s of mad men with bad intentions and a bad will. Not of God’s. But of the Devil’s. Don’t be deceived people and I encourage you to find out the facts for yourselves. Find out the truth and thank you very much for reading this. #Idon’tcareaboutthegrammar #Idospeakmymind #Ididjustrantalot

  • Truthisalieandtheselieswill…

    And prior to the comment on the back of the dollar bill is the pyramid with an all-seeing-eye which could resemble all the security camera’s covering are nation or the fact that it’s scary to see that satellite’s can see everything from above. “Google Earth”. We don’t pay attention to these kind of things but back in the 1950′s, the world wasn’t like that. No computer’s, no vision from above but NOW… You would be amazed. It’s part of what the government wants. They only wanna get closer to ruling out the economy and destroying America which much Christians would refer to as “The fall of Great Babylon”. Let’s all take America back. Stand up for what’s true and expose the lies, America needs to be home of the free, not home of the hopeless. Were suppose to be a nation under God not a nation under Government, and certainly NOT a nation under a police state.

  • Truthisalieandtheselieswill…

    You would call me crazy too as much as I think about these things but another thing. School shootings have increased by over 50%, There are kids out there, really most of them young adult’s so stupid and so ignorant, just so disrespectful they made up a game called THE KNOCK OUT GAME. Watch out for kids like this. But these kids and I know it’s really stupid but these kids will literally come up from behind you and sock you with all the force they possibly have and will ‘Try’ to knock you out. It’s played the knock-out-game because who ever isn’t scared will have to stand in front of the person he or she hit if ‘he’ or ‘she’ isn’t knocked out so they can wait to get knocked out if AGAIN he or she isn’t KNOCKED out. So again, the government’s dumbing down society, it’s obvious, it’s scary, it’s STUPID. But it’s also true. People have that much indecency. That someone would be so rude as to hit someone from behind. I have a note for those people. Stand in front of someone like a real man or women and hit them in the face. Face them like it isn’t a game and have some common decency. With that being said, countless coporate media and commercials have you believe that Conspiracy theories just aren’t real when they are “Based on facts” They admit it! Based on facts! But wait, there not true.? But aren’t getting the facts part of the truth? Well yes of course they are. But they seriously go around and call people “Conspiracy Theorist” When they try helping people out and will smile cause they think they’re lying but there comment’s are just all based on fact’s. It sounds crazy, right? SOCIETY WE LIVE IN TODAY. That’s how low people have stooped down today. Truth is people are putting more hope into the government instead of God. Government sure didn’t create the world. They wouldn’t create it if they wanted to destroy it. But again it’s they’re will! NOT GOD’S! If God had a say he would keep the world spinning forever but unfortunately everything has to die so it can pass on. This world will never have life once everyone on it is gone but it won’t end. Life will end everyone, but God will rule the world. It’s all God’s decision on what he want’s to do with that. But all of God’s children will be taken to heaven. Yes that’s what I believe. And the one’s that took the mark of the beast and the number of his name (666) will be cast down into the lake of fire, for their souls to not to survive the never-quenched fire’s of hell. If Heaven and Hell is not real, then there wouldn’t be a real purpose for us being here, and wouldn’t be a real purpose for the pain or pleasure that we go through or take by foolish choice. But I’m saying choice is yours. If I were anyone I would choose safer over sorry. Because most people think Hell’s gonna be one big fun party when in reality it’s worse than what your living in right now. God has put you through trials, he has not yet though put you through tribulation unless we go through it here on this earth which everyone left on this Earth will go through after God’s children are caught up in the air to meet with the Lord. Farther along we’ll understand why. But the all-knowing God will take care of his people if you accept him as your Lord. But you first have to accept Jesus as your Lord, to move on from foolish things and become a better person in Jesus Christ, and for your family if they are with God in Heaven way up above. Fight the good fight as the Lord God says to, and you will make it, know the truth, speak the truth, and do God’s will and be satisfied. Keep peace and let God intervene in your life. I know many of us are struggling that’s why I am telling you this. Fight on, keep your head held high, the Devil doth know his time is short on Earth and he’ll unleash every evil spirit on us. He will tempt us at our time of weakness, at our point of weakness. It’s happening today. The government have talked about destroying the church, and supporting all the wrong things here in this country… A TOTAL DISGRACE TO GOD. They have tried controlling the people’s freedom’s and that’s not what God wants. That’s not his will for anybody. That’s why he’s using us as his voice of truth. Speak out against all of the Devil’s wicked tools, no matter how confusing it get’s stay with God and just put your hope in God. Satan’s the “Master of Confusion” and he has a destruction plan for America. But I’m telling you right now you have a voice, a voice that can change America’s fate. We won’t crash or burn we can still change this country around. In the debt were in… My prediction is that it can happen soon. But know that the Real God, Jehovah God won’t stand this for long. His righteous wrath will breakout on America and people will be opened up to the truth. That our creator is the same spirit that we believe in today which is Jehovah God. We never originated from nothing, just God. We choose our fate in this life and the bible tells it very clearly but in holy terms and a more righteous way. God bless everyone reading this and I know I rambled but it’s only to get you to see the true form of America today. Everything God’s ever talked about that is an abomination is America today. It’s scary to think that all we can do is sit back and watch it happen but put your faith in God and your hope in God maybe Satan’s pushed you almost to your breaking point but God knows you can go farther and God know’s you are great in his image as he’s said before! He’s know’s your going through trouble now you need to know that, and go through it with God and let him take care of it. I hope I solved most of this discussion but I hope a lot of this YOU got and I hope I don’t come across as crazy to you. But if I spoke any truth let me know. Like my comment’s if you can agree and speak out with me because I am tired of this so called “New America” America need’s more God, peace, and knowledge. Not of government, chaos, and from confusion.

  • Guest

    It goes all back to the lies thing. Government tells us one thing and leads to another.

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