The Beginning Of The End
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The Size Of The Derivatives Bubble Hanging Over The Global Economy Hits A Record High

Bubble - Photo by Brocken InagloryThe global derivatives bubble is now 20 percent bigger than it was just before the last great financial crisis struck in 2008.  It is a financial bubble far larger than anything the world has ever seen, and when it finally bursts it is going to be a complete and utter nightmare for the financial system of the planet.  According to the Bank for International Settlements, the total notional value of derivatives contracts around the world has ballooned to an astounding 710 trillion dollars ($710,000,000,000,000).  Other estimates put the grand total well over a quadrillion dollars.  If that sounds like a lot of money, that is because it is.  For example, U.S. GDP is projected to be in the neighborhood of around 17 trillion dollars for 2014.  So 710 trillion dollars is an amount of money that is almost incomprehensible.  Instead of actually doing something about the insanely reckless behavior of the big banks, our leaders have allowed the derivatives bubble and these banks to get larger than ever.  In fact, as I have written about previously, the big Wall Street banks are collectively 37 percent larger than they were just prior to the last recession.  “Too big to fail” is a far more massive problem than it was the last time around, and at some point this derivatives bubble is going to burst and start taking those banks down.  When that day arrives, we are going to be facing a crisis that is going to make 2008 look like a Sunday picnic.

If you do not know what a derivative is, Mayra Rodríguez Valladares, a managing principal at MRV Associates, provided a pretty good definition in her recent article for the New York Times

A derivative, put simply, is a contract between two parties whose value is determined by changes in the value of an underlying asset. Those assets could be bonds, equities, commodities or currencies. The majority of contracts are traded over the counter, where details about pricing, risk measurement and collateral, if any, are not available to the public.

In other words, a derivative does not have any intrinsic value.  It is essentially a side bet.  Most commonly, derivative contracts have to do with the movement of interest rates.  But there are many, many other kinds of derivatives as well.  People are betting on just about anything and everything that you can imagine, and Wall Street has been transformed into the largest casino in the history of the planet.

After the last financial crisis, our politicians promised us that they would do something to get derivatives trading under control.  But instead, the size of the derivatives bubble has reached a new record high.  In the New York Times article I mentioned above, Goldman Sachs and Citibank were singled out as two players that have experienced tremendous growth in this area in recent years…

Goldman Sachs has been increasing its derivatives volumes since the crisis, and it had a portfolio of about $48 trillion at the end of 2013. Bloomberg Businessweek recently reported that as part of its growth strategy, Goldman plans to sell more derivatives to clients. Citibank, too, has been increasing its derivatives portfolio, despite the numerous capital and regulatory challenges, In fact, its portfolio has risen by over 65 percent since the crisis — the most of any of the four banks — to $62 trillion.

According to official government numbers, the top 25 banks in the United States now have a grand total of more than 236 trillion dollars of exposure to derivatives.  But there are four banks that dwarf everyone else.  The following are the latest numbers for those four banks…

JPMorgan Chase

Total Assets: $1,945,467,000,000 (nearly 2 trillion dollars)

Total Exposure To Derivatives: $70,088,625,000,000 (more than 70 trillion dollars)

Citibank

Total Assets: $1,346,747,000,000 (a bit more than 1.3 trillion dollars)

Total Exposure To Derivatives: $62,247,698,000,000 (more than 62 trillion dollars)

Bank Of America

Total Assets: $1,433,716,000,000 (a bit more than 1.4 trillion dollars)

Total Exposure To Derivatives: $38,850,900,000,000 (more than 38 trillion dollars)

Goldman Sachs

Total Assets: $105,616,000,000 (just a shade over 105 billion dollars – yes, you read that correctly)

Total Exposure To Derivatives: $48,611,684,000,000 (more than 48 trillion dollars)

If the stock market keeps going up, interest rates stay fairly stable and the global economy does not experience a major downturn, this bubble will probably not burst for a while.

But if there is a major shock to the system, we could easily experience a major derivatives crisis very rapidly and several of those banks could fail simultaneously.

There are many out there that would welcome the collapse of the big banks, but that would also be very bad news for the rest of us.

You see, the truth is that the U.S. economy is like a very sick patient with an extremely advanced case of cancer.  You can try to kill the cancer (the banks), but in the process you will inevitably kill the patient as well.

Right now, the five largest banks account for 42 percent of all loans in the entire country, and the six largest banks control 67 percent of all banking assets.

If they go down, we go down too.

That is why the fact that they have been so reckless is so infuriating.

Just look at the numbers for Goldman Sachs again.  At this point, the total exposure that Goldman Sachs has to derivatives contracts is more than 460 times greater than their total assets.

And this kind of thing is not just happening in the United States.  German banking giant Deutsche Bank has more than 75 trillion dollars of exposure to derivatives.  That is even more than any single U.S. bank has.

This derivatives bubble is a “sword of Damocles” that is hanging over the global economy by a thread day after day, month after month, year after year.

At some point that thread is going to break, the bubble is going to burst, and then all hell is going to break loose.

You see, the truth is that virtually none of the underlying problems that caused the last financial crisis have been fixed.

Instead, our problems have just gotten even bigger and the financial bubbles have gotten even larger.

Never before in the history of the United States have we been faced with the threat of such a great financial catastrophe.

Sadly, most Americans are totally oblivious to all of this.  They just have faith that our leaders know what they are doing, and they have been lulled into complacency by the bubble of false stability that we have been enjoying for the last couple of years.

Unfortunately for them, this bubble of false stability is not going to last much longer.

A financial crisis far greater than what we experienced in 2008 is coming, and it is going to shock the world.

  • JSB

    All of this disgusts me.

  • K

    All part of the plan. First they create the chaos, then they enforce the order. We have not seen but a glimpse, of what is coming.

    • Jj

      Simple.. But all too true. When they pull back the curtain they will unleash terror. While things are working, the system will continue to appear the picture it has for the past 50 years in one form or another. But when chaos comes… the nazis will look like amatures.

      • tayronachan

        Yes, I think the whole idea is to crash the system, then come in with a “plan that will put Americans back to work.” Never let a crisis go to waste, right?

        • mike

          That work they plan to bring us back to; slave labor!

          • StefanaRapsondeu

            Josiah . although Jacqueline `s stori is surprising,
            last week I bought themselves a Chrysler from having made $5060 thiss month
            and-in excess of, 10/k last-month . it’s realy the easiest-work I have ever
            done . I started this 4 months ago and pretty much straight away was bringin in
            at least $78 per-hour . why not look here C­a­s­h­d­u­t­i­e­s­.­C­O­M­

    • 3%

      Wrong, actually.

      The plan is only to suck off more and more blood, the host perishing is but a consequence of that plan, not the objective.

      The only way the scheme still continues is because of a constant injection of blood into the host through the international use of the dollar.

      • FirstGarden

        True.

      • K

        I disagree. They do intend to kill off the host. By the time the kill off what they call the useless eaters. By the time they change the form of Government, where they are directly in charge. The host know as the U.S. will have ceased to exist. Oh it may still be called the U.S., but it will not be anything most of us would recognize.

        • MeMadMax

          You can’t change the government without a full on revolt, pacified population or not, armed population or not. They NEED to keep things the way they are in order to maintain power. If anything changes, it will result in the loss of essential services like power, water, food, etc etc… Then, revolt will start in an instant, and believe it or not, they really don’t have the resources to control the population in the way that you envision… They would be able to in certain areas like DC for example. But it would still only be temporary as they NEED things to keep going like they are in order to keep the supply chain going to those very resources that they will use to maintain control in certain areas…
          It is difficult to control a mob, believe it or not. Ukraine/Syria is the latest examples…

          • 3%

            Obviously, should dollar stop as a trade currency and no one want to lend anymore, the resources available would become far smaller than today.

            When controls get smaller and populations much poorer, return income (taxes) gets smaller, which reduces these resources even more.

    • RedPillPlease

      And wouldn’t you agree that the visions for a “Cashless Society” has been the primary objective all along? If such be the case, then “what is coming” has been in the works since at least 1910 (The Creature from Jekyll Island).

      • Mike Smithy

        Great book.

        • Rastus

          Second that.

    • bob cratchette

      well you iknow this all has to happen a world financial collapse and mayhem around the world to set the scene for the man of perdition. i have said for 20 yrs now that a financial collapse will be what probably ushers him onto the scene and america is going to reap the rotten fruit of its labor from seeds planted long ago.

    • GSOB

      Yet, God is the sovereign one and the Lord Jesus Christ has defeated Satan, death, sin and this world we live in.

      The course of creations history reveals a silver lining of redemption – from Genesis to Revelation.

      Yes K,
      It’s all part of the plan.

    • loiu

      There was no actual value invested and so no actual value to be lost. Declare them allnull & void and end it right there.

  • Stezie

    It is going to burst eventually. What I fear most is what the aftermath might be.

    • alan

      I’ll trade you some bay leaves or green tea leaves for a fish?

      • Rodster

        I’ll trade you a can of SpaghettiOs for that gold coin. You look like you haven’t eaten in days. Are you alright?

  • Rodster

    I would love to the exposure of China’s banks. Oh that’s right they say everything is just fine in China even though they injected 6-7 times the monopoly money The Fed created in the same time.

    The bottome line is the entire world is doing the exact same thing. When this economic Titanic goes down every economy will go with it.

    • Captain Canuck

      Agreed. This idea that China is this emerging super power, is all smoke and mirrors.

      They are so over leveraged they make the American banks look like lightweights.

      The fact that China’s easy credit is starting to dry up and that they’re starting to issue sub prime loans truly announces that we’re on the last stretch to the big one.

      I originally thought that the collapse would start with a derivatives meltdown, but what is becoming more evident to me is that it will start with a massive economic implosion in China.

      • Rodster

        I keep hearing the same tired line. Oh, China injected $25+ Trillion on purpose into their system so the Yuan would have be more available in the system when TPTB decide to switch world reserve currency with a gold backed Yuan. Please, spare me.

        Would you trust another cheater when the current cheater has so badly screwed the entire planet? I know I wouldn’t.

        Even if the Yuan were backed by Gold, it still will fail because of insane debt levels the central planners need in order to keep the masses from rioting in the streets. It’s the same reason every gold backed currency has been decoupled and IIRC the US did it the quickest when Nixon decoupled the Dollar from Gold. And he had NO choice because the French wanted their debt repayment in Gold and there wasn’t enough Gold to pay them back and the US had to fund the Vietnam war and The Great Society. There wasn’t enough Gold available in the world to fund just those three.

      • 3%

        Haha, false!

        If that is the case, tell us, who is paying, who can pay those 250 trillions in US gov debts? India? Taxes from broke US workers?

        For the US and eurozone to live in the current borrowed prosperity, someone will have to lend and live in austerity while still retaining a working economy, otherwise collapse would be swift.

        A long time ago I read from the “experts” that Chinese economy was wastefull because of quanity of oil, metal and coal consumption.
        A few years later, these “experts” realized that they had severly underestimated the rate of Chinese growth.
        In 2009, I read that Chinese economy was experiencing troubles, tuirned out to bust.

        1) Chinese economic growith is higher than official numbers.

        2) Chinese economy itself is significantly larger than offical numbers.

        3) Stability. Chinese growth have been high since 1979. Understand, nearly 35 years of stability.

        • Rodster

          Kyle Bass, Egon Von Greyerz, Martin Armstrong, David Stockman, and many others say China the situtation in China is not what you think it is. Kyle Bass says China is in “CONTRACTION”.

          You can find the article on Zerohedge

          He said: China’s economy isn’t just slowing down, according to Bass: It’ contracting. While
          China’s published rates for annual growth are still positive, Bass said
          the nation’s economic growth was negative from the fourth quarter of
          2013 to the first quarter of 2014.

          • 3%

            They are right to state that the situation in China is not what people think it is.

            The system is systematically downplaying Chinese economic and military growth for many years now.
            It is being calculated the same way inflation being calculated, you just go shopping to see that the official rates are pure BS.

            Thought, will the “experts” be right this time? Will global warming finally please start, too? That would nice, real cold here!

    • 3%

      False, we´v heard of the imminent collapse of China already back in 2001. Still hasn´t happened.

      Earlier, in late 1990s texts, I read that economic liberalization would mean that China would become “democratic”…. Didn´t happen either.

      The bottom line is that the entire world cannot do the exact same thing. For a borrower, there has to be a lender.

      For borrowed prosperity to work for one side, there has to another side with lenders austerity. Real austerity, not what Spain and Greece are dealing right now, still spending more than they earn.

  • retired22

    It may have started already with the elections held in Britain,France & the rest of the EU.The Nationalist parties in the EU countries,which are opposed to being ruled by Brussels,have won bigtime .The EU statists are in a lot of trouble & in retreat.If their political problems become economic,which they will,the financial contagion could spread across the whole global economy!

    • RedPillPlease

      I had also read about that, and if Brussels is in trouble, the socialist think tanks in DC are also busy scrambling, knowing their globalist “Transatlantic Free Trade Area (TAFTA)” would go up in smoke as well … that being a cause for celebration.

  • Ernie

    What I want to know is who does the money go to when the derivative collapse?

    • retired22

      It goes into default & bankruptcy ,it can’t be repaid because that much money does not exist

    • kfilly

      People like the Rothschilds, Warburgs, DuPonts, Rockefellers, and George Soros will probably make out just fine.

    • GSOB

      The big fish.

  • blackhawk56

    If you go onto the U. S. Debt Clock and look at the unfunded liabilities it show it being 126 trillion. I think this is for social securities medicare, medicaid etc… Please correct me if i am wrong. If i am right then how come this never gets mentioned along with the debt? Me thinks we be in more trouble than we know!

    • Tim

      Yes, unfunded liabilities are largely for Medicare, Social Security, etc. The federal debt is much, much larger than the $17 trillion official figure.

  • John

    Michael, when you talk of the potential collapse of the big
    banks I expect you’re implying it would draw the entire banking system to go down with them? If that’s the scenario then if banks collapse en masse and bank accounts cease to exist then governments cannot pay pensions and employers pay salaries. Indeed, how will any corporation and any person receive revenue and pay their bills? What happens to mortgages, personal loans, student loans, dividend payments? No buying of property, furniture, motor vehicles, gold, and credit cards become useless. In fact, unable to buy or sell practically anything except small purchases with cash (if we have any). How would the business world and share market – any of us – operate without a functional banking system? We couldn’t because the economy is completely dependent on banking. Too big to fail? Derivatives exposure or not, the banks are just way too important to allow to fail.

    • Christine

      We may want to consider our own bank accounts, our deposits. When the avalanche starts, FDIC will not be able to save us. Deposits will be frozen and people will not have access to their money. It’s my speculation, sure, but it’s a scenario where martial law will be enacted and all “rights” under peace time will be rescinded. Watch and see. Countless small banks have already been swallowed up by the big ones over many years, and in the facilitation of one world order, I would surmise that in a “wink wink nod nod” deal, some of the big ones will be swallowed up as well, with their CEOs fully protected and paid off for playing the game. Asset prices for us little guys will drop to peanuts because the U.S. dollar will collapse and interest rates will skyrocket. And I’m generally an optimist. God is in charge, and if I lose everything, I’ve got my faith and I know where I’m going for eternity. The price Jesus Christ paid for the world’s (including my) sins has a far greater value than the derivatives bubble on speed. I’ve chosen to invest in His coming Kingdom, while the world and its riches grows strangely dim.

      • canuck21

        So true. Yet even now the main stream media does not report on this issue.

        • GSOB

          Don’t expect them to.

    • Ricardo

      that will be when it will be made that unless you worship the image of the beast you will not be allowed to buy, sell,trade unless you have the mark ….and the mark is not some number or code but how you think and what you do. If you don’t worship the Creator then you will have the mark.
      As simple as that.

  • Dave

    The level of complacency in the fractured financial system as of late just astounds me. It’s actually very concerning or at least should be since it is at those times when overnight things could become very ugly. Where the nudge will come from who can say as there are many potential catalysts though I have a guess that China will play a large part in the melt…but who really knows except to say it is coming.

    • Drud

      I am often amazed the system has held up as long as it has. When I first started researching collapse (and all the things that go along with it) in 2011 or so, I expected the whole house of cards to topple within weeks. The numbers are just that bad, as are the levels of corruption. Honestly, I hope it comes sooner rather than later. best to swallow a bitter pill sooner rather than late.

  • DJohn1

    This economic bubble will burst. Just like every other bubble has burst in history. And with it will go the entire economic system as we know it.
    The scene is then we will have a bank holiday to end all bank holidays. Probably take them 6 weeks to untangle the mess. Meantime everyone starves without money to live on.
    From there, the banks, being the king of thieves, will declare bankruptcy. But they will still collect on every debt that is owed to them while they do this.
    That means your house goes into foreclosure. (if you have a mortgage) You have no way to pay if they have all your money.
    They will take your car. (if you have a car payment due)
    The utility companies will shut off your power.
    All of this while the banks sit on this huge debt that they owe.
    The banks will repossess everything they can even though they owe us the money.
    This has already happened in Hueston, Texas around 1988-89. That is how I know the game plan here.
    The only way to keep that from happening is to put them all in jail before you try to straighten out the mess. When push comes to shove, when your family is starving, I do no give them a very long life expectancy. But they have gotten away with it before.
    I do not recall one banker going to jail in 2008.
    The system is paid off and they are keeping this bunch of crooks from paying for their extortion and crimes.
    Got to admire how they have gotten away with it so far.
    But then any skilled professional can tell you how to legally steal money. They do it all the time.

    • Bruce

      Not so sure about all these reposessions. Where are they going to put millions of cars and to whom would they sell them? With a collapsed economy who is going to haul them off and how would they be paid? Who’s going to buy all these repoed houses?
      I agree with the total collapse coming but not necessarily with all these reposessions.

      • Drud

        Exactly. If millions of mortgages and tens of millions of auto loans go delinquent at the same time, do you really believe repo and collections agencies will keep up or even stay in business. Everyone will have their own problems to deal with (the big ones like food, water, shelter, medicine) and there will be few left to do the bidding of the elite. Things will get real very fast (possibly) and possession will become 100% of the law.

        • Mike Smithy

          True. However, I would not be surprised if DHS shock troops will move people off their properties and move them to FEMA refugee camps. Of course the official government sound bite will suggest that it is for safety reasons. The Nazi’s used the same ploy with the Jews in WW2.

        • DJohn1

          I do not know about cars.
          I do know how it works in Real Estate.
          The bank is covered by insurance.
          The bank has to get 2/3rds of the Mortgage owed on a house. That is not the assessed value of said house.
          If you owned a house worth 150,000, you owed 66,000 on the house, the bank has to get 44,000 for your house and the insurance pays the other 22,000 owed. So the bank has investors that pay 44,000 for a 150,000 dollar house.
          I used easy numbers in this hypothetical situation.
          So long term when the financial crisis passed, these guys stuck a huge sum of money in their pockets.

          • Drud

            But that is just the point, the numbers don’t matter. Money is all about confidence–that is what hyperinflation really is: a loss of confidence. In Wiemar Germany, a billion marks couldn’t by a loaf of bread, and that was cash. So, yes, some people may have bank account balances with 19 zeroes (juts like you I am using made up numbers) but, ultimately, it will have no value. I believe, and I may very well be wrong, that the transition will be from the financial to the tangible. That is the real shift.

          • DJohn1

            I saw the after results of a national bankruptcy. I was 24, in the U.S. Air Force in 1965. It occurred approximately 5 years prior in South Korea.
            Unlike most GIs I made an effort to learn the language, read and write in Korean, and even taught conversational English in the local village. I am of average intelligence, so learning these things was difficult.

            Wise elders taught me. They taught me that commodities are the key when an economy collapses. The same elders worked for me on base. We often played Korean Chess in our downtime. Korean Chess means learning Chinese picture writing for the pieces.

            These wise people owned warehouses full of commodities when the currency collapsed. An equivalent of a dollar, became a dime, and a dime became a cent in their currency.
            Real Estate values floated up with the value of the currency going down. Apartments were especially lucrative to good business people.

      • DJohn1

        This actually happened in Hueston.
        The banks went under with a crash in the oil prices.
        People had as much as 150,000 in the bank at the time. They were laid off. The savings were all part of the bankruptcy and it took months for it to be resolved with the federal insurance on savings.
        By the time these people could access their savings to pay their bills they lost everything.
        I believe it was 1988-89.

  • alan

    They will appraise the Moon at 2 quadrillion dollars and get a life line. The sun has to be worth a lot! This may go on for a long time, then maybe tomorrow it will be over.

  • http://www.facebook.com/jack.harper.520562 Jack Harper

    One quadrillion $!
    Assuming a $1 bill is .02 mm thick and when stacked one upon the other, one quadrillion dollars would go just short of 3/4 the distance to the sun.
    That’s close enough to catch fire and burn that fuse back to the source (bomb).

  • http://www.facebook.com/jack.harper.520562 Jack Harper

    What will make the collapse of the U.S. dollar unique is the fact nothing similar has ever happened before in recorded history.
    All other collapses were regional at best.
    Whether it was the collapse of the Roman Empire, or,
    Even the Great Depression, it was regional.
    This go around has trapped everyone.
    Even the last 3 country’s with no central bank.
    This will truly be a “world event”.
    Count on it.

    • 3%

      Oblivion?

      It will only be a collapse for the parasite. When the hosts stops loosing blood to the parasite, there might be some short-term disruptio but the hosts will soon be better off, much better off.

      Trillions in profits going to the federal reserve and its cronies will instead go to productive economic activities.
      Not even China will be able to replace the US dollar with its own currency and a single monetary version of Esperanto just isn´t going to happen, too little cooperation and too much distrust of banks following a fall of the dollar.

    • Sensei

      Help me out here.

      My understanding is that derivatives contracts are CONTRACTS. In other words, there are two parties involved, and for every loser there’s a winner. In other words, they are a zero-sum game.

      Now THEORETICALLY if a single player were holding nothing but losing contracts AND if all of those contracts went ‘in the money’ at the same time (which they don’t) then there would be a huge implosion for that player. But that’s not the way things are. Right?

      What am I missing here?

      Why is this being treated like a one-sided trade?

      It’s zero-sum…right?

      Right???

      (I’m actually really asking and not disputing. I want to understand why these contracts represent an imbalance. Especially when they seem widely distributed.)

      • neal

        The problem is that so many contracts will be worthless due to counterparty risk. Only takes a few debtors to go poof and the creditors will find what they lent is gone and they will not be able to pay their own debts which will impair their creditors, which will impair their creditors etc up the line until everybody is impaired.
        A quadrillion dollars of derivatives is so much pretend money that if you had them as stacks of hundred dollar notes and laid out those stacks (about $25,000 per inch) end to end along the ground in a single line from that stack it would take a man 6 billion years to lay them out as the stack would circle the globe several times over.
        It is more money than the value of the entire worlds production since Adam was a boy.

  • FirstGarden

    So for the next 3 decades we’ll have tent cities across the nation with folks gathered around the campfire every night singing Kumbaya.

    • Groucho_Lenin

      Doesn’t sound all that bad, really. Everyone loves a nice campfire and Kumbaya can be played with only one chord.

      • FirstGarden

        True. Also, there’s a whole list of folks songs & such. Mostly 2 and 3-chorders reminiscent of good times gone by:

        The Night They Drove Old Dixie Down
        Where Have All the Flowers Gone
        The Times They Are A-Changin
        A Bridge Over Troubled Water
        Can the Circle Be Unbroken
        The Cruel War Is Raging
        Leaving on a Jet Plane
        Puff the Magic Dragon
        Blowin’ In The Wind
        If I had A Hammer
        The Circle Game
        Turn, Turn, Turn
        Amazing Grace
        Wooden Ships

        • GSOB

          To Much Of Nothin

  • sss

    The Bubble will never burst, believe me. Ignore this insane man named Michael

    • cannuck21

      Troll alert!

    • disqus_DVKQtM6xdj

      Don’t stop at just that. You’ve made a statement but didn’t back it up with anything. Explain how you know this to be true.

      • aghast

        Ge’s too much of a wuss-puss to respond.

    • Tim

      Yeah, just like the dot-come bubble didn’t burst. Just like the housing bubble didn’t burst.

      • aghast

        sss says, “Don’t confuse me with the facts… I’ve already made up my mind.

    • Kent Harris

      Please explain your reasoning. Thanks.

    • Drud

      “Never” is a rather long time period, don’t you think. One cannot even say the Sun will never die, because we know it will some 4 billion years from now. Also, form this line of thinking, one could conclude that Empires “never” die. That is why we are all Egyptians.

  • Mudpie

    So they – the huge banks – have made it impossible for us to let them fail.

    America has become a place where the wealthy earn their money via political connections. Not honest production in a free market.

    Vile.

  • http://waltersthinking.blogspot.com/ Walter Ruggieri

    An economic storm of epic proportions is coming and it’s on the horizon. When it hits (an it will eventually) things will get ugly. May God have mercy on us all.

  • Captian Canuck

    Exposing TBTF banks’ exposure to derivatives is essential.

    These are the kind of articles that bring me back to this site. I feel that the general public will only learn of the term “derivatives”, after the fact, when the S&P nosedives to 500 and everyone is living off Kraft dinner.

    Derivatives should’ve been frozen and phased out after 2008, as well as Glass Steagle should’ve been re-instated.

    It is sad that the old value of good old fashioned hard work, no longer cuts it in the global economy. You can run yourself ragged and still be nowhere ahead.

    While Washington is complicit in allowing this to continue, they really have no teeth when it comes to enforcement.

  • Angry Jesus

    Financial derivatives are products of the abstract mathematics that allow them to be created in the first place. I don’t know why anybody would have anymore of an issue with derivatives than any other form of money. They’re all abstract representations of what created them in the first place. While derivatives are themselves abstractions of other abstractions which in turn are based on other abstractions, why people do not try to understand the root of the problem and concentrate on the passing of that knowledge is a mystery to me. The money changers have understood that principle and have used it against the populace for generations upon generations. Abstract money gives birth to the abstract person (Corporate & Religion), we now live in a world where a person who is either long gone or doesn’t even exist have more rights than the living. Even ideas & machinations have been given status above them. When the facade disappears, then the true horror of our works will be known and we shall suffer the consequences. And yes, I’m still angry.

  • Cliff

    If you’re not buying guns, ammo & food, then you’re an idiot.

    • Groucho_Lenin

      Who you gonna shoot?

      • jakartaman

        Personally i would start with the stupid folks that did not prepare and are looking to srealmy food. Second would be politicians, third would be MSM news folks – Dam I ran out of bullets!

        • PotHead69

          What a jag-off^

          • 3%

            You did not prepare. -)

        • Spelling Bee

          Steal my

      • Quitthevictimhood

        Its called protecting your family and household. What a stupid question you asked. I’m sure you are one of the antagonists.

        • Twisk

          Protect your family against what?

    • Twisk

      Yes, who are you meaning to kill?

  • Free Dom

    Its all being done on purpose, everything is going as planned.
    Collapse the world economies, then usher in a New World Order and a New Global Currency.
    Criminal.
    Just so NO to the New World Order.

  • Aaron

    I dont think the derivative bubble is good…but I would like to hear peoples thoughts on this. Derivatives are different than casino gambling in that they are contracts between two parties. For every party that is long there is another one short.

    So if the underlying moves in a certain direction one party loses and the other party gains. In the big picture it is a zero sum game. The contracts cancel out. Furthermore, banks with trillions of exposure do not have simple strategies with “all their eggs in one basket.” They “hedge their bets” and play both sides so that they do not have unbalanced exposure.

    So I would not be surprised if the derivatives bubble in and of itself does not lead to the financial Armageddon people are predicting. Plenty of other reasons that will happen, as documented on this site.

    • jox

      It’s a zero sum game only in theory. Reality is that if one of the big players defaults, the hole in the accounting of the other players is so big that they also crash. Yes, probably a lot of the contracts cancel out, but you need only a small percentage of 710 trillion dollars to achieve the financial armaggedon.

      • Kent Harris

        Snowball effect. Lehman Brothers comes to mind.

      • Douglas M. Green

        True, the first default can/will cascade to the others. You cannot offset an exposure using deriviatives if the counterparty to your derivatives defaults. The financial system is highly leveraged, so it does not take much to wipe out all equity, and it is so intertwined with various financial institutions, you take others down with you, who bring down others, etc. and the entire system is at risk.

    • Malcolm Reynolds

      “Derivatives …. are contracts between two parties.”
      How are they between two people if the amount outstanding exceeds the actual amount of money in existence and how do they cancel out when the outstanding amount cannot be repaid?

      Sure the “contract” may be taken out between two people, but they are anything but contracts between two people.

    • Mike Smithy

      It’s not really different than the sports book at the casino. That’s the reason they offer “points” to the perceived underdog to balance out the bets for and against a perceived outcome.

  • tayronachan

    “Instead of actually doing something about the insanely reckless behavior of the big banks, our leaders have allowed the derivatives bubble and these banks to get larger than ever.”
    So they can come in and “save the day.” TPTB probably already have a plan setup, and ready to go.

  • Daystrom2012

    Revelation 6:5-6 And when he had opened the third seal, I heard the third beast say, Come and see. And I beheld, and lo a black horse; and he that sat on him had a pair of balances in his hand.And I heard a voice in the midst of the four beasts say, A measure of wheat for a penny, and three measures of barley for a penny; and see thou hurt not the oil and the wine.

    • GSOB

      When God had decided to judge Sodom and Gomorrah, He came to Abraham.
      And speaking as if to Himself, God affirmed that He would not hide His plans from His servant Abraham.

      Why?

      It was because Abraham would be a blessing to all nations.

      How?

      “For I have chosen him, in order that he may command his children and his household after him to keep the way of the LORD by doing righteousness and justice” (Gen 18.17-19).

      In order to bring about God’s blessing to the nations, Abraham was chosen to teach God’s way to all his household and to follow that path in obedience to the Lord.

      That description is faithfulness – teaching God’s way to those under your authority and then living it out.

      Though bound, Satan attacks God’s truth in order to deceive and thwart God’s purposes.

      Rev 6:5-6 is fulfilled.

  • Richard O. Mann

    It’s all just rock and roll.

  • JailBanksters

    What’s the difference between as $10 US Note and a $10 Monopoly Note?. One is a game and the other one is perceived to have value.

  • ProclaimingGodsTruth

    The Black horse of Rev 6 indicates, IMO, a terrible global economic catastrophe is coming. How or where it will begin is unknown but it seems that the payload of the Black horse – the 3rd seal removed – is very close. An ‘econo-finmageddon’ if you will.

    Folks, money will be worthless in the days ahead, but faith and trust in Almighty God will be invaluable and will see you through.

    • GSOB

      Yes, worthless in the days ahead but a valuable resource ‘tool’ in the present.

  • RedPillPlease

    Too big to fail” is a far more massive problem than it was the last time around, and at some point this derivatives bubble is going to burst and start taking those banks down.

    I always considered the Hanky Panky Paulson, 2008 claims of “Too big to fail” as being mere codespeak for “Too well connected!

  • 3%

    Michael, does this 20% takes inflation into account the real rate of inflation?

    Because if it doesn´t, the bubble isn´t yet as large as 2008, thought this bubble is inside a significantly smaller economy.

    • FirstGarden

      Perhaps it’s a big A-bomb versus a bigger A-bomb. Either way we’re screwed.

  • Kristen Marie Embler

    Collapse is inevitable. This entire planet is in serious trouble; things aren’t going to just magically change for the better overnight like what most people think. People need to turn off “Keeping Up With The Kardashians”, and look at what’s going on around them.

  • Tractor

    If one can NOT see the rats are running for the lifeboats then you must be one of those who are being lullabied by the Lame Stream Media that all is well and we are now growing and out of the woods (economically).
    Satan has a special place in Hell just for you, Public Liars and promoters of lies. Your reward ‘Is coming and soon”.

    • FirstGarden

      That’s the spirit.

  • FirstGarden

    The derivatives market is no small game. The AIG bailout was a quick slam dunk because the stakes were so huge. At the time what I read was a $60 trillion exposure. The figures in this article dwarf that, and I’m not too surprised if the runaway freight train to perdition has traveled that far over the last few years. AIG and the derivatives market has its tentacles all over the globe. The derivative workings are so complex that VERY few really understand it. (I would not pretend that I do.) Meanwhile, the joker really went wild during the bankster greedfest, making offers they should have refused. If corporations didn’t get the high-risk deals they wanted to insure their reckless loans, they’d simply shop til they found a bank that would give it to them. Well, no one wanted to be left out of the action — the Smiths had to keep up with the Kardashians. And the bonuses were obscene and all too enticing. So, with the help of excessive deregulation, and intensifying competition within the Cosa Nostra banking community, the greedfest spread like wildfire, wiping out sound business practice in its path.

  • mistywindow

    Wouldn’t many, maybe most, of these instruments cancel one another out?

    People hedge both ways against price movements.

  • deathbeckons

    Meanwhile, 47% of 100 million unemployed americans have “completely giving up looking for work”, yet 91% of those 47 believe “they will find a good job within 6 months”. I think they need to read Michael’s blog in order to understand that they must start a business or leave the country. Or both.

  • aghast

    Gay Veteran the Snagglepuss says, “Come snaggle with me.”

    • Gay Veteran

      moron, I see you added your “intellectual input” into the discussion

      • aghast

        Snaggle Snaggle..

        • Gay Veteran

          talking gibberish as usual

          • aghast

            Spoken like a true GV Snagglepuss troll.

          • Gay Veteran

            yawn, isn’t it time to wash your Klan sheets

          • aghast

            Stop yawning. Your mouth is already open way too much already.

          • Gay Veteran

            at least it isn’t full of shi t like yours

          • aghast

            Satan needs you in his parlor again. You don’t wanna keep him waiting..

          • Gay Veteran

            does anyone know how to get rid of a stalker troll? this ashASSt troll is on me like white on rice

          • aghast

            The burglar went into the house. When the owner saw him, the burglar accused him of being the thief. This is the lifestyle of GV troll hole – the burglar of blogs.

          • Gay Veteran

            you’re a thief, an oxygen thief

          • aghast

            Oh, good one. GV’s pea brain straines a little to borrow, once again, from another’s post, then simply add a new word to it. Why are your responses so weak? You don’t have AIDS, do you?
            I hope not.

          • Gay Veteran

            sounds like you have tertiary syphilis, your mom’s gift

          • aghast

            Is it true Dale Carnegie slapped you?

            He’s wrote the famous book, “How To Win Friends And Influence People.”

          • GSOB

            aghast is just curious, which leads him to mess with you.

          • Gay Veteran

            no, aghast is an internet stalker

      • aghast

        No, you won’t understand intellectual. You’re used to relating at a very primitive level, like: “UGG”, “Bilge” and similar-such low-crawling drivel.

        • Gay Veteran

          off your meds again, eh

      • aghast

        Sorry you got caught trying on your mother’s skirt when you thought no one was home.. but that’s no reason to be so adversarial with your fellow bloggers.

        • Gay Veteran

          sorry your father molested you when you were young

    • Homer Secshuall

      Don’t antagonise him. He might try to hit you with his handbag.

  • Priszilla

    We just write everything off. And recover part of the money from the bank managers and derivatives managers wealth – their cars, homes, jewellery, bank accounts, overseas accounts. If that’s not enough, let them work it off. As coal miners and sewage cleaners and sewage canal construction workers.

  • wally

    It appears to be the biggest ponzi scheme of all time. It isn’t wealth redistribution to the poor it is actually the opposite it is the wealth redistribution to the already wealthy. Take for example the casino known as the stock market. Spin the wheel and look at how much money you can make! or the carny hawking at the fair. A new high every day. Invest here!!! Make more money here!!! Only in the end it will be the Buffets and Soros of the world that will take all the money and run leaving 401k’s and yours and mine portfolio’s empty.

    Isn’t a cashless society great? No more of that pesky cash lying around until you wake up one morning and go to fill up your car and you swipe your card and guess what? Declined…Insufficient funds. Hmmm…What happened? All my money is gone?

    What about bailouts? GM was given all that money and it is just forgiven? Where did all that money go? What about all of the 900 B that went to shovel ready jobs? Gone…Who wins with Obamacare the insurance companies, the Banks that back them up and the Government.

    What do we get? More taxes. Less benefits. Less Jobs. More debt. We are so screwed.

  • Survivalist H.J.S.

    Mmmmmmh fried tape worm.

  • Joe

    You get more fairness betting in a casino than playing rigged commodity market. These banks fix the commodity price and place the bet at the same time.

  • Joe V

    Where is Teddy Roosevelt when you need him?

  • Major_Freedom

    Sigh…

    Notional amounts are NOT actual exchanged dollar amounts. They’re just reference amounts to set nominal payments in accordance with contracted lending and swap rates.

    For example, you and I could agree to a derivative contract where you pay me a fixed rate of 0.0000000000000000000000000000000000000000000000000000001% and I pay you LIBOR*00000000000000000000000000003%, on a notional amount of a bajillion kajillion dollars.

    The actual sums of money transferred between you and I might well be in the range of ten thousand or so dollars. But the “size of the derivatives market” in terms of notional would be a bajillion kajillion dollars.

    Get with it blogger. Learn what the hell a derivative contract is and what “notional” really entails.

  • kushal kumar

    CONCLUSION :- ” Downward trend in world
    economy is likely to be in mild form during

    November, 2014 to April, 2015, to grow somewhat intense during
    May, 2015

    to October, 2015, becomes harsh during November, 2015 to July, 2016.

    Such areas of life as minerals and metals, foodcrops, energy
    resources , defence and security of nations are likely to bear the brunt of
    these trends.

    Collective wisdom in decision making, communication systems, aviation
    industry, and the cinema , music and TV industries are also , in
    addition, likely to be touched by these trends.

    Countries or regions whose names begin with the letters B , E ,
    EU, N, O, P, U or V may need to implement multilevel approach to
    challenges during this period”.

    This is the substance or salient feature of my article – ”
    Stressful times ahead for world economy in 2015 and 2016″ published online on June 2, this year with astrologyweekly.

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