Wednesday, September 2, 2009
The $531 Trillion Dollar Derivatives Time Bomb
What are derivatives? Some investors describe them as “dormant economic weapons of mass destruction”. They essentially are large leveraged bets on top of stocks, bonds and commodities. Money can be made within months or seconds by betting if a stock will go up, down or even remain the same. With no credit rating you can place a bet worth double your account balance. Big time investors get greater leverage with these instantaneous loans.
The New York Times, Oct 8th 2008: “The derivatives market is $531 trillion, up from $106 trillion in 2002″. This market is setup with odds similar to a racetrack. Trillions are won and lost (transferred) every second. But unlike a racetrack the big players have ultimate control. Their trillions can make stocks move. A 4% up swing in a stock can cause a derivative bet to rise more than 100% in value or vice versa. A low performing stock that rises only 6% a year could actually have many 3, 6 or 9 percent swings weekly or monthly (some stocks daily). There are billions to be made over and over again by the people that control billions and trillions thus the markets. A grand game approved by the top.
The globe’s GDP is at $60.1 trillion. The globe’s total financial assets were reported as $167 trillion in 2006. A few trillion lower today no doubt. The highly volatile derivatives market is worth noting because it dwarfs the entire world’s GDP and total financial assets combined.
Alan Greenspan, the former long-term chairman of the central bank of the United States, constantly double-spoke over his career. He made statements that the current unchanged derivatives market is the best thing since sliced-money and occasionally he gave dire warnings. On May 9th 2003 the New York Times published the following: “Mr. Greenspan, as he has done in the past, praised derivatives, saying their benefits materially outweighed the risks and had insulated the financial system from the stock market crash and economic downturn.” New York Times, Oct 8th 2008: “Mr. Greenspan warned that derivatives could amplify crises because they tied together the fortunes of many seemingly independent institutions. ‘The very efficiency that is involved here means that if a crisis were to occur, that that crisis is transmitted at a far faster pace and with some greater virulence,’ he said.” With double-speak Greenspan can always be “right” in his autobiography. Historians can choose if he was one of the “experts” giving warnings or they can put the blame on him. Quite often the qualified “experts” that helped crash a system are the ones in charge of building the next system.
The $531 trillion dollars derivatives market contains a mind-boggling amount of high-risk credit in the hands of a small few that could completely finish off the collapse of the current global economy (for a new global replacement). New York Times, May 9th 2003: “he detailed the potential dangers to financial markets if a big derivatives dealer had to exit the market. In his speech, delivered to the conference by satellite, Mr. Greenspan said that a single dealer accounts for about a third of the global market in both interest rate and credit derivatives, and a few dealers account for more than two-thirds.”
Playing with people’s lives
The span between the green-cash haves and have-nots grew larger under Greenspan. The majority of people around the world rely on the economy for their livelihoods. But what runs the integrated global economy? Credit!
Greenspan is not one of the minority with trillions of dollars, and trillions more in credit, tied in derivatives. His work was benefiting the dominant minority of the market. Those who own the gold get others to make their rules. If everything runs on money and you own the money, it’s easy to run things.
The new financial system is currently being openly discussed, if not already fully constructed on paper. Have no doubt that the paid “experts” will be given plenty of corporate and government media time sprouting how wonderful the new system will be for the ordinary man while saying enough bad things about the old system to keep us happy or they might even put the blame on the “greedy public”. A few bank employees (bank managers) have already been scarified in the media. Of course, the real economic managers, the top bank owners, will create the new system. The same people that profited from the sheering of the current system. The trillion dollar banking families of the globe don’t want to end their river of wealth, making easy money from the public, which means the World Bank and the European Central Bank don’t what that either. The current system would be updated with desired regulations (a better game for a few) and new banking language that the general public don’t understand, like with any good con. However, not until after some turmoil as turmoil is needed for large-scale changes to be accepted. As the EU Commission President, Manuel Barroso, said, “the kind of occasion where the crisis calls in to question all certainties and minds are more open to change, these are very special moments.” A spokesperson for the upcoming system, Gordon Brown, said all that the nation bankrupting bailouts and social chaos are “the difficult birth pangs of a new global order” and the expert’s “task now is nothing less than making the transition to a new internationalism,” reported by the Daily Mail on Jan 27th 2008. This is what happens when people desire to be managed.
Who runs what?
What did Milton Friedman, a Nobel Prize winning economist, have to say about the track record of the central bank in the United States? He said, “the Federal Reserve definitely caused the Great depression by contracting the amount of currency in circulation by one-third from 1929 to 1933.” Contracting or inflating the money supply are only two tools among many utilised by central banks to direct economies.
No individual running the European Central Bank are elected by the public, they are hand picked, and no EU institution has authority over the decisions of the ECB. The ECB is an independent corporate entity. Article 106.2 of the EU’s 1992 Maastricht treaty states, “the ECB shall have legal personality”. Article 107 says the ECB and national central banks are totally independent from member state governments and “any other body” including the EU. It even forbids “the community of institutions and bodies” and “any government of a Member State or from any other body” from instructing or advising the ECB and national central banks. Article 108.2 allows the ECB to publish or withhold any or all information on decision-making. As we all know, the ECB have the “EXCLUSIVE right to AUTHORIZE the issue of bank notes within the Community.”
Although acquitted, the European Central Bank President, Jean-Claude Trichet, was on trial with eight others for his part in signing off official accounts during a time of fraud at one of France’s biggest banks (Credit Lyonnais) which resulted in a €31 billion Euro bailout. The “right” kind of people always seems to get picked for the top.
On June 25th 2007 while everyone was happy with the booming economy the Telegraph published that the Bank for International Settlements’, the ultimate bank of all central banks, 77th annual report talked of a coming global depression. The people behind this bank don’t have crystal balls. They are the movers and shakers that make things happen. Great depressions (great for some) create fantastic discounts for those with credit and bust those “nasty” competitors, especially the many small family run competitors. Since Sept 2007 billions of national emergency funds have been injected in to the global financial markets keeping buyers for the large sellers. Bank stocks lost almost 50% of their value by Dec 2007. The 6 o’clock news did not tell people about the credit crash until late 2008. Wait until the derivatives bubble - in the hands of a small few - pops, then we’ll have a brand new global financial architecture and it certainly won’t be good for the people if we allow the crisis creators to build it.