Thursday, March 20, 2008

Derivatives outstanding 6/30/2007 $516 Trillion, start bailing.

FINALLY, somebody who recognizes that we are in a derivatives meltdown.
Bearly Alive, by Mike Whitney on Counterpunch:

Just one error I noticed. Mike Whitney says the volume of derivative trading FYE 6/30/2007 was $516 Trillion, but the BIS report clearly says that is notional asset value, i.e, balance sheet, not income statement.

See the BIS report They report the market value as $11 Trillion, or 2%. So for example if the institution had a position in a derivative based on a $100 worth of debt, such as to reduce their risk of interest rate changes, it's market value is reported as $2 and if the counterparty defaults, understand their loss is $2.

But that doesn't mean the global risk is $11 trillion. All the derivatives are pretty worthless until market interest rates, currencies, equities, oil and commodities, etc. change in a big way. Then, the market value of your hedges might become $100 trillion pretty fast... same as a stock option, when the stock price changes by 20%-- your option value becomes 20% of the underlying stock value.

So what happens if the other guy can't pay? For example oil, gold, and many other things have changed by 50% or more. Obviously, the amounts of money owed by derivatives holders, to each other, is closer to $100 Trillion than $11 Trillion, now. Furthermore, BIS reports only include reported derivatives between member banks-- omitting unknown amounts between global corporations as well as unreported amounts in private dealings of member institutions.

Obviously the global banking system itself can't handle $100 trillion of losses, that's just laughable. They are just rolling these amounts forward, like a huge ponzi scheme. Ultimately the losing institutions must merge into the winning institutions, so that both sides of the trade are owned by the same company. Ultimately, there will be one world financial institution ---not only in the dollar sphere, but all national currencies. You would have to work pretty hard not to have dealings with this sphere, such as, the Islamic Dinar, religious prohibition on debt, periodic jubilees on debt, things like that.

We're not getting the whole story from the mainstream media-- not even the financial papers. I spent Monday afternoon reading them. The Bear Stearns collapse was caused by derivatives risk. It is being framed as part of the housing collapse, or defaults by U.S. mortgage borrowers. It's being blamed on bad borrowers. No doubt our masters will convince the country to blame blacks, latinos, if not gays and drug users.. lazy people, who "couldn't pay". And now the bank regulators are doing this charade of "tightening up lending practices", blaming the mortgage issuers... laughable.

The collapse of derivatives has been long expected by CPAs, the SEC, many throughout the financial industry-- but all critics have been roundly criticized and silenced in a colossal groupthink-- an enforced conformity to a lie everybody knew about.

Read these stories and weep.

Look at all these stories.

The notional value of derivatives reported to the BIS by member institutions in 2007 was over $516 Trillion. That is up from $100 trillion only 10 years ago. What chutzpah these people have. And now they want a bailout. sheesh.

Nobody I can find in all my friends in the peace movement or the left has ever even heard of the BIS, or derivatives, swaps, etc. Their understanding of the causes of war is limited to the social, ideological dimensions.

The Bear Stearns takeover is a huge swindle of the taxpayers, on top of the continuous exploitation by the FIRE industries Michael Hudson estimated at $500 Billion/ year. We are being cheated of $30 Billions just on Bear Stearns alone. The U.S. government gave away $30 billion, paying JPMorgan to handle the BS bankruptcy, on top of $200 billion it gave away last week. This is unconstitutional, of course; spending must be authorized by the Congress. The federal reserve acts with supra-governmental powers, which are essentially taxing the dollar economy.