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September 18, 2008 at 16:34:02
Promoted to Headline (H3) on 9/18/08: by Ellen Brown Page 1 of 3 page(s) |
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"I can calculate the movement of the stars, but not the madness of men." – Sir Isaac Newton, after losing a fortune in the South Sea bubble Something extraordinary is going on with these government bailouts. In March 2008, the Federal Reserve extended a $55 billion loan to JPMorgan to "rescue" investment bank Bear Stearns from bankruptcy, a highly controversial move that tested the limits of the Federal Reserve Act. On September 7, 2008, the U.S. government seized private mortgage giants Fannie Mae and Freddie Mac and imposed a conservatorship, a form of bankruptcy; but rather than let the bankruptcy court sort out the assets among the claimants, the Treasury extended an unlimited credit line to the insolvent corporations and said it would exercise its authority to buy their stock, effectively nationalizing them. Now the Federal Reserve has announced that it is giving an $85 billion loan to American International Group (AIG), the world's largest insurance company, in exchange for a nearly 80% stake in the insurer . . . . The Fed is buying an insurance company? Where exactly is that covered in the Federal Reserve Act? The Associated Press calls it a "government takeover," but this is not your ordinary "nationalization" like the purchase of Fannie/Freddie stock by the U.S. Treasury. The Federal Reserve has the power to print the national money supply, but it is not actually a part of the U.S. government. It is a private banking corporation owned by a consortium of private banks. The banking industry just bought the world's largest insurance company, and they used federal money to do it. Yahoo Finance reported on September 17:
"The Treasury is setting up a temporary financing program at the Fed's request. The program will auction Treasury bills to raise cash for the Fed's use. The initiative aims to help the Fed manage its balance sheet following its efforts to enhance its liquidity facilities over the previous few quarters."
Treasury bills are the I.O.U.s of the federal government. We the taxpayers are on the hook for the Fed's "enhanced liquidity facilities," meaning the loans it has been making to everyone in sight, bank or non-bank, exercising obscure provisions in the Federal Reserve Act that may or may not say they can do it. What's going on here? Why not let the free market work? Bankruptcy courts know how to sort out assets and reorganize companies so they can operate again. Why the extraordinary measures for Fannie, Freddie and AIG?
The answer may have less to do with saving the insurance business, the housing market, or the Chinese investors clamoring for a bailout than with the greatest Ponzi scheme in history, one that is holding up the entire private global banking system. What had to be saved at all costs was not housing or the dollar but the financial derivatives industry; and the precipice from which it had to be saved was an "event of default" that could have collapsed a quadrillion dollar derivatives bubble, a collapse that could take the entire global banking system down with it.
The Anatomy of a Bubble
Until recently, most people had never even heard of derivatives; but in terms of money traded, these investments represent the biggest financial market in the world. Derivatives are financial instruments that have no intrinsic value but derive their value from something else. Basically, they are just bets. You can "hedge your bet" that something you own will go up by placing a side bet that it will go down. "Hedge funds" hedge bets in the derivatives market. Bets can be placed on anything, from the price of tea in China to the movements of specific markets.
"The point everyone misses," wrote economist Robert Chapman a decade ago, "is that buying derivatives is not investing. It is gambling, insurance and high stakes bookmaking. Derivatives create nothing."1 They not only create nothing, but they serve to enrich non-producers at the expense of the people who do create real goods and services. In congressional hearings in the early 1990s, derivatives trading was challenged as being an illegal form of gambling. But the practice was legitimized by Fed Chairman Alan Greenspan, who not only lent legal and regulatory support to the trade but actively promoted derivatives as a way to improve "risk management." Partly, this was to boost the flagging profits of the banks; and at the larger banks and dealers, it worked. But the cost was an increase in risk to the financial system as a whole.2
Since then, derivative trades have grown exponentially, until now they are larger than the entire global economy. The Bank for International Settlements recently reported that total derivatives trades exceeded one quadrillion dollars – that's 1,000 trillion dollars.3 How is that figure even possible? The gross domestic product of all the countries in the world is only about 60 trillion dollars. The answer is that gamblers can bet as much as they want. They can bet money they don't have, and that is where the huge increase in risk comes in.
Credit default swaps (CDS) are the most widely traded form of credit derivative. CDS are bets between two parties on whether or not a company will default on its bonds. In a typical default swap, the "protection buyer" gets a large payoff from the "protection seller" if the company defaults within a certain period of time, while the "protection seller" collects periodic payments from the "protection buyer" for assuming the risk of default. CDS thus resemble insurance policies, but there is no requirement to actually hold any asset or suffer any loss, so CDS are widely used just to increase profits by gambling on market changes. In one blogger's example, a hedge fund could sit back and collect $320,000 a year in premiums just for selling "protection" on a risky BBB junk bond. The premiums are "free" money – free until the bond actually goes into default, when the hedge fund could be on the hook for $100 million in claims.
And there's the catch: what if the hedge fund doesn't have the $100 million? The fund's corporate shell or limited partnership is put into bankruptcy; but both parties are claiming the derivative as an asset on their books, which they now have to write down. Players who have "hedged their bets" by betting both ways cannot collect on their winning bets; and that means they cannot afford to pay their losing bets, causing other players to also default on their bets.
The dominos go down in a cascade of cross-defaults that infects the whole banking industry and jeopardizes the global pyramid scheme. The potential for this sort of nuclear reaction was what prompted billionaire investor Warren Buffett to call derivatives "weapons of financial mass destruction." It is also why the banking system cannot let a major derivatives player go down, and it is the banking system that calls the shots. The Federal Reserve is literally owned by a conglomerate of banks; and Hank Paulson, who heads the U.S. Treasury, entered that position through the revolving door of investment bank Goldman Sachs, where he was formerly CEO.
The Best Game in Town
In an article on FinancialSense.com on September 9, Daniel Amerman maintains that the government's takeover of Fannie Mae and Freddie Mac was not actually a bailout of the mortgage giants. It was a bailout of the financial derivatives industry, which was faced with a $1.4 trillion "event of default" that could have bankrupted Wall Street and much of the rest of the financial world. To explain the enormous risk involved, Amerman posits a scenario in which the mortgage giants are not bailed out by the government. When they default on the $5 trillion in bonds and mortgage-backed securities they own or guarantee, settlements are immediately triggered on $1.4 trillion in credit default swaps entered into by major financial firms, which have promised to make good on Fannie/Freddie defaulted bonds in return for very lucrative fee income and multi-million dollar bonuses. The value of the vulnerable bonds plummets by 70%, causing $1 trillion (70% of $1.4 trillion) to be due to the "protection buyers." This is more money, however, than the already-strapped financial institutions have to spare. The CDS sellers are highly leveraged themselves, which means they depend on huge day-to-day lines of credit just to stay afloat. When their creditors see the trillion dollar hit coming, they pull their financing, leaving the strapped institutions with massive portfolios of illiquid assets. The dreaded cascade of cross-defaults begins, until nearly every major investment bank and commercial bank is unable to meet its obligations. This triggers another massive round of CDS events, going to $10 trillion, then $20 trillion. The financial centers become insolvent, the markets have to be shut down, and when they open months later, the stock market has been crushed. The federal government and the financiers pulling its strings naturally feel compelled to step in to prevent such a disaster, even though this rewards the profligate speculators at the expense of the Fannie/Freddie shareholders who will get wiped out. Amerman concludes:
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Brilliant!
Ellen Brown, Mike Whitney and Richard Cook are about the only writers who are making sense of the economic collapse of our financial systems. Brilliant! Thanks, Ellen, for making the schemes sound so simple, scary, and yes, stupid. by William John Cox (29 articles, 0 quicklinks, 0 diaries, 29 comments [1 recommended, 0 rejected]) on Thursday, Sep 18, 2008 at 5:35:42 PM  (0+)
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Reply: Scam Du Jour-New RTC (hm, think I'll call an article that)
Thanks William! Yes, and today's scheme is for the government to take all the toxic waste into a federal vehicle "like" the RTC, which cleared out defaulted mortgages -- but these are radioactive derivatives! Scary really. I hope someone in Congress is looking closely at all this. Ellen by Ellen Brown (40 articles, 0 quicklinks, 3 diaries, 93 comments [11 recommended, 0 rejected]) on Thursday, Sep 18, 2008 at 5:39:38 PM (0+)
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Reply: Derivatives exacerbate the problem, but
the underlying assets, mortgages, are the fundamental source of the crisis. Could it be a case of the Bush Administration looking the other way while all kinds of scamming was going on? Let's see. Bush I is ruling during the Savings and Loan bail out, and Bush II is ruling when the banks need to be bailed out. Does anyone see a pattern here? Find out who caused this mess and learn a better way to get out of it. This article contains links to the Miami Herald articles showing that (surprise, surprise) the Republicons looked the other way while widespread mortgage fraud went unchecked. Please check it out, digg it, buzz it, reddit it, and pass it along to your friends. Also, use the link Help the Victims, Not the Scam Artists! to send a message to your members of Congress and your local newspaper telling them what you think about the latest Bush engineered crisis! by Mark Adams (20 articles, 0 quicklinks, 0 diaries, 312 comments [39 recommended, 0 rejected]) on Friday, Sep 26, 2008 at 5:58:00 PM (0+)
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Derivative Analysis and Research
Comment from Ratings: Helped me get a better grasp of derivatives for a paper I am writing. Thanks for your research. by Robert Singer (31 articles, 0 quicklinks, 2 diaries, 138 comments [4 recommended, 1 rejected]) on Thursday, Sep 18, 2008 at 5:37:29 PM (0+)
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Reply: Re: IT'S THE DERIVATIVES, STUPID!
Perhaps this will help Robert. Derivative Dangers Threaten Global Markets http://www.cbn.com/CBNnews/344995.aspx by Munich (1 articles, 86 quicklinks, 14 diaries, 1125 comments [86 recommended, 1 rejected]) on Thursday, Sep 18, 2008 at 6:23:49 PM (0+)
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Panic followed by salvation
On Wednesday, there was a panic. Well, maybe not a panic, as much as a moment of clear thinking when people realized that the whole house of cards was exactly that. IT HAD TO BE SAVED. And, amazingly, it only cost $750 MILLION per Dow Jones Industrials Average point to do it. $300 BILLION "saved" the market and stoped the panic. At list for Thursday. I guess they'll keep saving the system for as long as they can keep stealing money from us until there is absolutely NOTHING left but IOU's. by Charlie L (2 articles, 4 quicklinks, 1 diaries, 747 comments [2 recommended, 0 rejected]) on Thursday, Sep 18, 2008 at 7:16:31 PM (0+)
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Reply: pump and dump
Yes, I imagine the RTC plan will go the way of those plans to save the monoline insurers, etc.; but it works to keep hope alive, and gives the Big Boys a chance to get out. by Ellen Brown (40 articles, 0 quicklinks, 3 diaries, 93 comments [11 recommended, 0 rejected]) on Thursday, Sep 18, 2008 at 7:25:50 PM (0+)
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Excellent, Ellen.
So it unravels. A $9 trillion dollar national debt is actually $53 trillion in unfunded liabilities, which is really a quadrillion dollar ponzi scheme called a derivatives market. Somebody else had posted about derivatives and I joked, "WTF are derisatives?" but nobody laughed. Maybe now they'll get it. ;) I've been advocating a boycott of the election in November. Unfortunately there are still some people who, despite knowing that our elections are rigged and that all their vote does is grant their mandate and delegate their authority and consent to a totally corrupt and irresponsible government, are determined to vote anyway. My guess is that most of them are paid political party operatives, professional election fraud investigators who have already accepted advances and signed contracts for the books and videos they will produce about how the election of '08 was stolen, and a few die-hard political party loyalists who still think it is possible to work within a totally corrupt, irresponsible, and bankrupt system. I guess the best hope for a successful election boycott to discredit and delegitimize this government, will be for a total economic crash so that people won't be able to afford the postage to mail in their votes or the gas to drive to the polls. Otherwise the 48% who still vote will enable a member of the most corrupt Congress in American history, to claim to be the democratically elected President of the United States and to drive us even deeper into debt before the fall. by Mark E. Smith (21 articles, 30 quicklinks, 100 diaries, 1325 comments) on Thursday, Sep 18, 2008 at 7:28:52 PM (0+)
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Big Picture
Good article. Are these people really that dumb? I think not, which is why I tend to lean toward conspiracies since the official version requires one to believe incredible incompetence and stupidity (and these dudes are anything but), or coincidences, accidents and bad luck (never good luck or good outcomes by accident). For a conspiracy to ring true, someone must profit and have means and opportunity. So what is really going on behind the smoke and mirrors. Derivatives are obviously the ultimate financial weapon of mass destruction. I believe the ultimate long term purpose was to use them for financial terrorism. The main reason being to eliminate the USD as a reserve currency and replace it with a new currency controlled by the IMF/World bank (carbon credits and carbon tax, tying in nicely with the AGW hype). Me thinks Sir Bubbles did not get knighted for nothing. Those behind the NWO and globalization will profit from the demise of the dollar and purchasing assets at 10 cents on the dollar. BTW, I read somewhere that IMF will audit the Fed in 2009, already approved by Bush. I do not think the toxic waste being now held by the Fed as assets will pass the test, and thats they point. Once US treasury debt is downgraded by the rating agencies, there goes the dollar. When that happens, the US might start looking like Zimbabwe since we will no longer be able to raise money to fund our expenditures and pay off our debt. We will need to borrow carbon credits from the IMF who will do so, but with conditions, such as privatizing social securrity, eliminating medicare, selling off some of our military assets to the UN, resources, maybe even selling off Alaska, etc. Frankly, our financial assets are being sold off now, seems China is buying 49% of Morgan Stanley. Of course, we could always create our own debt free money for infrastructure and social welfare and free up money for some of these bailouts, but thats against the rules of the NWO. And these guys love their numbers. Look at AIG, we acquire 79.9% equity in a 79 year old company in the month of september (month 9). Also, a good acquistion should you want to privatize social security and mandate life and health insurance coverage (and payment of premiums) for all. by pft (0 articles, 0 quicklinks, 0 diaries, 601 comments [7 recommended, 0 rejected]) on Thursday, Sep 18, 2008 at 7:40:52 PM (0+)
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Right "on-the-money"
Comment from Ratings: Perfect analysis and timely! Finally someone has a grasp at our shadow banking system by John Stone (0 articles, 0 quicklinks, 0 diaries, 1 comments) on Thursday, Sep 18, 2008 at 8:32:23 PM (0+)
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Outstanding
I wrote about the economic meltdown and tried to understand derivatives. I'm a bit disconcerted since the figures I got from the source you used was $500 trillion and there was an assumed $500 trillion of private derivatives. Now the recorded number is doubling, it seems, in the past 18 months or so. ("Notional amounts outstanding went up by 135% to $516 trillion at the end of June 2007") You explain this so well. Quite a feat for a financial "product" that Warren Buffett said he couldn't understand. He referred to them as weapons of economic mass destruction. Here's your cite on Greenspan: But the practice was legitimized by Fed Chairman Alan Greenspan, who not only lent legal and regulatory support to the trade but actively promoted derivatives as a way to improve "risk management." When he made his famous 2004 statement 'get an arm, buy stock,' he knew that the subprime market was a bust. Did he know that derivatives were a Ponzi scheme? Somebody should serve him. by Michael Collins (130 articles, 20 quicklinks, 7 diaries, 484 comments [42 recommended, 0 rejected]) on Thursday, Sep 18, 2008 at 10:12:31 PM (0+)
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"It's the Derivatives, Stupid!
Another excellent illustration by David Dees which sums up this contrived and truculent Ponzi scheme now plaguing America. Charles would be rather proud. by Munich (1 articles, 86 quicklinks, 14 diaries, 1125 comments [86 recommended, 1 rejected]) on Thursday, Sep 18, 2008 at 11:19:35 PM (0+)
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Titanic
Brilliant artwork! Thanks for all the comments. On the U.S. going the way of Zimbabwe, there's one major difference between us and them. Our debts (like theirs) are owed in U.S. dollars. They had to get the dollars and everyone knew it, so the speculators rushed in and trampled the value of their currency. We don't have to buy dollars. Like Santa Claus, we can MAKE them. We can pay off our debts without declaring bankruptcy. (The Santa Claus line was something my daughter said when I was trying to tell her a certain doll was a bit expensive for Santa Claus. She said he MADE the toys. I said not this one; it was copyrighted. What tangled webs we weave . . . .) by Ellen Brown (40 articles, 0 quicklinks, 3 diaries, 93 comments [11 recommended, 0 rejected]) on Friday, Sep 19, 2008 at 1:31:12 AM (0+)
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Reply: Well
Your comment on Zimbabwe holds true only so long as the USD is the reserve currency. When that changes, and it's when- not if, the US will need to borrow in the new reserve currency to finance our debt. Having to go to the IMF for carbon credits is going to come with all kinds of strings. by pft (0 articles, 0 quicklinks, 0 diaries, 601 comments [7 recommended, 0 rejected]) on Saturday, Sep 20, 2008 at 1:05:11 AM (0+)
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Re: It's the Derivatives, Stupid!
by Munich (1 articles, 86 quicklinks, 14 diaries, 1125 comments [86 recommended, 1 rejected]) on Friday, Sep 19, 2008 at 2:08:34 AM (0+)
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This was an eye-opener for me.
I knew derivatives were bad, but didn't know how You cleared that up. Thank you. Now comes the scary part. I fear what someone else said in another comment on here that this could be the precursor to a dissolution of life as we know it and some new scheme set up that we have no say in, but will be expected to pay the price for, as with all the big schemes that come down from on high and we peons have to just pay up and shut up. by JOHN LORENZ (23 articles, 117 quicklinks, 118 diaries, 313 comments [25 recommended, 0 rejected]) on Friday, Sep 19, 2008 at 4:19:12 AM (0+)
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Thanks for the excellent article!
In simple words: we presently witness the biggest coup the "money trust" has ever exercised, and everybody (at the stock market) cheers, instead of massive protest! Anyway, there's nothing we can do about it, I'm afraid... by Dave Hunter (0 articles, 0 quicklinks, 0 diaries, 64 comments [90 recommended, 0 rejected]) on Friday, Sep 19, 2008 at 6:07:16 AM (0+)
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Upbeat?
Comment from Ratings: I am giving the perfect rating for the perfect article, but under perspective, I see the word "upbeat", think about what is happening, and then I start to cringe... There is nothing positive or upbeat about a description of the scenario that pretty much obliterates the global economy.... after the explanation, part of me is wondering if these thieves and gamblers would actually learn from the process that crushes everything financial, in the world... History suggests "probably not." While I recognize this is an answer we can never know, it would be very nice if the folks responsible were not allowed to move on and steal another day. Instead, we have some of them as economic advisers to presidential candidates, and that fact, all by itself, makes the statement that after this bailout, this situation will happen again, sooner or later. Ciao, CZ by steve scheetz (4 articles, 0 quicklinks, 3 diaries, 829 comments [52 recommended, 0 rejected]) on Friday, Sep 19, 2008 at 7:09:36 AM (0+)
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Change you can beleive in!
I just want to point out that Obama’s lead in picking his VP was CEO of FANNIE. The plunderer and reckless money grubber that may have put the US into a Depression is now on Obama’s team. by Gallaher (2 articles, 0 quicklinks, 4 diaries, 990 comments [34 recommended, 1 rejected]) on Friday, Sep 19, 2008 at 8:52:48 AM (0+)
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Required Reading at California State University, Fullerton
Thank you for this timely article. I have added this article to my required reading list for this semester's research paper projects in my accounting courses at California State University, Fullerton. For a historical perspective on the Federal Reserve, there is a free book posted online: Secrets of the Federal Reserve by Eustace Mullins http://www.apfn.org/apfn/reserve.htm by Paul Sheldon Foote (8 articles, 0 quicklinks, 0 diaries, 72 comments [2 recommended, 0 rejected]) on Friday, Sep 19, 2008 at 10:20:38 AM (0+)
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US Taxpayers need to see this
Comment from Ratings: This article does a great job of explaining 'derivatives'...something most people do not understand and generally 'glaze over' when they hear the term. But this ignorance is going to cost us TRILLIONS of dollars that will benefit only the rich while taxpayers watch the next generation suffer. GET THIS ARTICLE OUT TO EVERYONE YOU KNOW. by Ann Kramer (21 articles, 0 quicklinks, 1 diaries, 62 comments) on Friday, Sep 19, 2008 at 1:05:49 PM (0+)
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Great article, but, what are we DOING about this mess?
Comment from Ratings: Since I've read Ellen's MUST READ book Web of Debt and I watched The Money Masters, it's been rather obvious to me that there is NOTHING anyone can do to change what's going down. It doesn't matter how many people know what's happening and do not like it, nothing will change. Ellen and others Richard Cook have worked hard to provide solutions and they will continue to be ignored. Most important, the derivatives are only the END RESULT of a much bigger problem, the systemic exploitation of the working people. It's amazing that I still have fingers to type with after 7 years of documenting and publicizing the artificial lowering of FICO scores based on buggy formulas and incorrect credit data to force good people into subprime loans. Aside from the victims who realize how they are being exploited (not many), nobody cares. You could wave a magic wand and miraculously fix the credit crisis and not do a thing for the working people. The corporations will continue to lie and deceive, the judges will continue to ignore the law when consumers dare to sue and the legislators will continue to weaken consumer protection laws. In 2002, I planned on leaving the country. However, I learned that this is not just an American phenomenon. People are losing their rights and transferring their wealth to the elite at a record pace in Germany and Britain and probably in most other industrialized and even not so industrialized countries. 150,000 farmers committed suicide in India because they couldn't pay their debts. Home Depot and Walmart are all over Central America. The entire world is a feeding ground for the bankers and multi-national corporations. I am proposing that people don't limit themselves to talking (typing), but to DO something. And since violence won't work, the only option I see is to REMOVE ourselves from the system. We all have to bank, but we can bank with the common good bank once $1.5 million have been raised so it can hopefully open next year. PLEASE watch the slide show at http://commongoodbank.com/ We can start using an alternative currency and let the commercial banks do whatever they want. Why care about the declining dollar when you're not using it? We can start living in communities growing our own organic food, barter for child care and many goods and services to substantially reduce the income required to survive AND live a lot healthier. I'm not a survivalist yearning for bucket toilets with saw dust. I'm off the grid, haven't run a generator for a month and my unfinished house works just like any other house. The entire off grid system cost under $5k. It's not perfect, but it works. We don't have to support federal wars and bailouts with our taxes. If you don't have mortgage and credit card debt, it's easy to get by with income in the 0% tax bracket. If enough people take action, leave the system and put in place WORKING alternatives (the common good bank voting system is revolutionary), there is a chance that the general public will demand such a system AFTER the economic collapse. Unfortunately, the majority of people are convinced that they NEED the commercial banks and corporations and that it is their duty to support them because they provide them with crappy jobs. It's astounding that aside from the people who are working to get the common good bank opened, I don't know of ANYONE in America doing anything to implement alternatives. What am I missing? by Christine Baker (0 articles, 0 quicklinks, 0 diaries, 2 comments) on Friday, Sep 19, 2008 at 10:46:18 PM (0+)
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1.4 Quadrillion verifification
Ellen, thanks for a provocative article which I read elsewhere yesterday. You write: "Since then, derivative trades have grown exponentially, until now they are larger than the entire global economy. The Bank for International Settlements recently reported that total derivatives trades exceeded one quadrillion dollars – that's 1,000 trillion dollars.3 " The Footnote there doesn't work for me (Mozilla problems or?) but the article is at: click here . I tried google-searching the IBS site but could not find any of the figures he cites. I am concerned that this might be disinformation before totally buying it. I have elsewhere seen figures around 60 trillion, which is already staggering enough. I am not against this figure philosophically or anything, but would prefer to see it properly referenced before taking it at face value. This absence of clear reference on so important a topic both in general as well as being central to your piece, mars an otherwise good article. So: could you please provide verification? by Ashley Howes (0 articles, 0 quicklinks, 0 diaries, 20 comments) on Saturday, Sep 20, 2008 at 9:15:31 AM (0+)
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BIS figures from amateur analysis
I cannot attach anything but might link to chart later on my website. However, I suspect I am not reading these reports correctly from the Bank of International Settlement website at http://www.bis.org/statistics/derdetailed.htm But based one what I think is a correct reading, the totals of derivatives values outstanding in ONLY the equities, commodities and CDS - i.e. not including FOREX which I believe is larger than all three together, the numbers look like this. OTC: Commodities: CDS (Credit default swaps) In millions, totalling 3,037,807 = 3,037,807,000,000 = 3.037 QUADRILLION. On another table which I think includes everything though it's hard to tell, the total of all outstanding OTC's, forex etc. is 8508.74 billions = 8,508,740,000,000 = 8.5 quadrillion. I just wish I was sufficiently educated to be sure I am reading these correctly. Very strange editor! by Ashley Howes (0 articles, 0 quicklinks, 0 diaries, 20 comments) on Saturday, Sep 20, 2008 at 10:57:33 AM (0+)
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BIS II
From another table, I added Currency & Interest Rates, Equities, and Commodities. I do not know if CDS are in the Interest Rates but I suspect so. That total was over 8 quadrillion. by Ashley Howes (0 articles, 0 quicklinks, 0 diaries, 20 comments) on Saturday, Sep 20, 2008 at 11:11:35 AM (0+)
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BIS III
This is the simplest report showing the totals of various derivatives. It was on a different page from the more detailed series of reports I first landed on. http://www.bis.org/statistics/derstats.htm Report #19. Very simple, all on one page. If you use gross amounts, it comes to 14.52 quadrillion. If you use notional amounts it comes to 596 quadrillion. Since this is a derivatives report, I presume these are all leveraged instruments. They have to be since this is zillions of times larger than total world GDP and reserves. Sorry for previous two posts since this is much simpler. This one includes the 1.14 quadrillion CDS figure although that is only part of them. Another part is 859 billion bringing the total CDS figure alone to 2 quadrillion. !!! by Ashley Howes (0 articles, 0 quicklinks, 0 diaries, 20 comments) on Saturday, Sep 20, 2008 at 11:57:01 AM (0+)
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what is a quadrillion?
Ellen: your quadrillion in the report is listed as: $1,143 billion. In both your article and the one you reference this is described as 1.14 quadrillion. This is incorrect. 1,000 = 1 thousand. 1,000,000 = 1 milllion. 1,000,000,000 = 1 billion. 1,000,000,000,000 = 1 trillion. 1,000,000,000,000,000 = 1 quadrillion. 1.143 billion = 1,143,000,000,000 which is 1.14 trillion, not 1.14 quadrillion. That's a key difference! That said, he seems to be referencing a different set up figures. I can find one saying there is 596,000 trillion in OTC, but that is a gross figure. I cannot find the other one he references for CDS exposure of $546 triillion. The one with $596 trillion includes a far lower subtotal for CDS of 57,894 billion. Furthermore, on their total one-pager I linked above, this same $596 trillion is referenced which presumably is what he is referring to but in the 'notional amounts' table which is not the one used to calculate net exposure. Indeed, in the very last row, almost as an afterthought it reads: 'Memorandum item: Gross credit exposure.... Dec 2007 - 3,256 billion, i.e. 3.256 trillion. Or am I missing something here? If I am right, I think you should edit this report. Ash. by Ashley Howes (0 articles, 0 quicklinks, 0 diaries, 20 comments) on Saturday, Sep 20, 2008 at 8:40:20 PM (0+)
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Extraordinary indeed
"September 15, stock trading was ugly, with the S & P 500 registering the largest one-day percent drop since September 11, 2001. Alan Kohler wrote in the Australian Business Spectator:" Funny that Sir Isaac Newton is mentioned in this writing, rest his soul, and also mention of the day (September 11, 2001) as that was the day that Isaac's 3rd law of motion was purported by our government (NIST) as bull. So what's the game this time around as September 15th, like that day September 11th, 2001 showed the largest one-day percent drop? That day, September 11th, 2001 was the day that the general public were tricked into believing that computer generated images of aluminum aircraft sliced cleanly through steel and concrete instead of... according to Sir Isaac Newton's 3rd law of motion... bashing against it. Extraordinary illusions indeed. Excellent contribution Ellen Brown, thank you. by Toni (0 articles, 1 quicklinks, 1 diaries, 30 comments) on Saturday, Sep 20, 2008 at 10:56:56 PM (0+)
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Getting to the root of the problem....
Comment from Ratings: Ellen has this wonderful ability to make complex issues understandable and "digestible." The insight she offers into the world of finance is not easily found elsewhere. by aa aaaaa (0 articles, 0 quicklinks, 0 diaries, 1 comments) on Monday, Sep 22, 2008 at 12:28:33 PM (0+)
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quadrillion issue
Thanks for all the interesting comments. On the derivatives question, here's another link to the article I referenced: http://www.goldoz.com.au/139.0.html Another source is Jim Sinclair's website, jsmineset.com, June 9, 2008. He writes: The notional value of all outstanding derivatives now totals approximately $1.144 QUADRILLION. Well we hit a QUADRILLION. We have more than $1000 trillion dollars in all derivatives outstanding. That is simply NUTS because notional value becomes real value when either counterparty to the OTC derivative goes bankrupt. $548 trillion plus $596 trillion means $1.144 quadrillion. by Ellen Brown (40 articles, 0 quicklinks, 3 diaries, 93 comments [11 recommended, 0 rejected]) on Monday, Sep 22, 2008 at 4:46:58 PM (0+)
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An alternate plan -- maybe?
Fascinating take on the situation. Hadn't seen anything like it anywhere else. I'm sorry I took so long to get to it. I'm not an economist nor am I a writer. I would appreciate it if someone would correct me if I'm wrong. As I understand it, when the Treasury issues the T-Bills and the Federal Reserve, out of the goodness of its heart, prints new notes to "buy" them, these notes will then pass through to the member banks. At this point those notes become the "reserve" against which the banks can issue Etherbacks to the extent of three, four, or even five times the amount of the notes issued, thus triggering another round of inflation with accompanying speculation. Am I wrong? If I'm right, is it too radical to suggest that Congress and the Treasury exercise their Constitutional power to print the needed money in Treasury Notes by-passing the need to pay the bankers interest on the money they don't have, that they are lending us, to bail them out because they don't have the money? Would it be too extreme to stipulate that these T-Notes may not be used as "reserves" for further expansion? Assuming I'm right and McCain and/or Obama suggested implementing a T-Note plan similar to what I suggested, would they still be here for the November election? I'm sure it would be too vindictive if I suggested that all of those responsible, both on Wall Street and in Washington DC, be stripped of all of their wealth to help recover the money and then be forced to live in Projects for the rest of their lives, so I won't suggest it. Rick 18th Century Liberal 21st Century Reactionary by Rick Armin (0 articles, 0 quicklinks, 0 diaries, 7 comments) on Tuesday, Sep 30, 2008 at 5:25:22 PM (0+)
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