David Hass, a financial consultant wrote an interesting article on the derivatives market which contained the two graphics below.
Stable Financial Model
Unstable financial model
Well that is pretty telling, but no one seems to be able to say where this particular monster is going to fall. However there is evidence that it may be crumbling in big chunks.
On October 6th, one of the largest banks in France experienced a "derivatives incident." That "incident" result in a bank loss of approximately $800 million, and resulted in the resignation of the bank's chairman. There are no descriptions that I have been able to find of what the exact nature of this "incident" was, except it was blamed on extreme market volatility.
Another symptom of the shadowy derivatives dram is the essential collapse of Iceland's banking system. That debacle is leading Iceland to negotiate a $6 billion IMF loan.
The "big boys" are not talking about the derivatives. The Congress is keeping mum on them as well as we now go into a "credit bailout" on top of the Wall Street and bank bailout. Now the talk is of putting money (stimulus) into the hands of the peons (sorry people) so they will hopefully buy something (they pray big - like a GM car).
Meanwhile, the feds are facilitating the merging of banks into ever-larger institutions which makes them that much more important to "save," because our eggs are getting placed into fewer and fewer baskets.
There is clearly something wrong with the whole concept, but it is an embedded and predictable direction to take. Western capitalism is based upon the belief that if you are not "growing" you are "dying." Therefore a return to "health" means continued growth. On the other hand, we are watching the logical capitalist end game of "winner take all." In this end game we have fewer and fewer players with higher and higher stakes. It is becoming increasingly clear that the current status of the game is not the national economy, but the conjoined "global" economy. So these "players" are betting with the livelihoods (and lives) of 6.5 billion people. High stakes indeed.
One might think that looking out at the current environment from their places of power and insider knowledge, that they might say "Hmm. This isn't working so well." That doesn't seem to be what they are saying.
Perhaps it takes a courage they do not have to recognize that the system is fractured and is (predictably) failing, and that throwing up levees will not stop the flood of collapse. Perhaps, change is needed, and not just implementing regulations.
We need to redefine healthy economies away from a growth model. There can only be so much growth in a closed system - and we live in a closed system. Growth under a capitalist system requires ever-increasing levels of consumption and wast, and the Earth just can't do that anymore. We also need to recognize that "bigger" is not healthier or stronger. This means that we must acknowledge that when it comes to economies and our lives that "small is beautiful" and local is livable.