One word: derivatives.
I hate to say this.
But these hearings on capitol hill are not helping. Ben Bernanke opening his mouth does not help. Keep your mouth shut and give us an emergency rate cut.
Speaking of derivitaves...
Our current financial and credit crisis is like the black hole that Albert Einstein predicted. A black hole is formed when a huge mass is packed within a very small volume. A black hole’s gravitational pull is so strong that it sucks everything and not even light can escape.
A black hole will keep growing bigger as it keeps sucking in more matter. When the Large Hadron Collider was recently turned on to search for a ghost particle called Higgs, some feared it could generate a black hole which could swallow the earth. But instead of swallowing the earth, the LHC merely spit out a ton of helium before it was shut down, possibly for good, as nations throughout the world can no longer afford giant science projects like LHC.
But the real black hole that threatens our survival is in the global financial system. The hole in this case is something that Warren Buffett called “Financial Weapons of Mass Destruction”, the so called OTC Derivatives, a thing that no one really understands.
It’s such an enormous monster that by some estimates there’s $1.14 quadrillion worth of them. That’s a ONE followed by FIFTEEN(15) ZEROs.
US$1,140,000,000,000,000 in OTC Derivatives! Where exactly is this huge amount of fortune physically located? This huge amount is actually nothing but some digits stored on some 3.5 inch hard drives within some computers somewhere on Wall Street. That, my friend, is the precise definition of a black hole, a giant mass stored within a tiny space.
This black hole is swallowing everything around it, starting small and growing exponentially bigger. First it was New Century Financial (NEWC.PK), then Countrywide Mortgages (CFC), then Bear Sterns (BSC), Lehman Brothers(LEH), Merrill Lynch (MER), Fannie Mae (FNM), Freddie Mac (FRE), IndyMac Bank (IMB), Washington Mutual (WM), Wachovia Bank (WB). Who knows what’s next! Now the US Congress wants to toss in trillions of dollars in a Bailout? Do they understand that you CANNOT feed a black hole?
You're right. The derivative people have "made" more money than exists. The fed can cut the rate to 0 - congress can bail out til there's nothing - and the derivative bets still won't be paid off...