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Coming Derivatives Crisis That Could Destroy The Entire Global Financial System (Bank of America)
/theeconomiccollapseblog.com ^ | Oct 20 2011

Posted on 10/22/2011 4:55:46 PM PDT by dennisw

Most people have no idea that Wall Street has become a gigantic financial casino.  The big Wall Street banks are making tens of billions of dollars a year in the derivatives market, and nobody in the financial community wants the party to end.  The word "derivatives" sounds complicated and technical, but understanding them is really not that hard.  A derivative is essentially a fancy way of saying that a bet has been made.  Originally, these bets were designed to hedge risk, but today the derivatives market has mushroomed into a mountain of speculation unlike anything the world has ever seen before.  Estimates of the notional value of the worldwide derivatives market go from $600 trillion all the way up to $1.5 quadrillion.  Keep in mind that the GDP of the entire world is only somewhere in the neighborhood of $65 trillion.  The danger to the global financial system posed by derivatives is so great that Warren Buffet once called them "financial weapons of mass destruction".  For now, the financial powers that be are trying to keep the casino rolling, but it is inevitable that at some point this entire mess is going to come crashing down.  When it does, we are going to be facing a derivatives crisis that really could destroy the entire global financial system.

Most people don't talk much about derivatives because they simply do not understand them.

Perhaps a couple of definitions would be helpful.

The following is how a recent Bloomberg article defined derivatives....

Derivatives are financial instruments used to hedge risks or for speculation. They’re derived from stocks, bonds, loans, currencies and commodities, or linked to specific events such as changes in the weather or interest rates.

The key word there is "speculation".  Today the folks down on Wall Street are speculating on just about anything that you can imagine.

The following is how Investopedia defines derivatives....

A security whose price is dependent upon or derived from one or more underlying assets. The derivative itself is merely a contract between two or more parties. Its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes. Most derivatives are characterized by high leverage.

A derivative has no underlying value of its own.  A derivative is essentially a side bet.  Usually these side bets are highly leveraged.

At this point, making side bets has totally gotten out of control in the financial world.  Side bets are being made on just about anything you can possibly imagine, and the major Wall Street banks are making a ton of money from it.  This system is almost entirely unregulated and it is totally dominated by the big international banks.

Over the past couple of decades, the derivatives market has multiplied in size.  Everything is going to be fine as long as the system stays in balance.  But once it gets out of balance we could witness a string of financial crashes that no government on earth will be able to fix.

The amount of money that we are talking about is absolutely staggering.  Graham Summers of Phoenix Capital Research estimates that the notional value of the global derivatives market is $1.4 quadrillion, and in an article for Seeking Alpha he tried to put that number into perspective....

If you add up the value of every stock on the planet, the entire market capitalization would be about $36 trillion. If you do the same process for bonds, you’d get a market capitalization of roughly $72 trillion.

The notional value of the derivative market is roughly $1.4 QUADRILLION.

I realize that number sounds like something out of Looney tunes, so I’ll try to put it into perspective.

$1.4 Quadrillion is roughly:

-40 TIMES THE WORLD’S STOCK MARKET.

-10 TIMES the value of EVERY STOCK & EVERY BOND ON THE PLANET.

-23 TIMES WORLD GDP.

It is hard to fathom how much money a quadrillion is.

If you started counting right now at one dollar per second, it would take 32 million years to count to one quadrillion dollars.

Yes, the boys and girls down on Wall Street have gotten completely and totally out of control.

In an excellent article that he did on derivatives, Webster Tarpley described the pivotal role that derivatives now play in the global financial system....

Far from being some arcane or marginal activity, financial derivatives have come to represent the principal business of the financier oligarchy in Wall Street, the City of London, Frankfurt, and other money centers. A concerted effort has been made by politicians and the news media to hide and camouflage the central role played by derivative speculation in the economic disasters of recent years. Journalists and public relations types have done everything possible to avoid even mentioning derivatives, coining phrases like “toxic assets,” “exotic instruments,” and – most notably – “troubled assets,” as in Troubled Assets Relief Program or TARP, aka the monstrous $800 billion bailout of Wall Street speculators which was enacted in October 2008 with the support of Bush, Henry Paulson, John McCain, Sarah Palin, and the Obama Democrats.

Most people do not realize this, but derivatives were at the center of the financial crisis of 2008.

They will almost certainly be at the center of the next financial crisis as well.

For many, alarm bells went off the other day when it was revealed that Bank of America has moved a big chunk of derivatives from its failing Merrill Lynch investment banking unit to its depository arm.

So what does that mean?

An article posted on The Daily Bail the other day explained that it means that U.S. taxpayers could end up holding the bag....

This means that the investment bank's European derivatives exposure is now backstopped by U.S. taxpayers. Bank of America didn't get regulatory approval to do this, they just did it at the request of frightened counterparties. Now the Fed and the FDIC are fighting as to whether this was sound. The Fed wants to "give relief" to the bank holding company, which is under heavy pressure.

This is a direct transfer of risk to the taxpayer done by the bank without approval by regulators and without public input.

So did you hear about this on the news?

Probably not.

Today, the notional value of all the derivatives held by Bank of America comes to approximately $75 trillion.

JPMorgan Chase is holding derivatives with a notional value of about $79 trillion.

It is hard to even conceive of such figures.

Right now, the banks with the most exposure to derivatives are JPMorgan Chase, Bank of America, Goldman Sachs, Citigroup, Wells Fargo and HSBC Bank USA.

Morgan Stanley also has tremendous exposure to derivatives.

You may have noticed that these are some of the "too big to fail" banks.

The biggest U.S. banks continue to grow and they continue to get even more power.

Back in 2002, the top 10 U.S. banks controlled 55 percent of all U.S. banking assets.  Today, the top 10 U.S. banks control 77 percent of all U.S. banking assets.

These banks have gotten so big and so powerful that if they collapsed our entire financial system would implode.

You would have thought that we would have learned our lesson back in 2008 and would have done something about this, but instead we have allowed the "too big to bail" banks to become bigger than ever.

And they pretty much do whatever they want.

A while back, the New York Times published an article entitled "A Secretive Banking Elite Rules Trading in Derivatives".  That article exposed the steel-fisted control that the "too big to fail" banks exert over the trading of derivatives.  Just consider the following excerpt from the article....

On the third Wednesday of every month, the nine members of an elite Wall Street society gather in Midtown Manhattan.

The men share a common goal: to protect the interests of big banks in the vast market for derivatives, one of the most profitable — and controversial — fields in finance. They also share a common secret: The details of their meetings, even their identities, have been strictly confidential.

So what institutions are represented at these meetings?

Well, according to the New York Times, the following banks are involved: JPMorgan Chase, Goldman Sachs, Morgan Stanley, Bank of America and Citigroup.

Why do those same five names seem to keep popping up time after time?

Sadly, these five banks keep pouring money into the campaigns of politicians that supported the bailouts in 2008 and that they know will bail them out again when the next financial crisis strikes.

Those that defend the wild derivatives trading that is going on today claim that Wall Street has accounted for all of the risks and they assume that the issuing banks will always be able to cover all of the derivative contracts that they write.

But that is a faulty assumption.  Just look at AIG back in 2008.  When the housing market collapsed AIG was on the wrong end of a massive number of derivative contracts and it would have gone "bust" without gigantic bailouts from the federal government.  If the bailouts of AIG had not happened, Goldman Sachs and a whole lot of other people would have been left standing there with a whole bunch of worthless paper.

It is inevitable that the same thing is going to happen again.  Except next time it may be on a much grander scale.

When "the house" goes "bust", everybody loses.  The governments of the world could step in and try to bail everyone out, but the reality is that when the derivatives market comes totally crashing down there won't be any government on earth with enough money to put it back together again.

A horrible derivatives crisis is coming.

It is only a matter of time.

Stay alert for any mention of the word "derivatives" or the term "derivatives crisis" in the news.  When the derivatives crisis arrives, things will start falling apart very rapidly.



TOPICS: Crime/Corruption; Culture/Society; News/Current Events
KEYWORDS: babyboomers; bofa; dead; decades; derivatives; nemazee; realestate
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1 posted on 10/22/2011 4:55:48 PM PDT by dennisw
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To: dennisw

OWS is here to save the day.

Or, haven’t you heard?


2 posted on 10/22/2011 5:02:10 PM PDT by sauropod (William Kristol does NOT choose my presidential candidate!)
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To: dennisw
Looking at several posts about B of A recently, it makes me wonder...is B of A the designated fall guy? They also sucked up all that junk mortgage paper from Countrywide. No hope of that being paid off, either.

What the H is going on? Whatever it is, it ain't honest. This regime knows no honesty.

When they crash, at least there will be a surge in temp jobs.....for robo-signers. The junk mortgages will have to be dumped on someone else.

3 posted on 10/22/2011 5:06:33 PM PDT by FlyVet
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To: sauropod
OWS is here to save the day.

You know they don't understand derivaitves. They still don't have a working grasp of soap yet either.

4 posted on 10/22/2011 5:13:32 PM PDT by tbpiper
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To: sauropod

I have never quite understood why it is that a few rich bankers get to make billions (or trillions) making their deals, while we average taxpayers are forced to bail them out by frantic politicians on the take ostensibly to save the economy.

These decisions always make them rich again and put our USA taxpayers deep into debt and on the hook, all because of their incompetence and greed. I truly hate paying for someone else’s incompetence.

I frankly don’t understand it, and do favor sending them to Gitmo for life as financial terrorists, but will await an explanation from those in the know who understand the ins and outs of Wall St and the worth of these investment bankers to our economy and the rest of society.

If it comes down to creating capital for new business I’m all for it. Instead I see it creating huge profits for financiers.


5 posted on 10/22/2011 5:16:03 PM PDT by apoliticalone (Honest govt. that operates in the interest of US sovereignty and the people, not global $$$)
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To: dennisw

In a nutshell, a derivative is a financial insurance policy. They are typically cheap because they reflect the (typically very low) probability of the insured condition coming to pass. Derivatives are typically used as hedges to other bets.

That being said, if the “improbable” happens, there won’t be enough $$ in the world to pay these off. The Banks that sold them look at it as free $$, but G-d help them if the bill comes due. Kinda like a bookie to who can’t pay off his bets.


6 posted on 10/22/2011 5:19:27 PM PDT by rbg81
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To: All

At some point the whole derivative market should be shut down. If all they are are bets - example I bet someone a trillion dollars the Packers win the next superbowl and I lose and don’t pay, does it really matter to the economy. Sure the winner is out a trillion dollars but it’s phony. No one is really out anything.


7 posted on 10/22/2011 5:20:27 PM PDT by DHerion
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To: dennisw

Derivatives? Old news.
Having stolen all the real capital, how much of the Feds monopoly money are the banks using to finance OWS?


8 posted on 10/22/2011 5:25:46 PM PDT by nkycincinnatikid
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To: DHerion

Financial regulation probably isn’t the answer. Law of unintended consequences, etc.


9 posted on 10/22/2011 5:30:30 PM PDT by Utmost Certainty (Our Enemy, the State)
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To: dennisw; TigerLikesRooster
Monster Prediction From BofA: Another US Debt Downgrade Is Coming In Just A Few Weeks
10 posted on 10/22/2011 5:31:02 PM PDT by blam
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To: dennisw

The Feds need to outlaw national banks and return the control to each of the individual 50 states! No bank is allowed to cross state lines, nor is any bank allowed to hold any interest in other state banks. Very drastic I know, but probably too late for what is inevitably coming. America is doomed!


11 posted on 10/22/2011 5:34:50 PM PDT by rawhide
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To: rbg81

Can you tell me where to find a list of the different derivatves?

Can you or I trade some derivatives?

Where are their prices listed?

Do some mutual funds invest in derivatives?


12 posted on 10/22/2011 5:39:34 PM PDT by Auntie Mame (Fear not tomorrow. God is already there.)
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To: Auntie Mame

Gotta love your attitude Auntie Mame!
“Life is a banquet and some most poor suckers are starveing to death”
You go girl!


13 posted on 10/22/2011 5:46:13 PM PDT by nkycincinnatikid
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To: Auntie Mame

From what I understand, you can buy a derivative on almost anything. To buy them, you have to be plugged into the Financial community. While I can trade stocks/bonds online, I don’t have nearly the level of sophistication (or access) to trade derivatives.

So....sorry. Suggest you try someone who works for a hedge fund if you’re really interested.


14 posted on 10/22/2011 5:47:38 PM PDT by rbg81
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To: rbg81
Yes, pretty well covers it, insurance without an insurable interest. Thanks to half ass phil gramm and ken lay, truth is this crap belongs in las vegas not wall street, and hedge funds belongs at the mustang ranch, at least at the whore house they tell you up front that you are going to get s****.
15 posted on 10/22/2011 5:48:00 PM PDT by org.whodat (Just another heartless American, hated by Perry and his fellow demorats.)
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To: rbg81

“there won’t be enough $$ in the world to pay these off”.

There already is not enough to pay them off. The Bank of Intl Settlements (BIS) receives voluntary reports on the amount of derivatives world-wide. The derivatives are long term borrowings (as long as 30 years as with mortgage backed securities), and credit default swaps insure the other derivatives. All derivatives have essentially no adequate capital behind them. Multiple credit default swaps (Ponzi) exist on the same notionally valued equity as “naked” insuring is allowed in the completely unregulated derivative adventure with short term interest due during rollover periods on long term debt obligations.

The BIS up to two years ago reported the risk period for interest adjustment rollovers at 5 year intervals, and then reduced it to 2.5 year intervals...the recent reports of $700T of derivatives represents only half of the former 5 yr period total. So, over the usual short-term rollover period of 5 years, there are really about $1.5Quadrillion of derivatives. There will be 6 5-year rollover periods over 30 years. The 2008 rollover can go to 2013 for completion of the first rollover period. THE WORLD IS NOT GOING TO MAKE IT FOR THE FIRST OF THE SIX short 5 yr term rollover periods. Here is why:

The world GDP, generously, is about $68T this year, and assuming a 20% world tax base in the best of circumstances, there is only a maximum $13T world-wide tax base for running governments, etc. and guaranteeing bank losses on derivative values as is best demonstrated in this country ($16T went out for bank interest payment bailouts on derivative bond losses 2008-2010).

The $1.5Quadrillion of world-wide derivatives, say at 1% interest due each year and paid by the end of the 5 year periods, $15Trillion a year, or $75Trillion each 5 years out to 30 years, fully exceeds the entire tax base of this planet. The world will not make it. Over 30 years the total interest due at a conceptual 1% on the current “book” of derivatives world-wide approaches
5 x $75T = $375Trillion.

There are about $5B ounces of gold on the planet’s surface that is known. At $1000 an ounce, it is worth $5Trillion. Is it useful to use it as a standard for underwriting $1.5Quadrillion and growing of credit derivatives?

One additional problem is that derivatives and their additionally piled on insurance policies are growing, and the bankers and investment houses wish to add even more derivatives not seeing that there must be an end point.


16 posted on 10/22/2011 5:52:46 PM PDT by givemELL (Does Taiwan eet the Criteria to Qualify as an "Overseas Territory of the United States"? by Richar)
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To: FlyVet

“Is BOA the fall guy?”

This could well be the case.

When all of this came down, I saw an interview with the then CEO of BOA. I don’t remember the guy’s name...he is no longer CEO.

He indicated that BOA was forced to take government funds during this time. And “help” out with the other troubled entities.

I’m no fan of BOA, but if this guy was truthful..it really doesn’t seem right.


17 posted on 10/22/2011 5:54:12 PM PDT by berdie
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To: dennisw
This derivatives BS is simply BS! The bottom line is Bush/McCain/Obama stole $750 Billion from we workers and the Fed has counterfeited about $2 trillion and sent a bunch of that to alien financial institutions.

Have a few of those banker and politician dudes explain themselves with a hemp noose around their necks standing on the scaffold and their descriptions of derivatives would be more straight forward

18 posted on 10/22/2011 5:54:22 PM PDT by texican01
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To: dennisw
Destroy the global financial system

Burn, baby, burn.

19 posted on 10/22/2011 5:56:06 PM PDT by Jim Noble (To live peacefully with credit-based consumption and fiat money, men would have to be angels.)
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To: givemELL

Basically, the whole world has become Iceland, who had, what, 900:1 leverage in their banks.

Can you say crash? I knew you could.


20 posted on 10/22/2011 5:58:18 PM PDT by TruthConquers (Delendae sunt publicae scholae)
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To: givemELL

One additional problem is that derivatives and their additionally piled on insurance policies are growing, and the bankers and investment houses wish to add even more derivatives not seeing that there must be an end point.


Well, why not? From their perspective, they’re already way, way underwater. Selling more derivatives just means more income in the short term. And the short term is all anyone seems to care about anymore.

Maybe because the long term is too dark to contemplate?


21 posted on 10/22/2011 5:59:04 PM PDT by rbg81
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To: dennisw

You have to dissect the multi-trillion dollar figures thrown around. 80% of this total exposure is in the form of plain vanilla Interest Rate Swaps.

In a vanilla Interest Rate Swap, the 2 parties involved in a transaction are only exchanging fixed interest payments for floating interest payments on an agreed-upon notional. It is not the notional itself that is being exchanged. Please place these huge figures in their proper perspective

For example: 2 parties may engage in a Swap transaction on a $100million notional amount. They are not exchanging the entire $100million. They are only exchanging interest payments on that $100 million on a monthly, quarterly, semi-annual or annual basis (whatever they agree to), so the true exposure is nowhere near the $100 million notional amount of the swap. If a bank on one side of the transaction goes under, the other side hasn’t lost $100million, or anywhere close to it.

That being said, things are not looking too stable. It is very likely that at least one European bank will fail, which could set off a chain reaction in the US with some of our big banks which are hanging by a thread.

Derivatives are more complex than just ‘side bets’ and they have an important role to play in the world of finance and international banking. They allow firms to hedge exposure to obligations such as interest payments, and project financing costs just to name a few uses. Yes, there is an element of speculation involved, but the market is very liquid and there are regular bilateral netting and portfolio compression cycles that take place. These are processes by which offsetting trades are effectively “torn up” thereby removing them from the balance sheet of the banks involved in the transactions. Too much to elaborate upon here, but these compression cycles occur regularly and every big bank with derivatives exposure participates. Think of these cycles as maintenance, in which the deadwood and underbrush are removed in order to prevent a potential forest fire.


22 posted on 10/22/2011 6:10:40 PM PDT by American Infidel (Instead of vilifying success, try to emulate it)
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To: Auntie Mame
Can you tell me where to find a list of the different derivatves?
Can you or I trade some derivatives?
Where are their prices listed?
Do some mutual funds invest in derivatives?

The term 'derivative' is pretty broad. Everything from a listed option on a stock or a future can be considered a 'derivative' because its value is derived from an underlying asset.

The derivatives as described in this article are primarily Interest Rate Swaps which are traded "Over The Counter" or directly between the two parties. They are not listed on an exchange, nor are they something that individual investors or mutual funds would trade or have any exposure to.

In a vanilla Interest Rate Swap, the 2 parties involved in a transaction are only exchanging fixed interest payments for floating interest payments on an agreed-upon notional. It is not the notional itself that is being exchanged. Please place these huge figures in their proper perspective

For example: 2 parties may engage in a Swap transaction on a $100million notional amount. They are not exchanging the entire $100million. They are only exchanging interest payments on that $100 million on a monthly, quarterly, semi-annual or annual basis (whatever they agree to), so the true exposure is nowhere near the $100 million notional amount of the swap. If a bank on one side of the transaction goes under, the other side hasn't lost $100million or anywhere close to it.

Under Dodd-Frank, banks will be forced to have these products centrally cleared, meaning that each side of a transaction will face a clearing house instead of facing another bank directly. In essence; each bank will have to post collateral based on the value of the derivative contracts to which they have exposure. This collateral will (in theory) protect the counterparties of those transactions if a bank were to default.

23 posted on 10/22/2011 6:23:18 PM PDT by American Infidel (Instead of vilifying success, try to emulate it)
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To: rbg81

>>>In a nutshell, a derivative is a financial insurance policy. They are typically cheap because they reflect the (typically very low) probability of the insured condition coming to pass. Derivatives are typically used as hedges to other bets.<<<

Maybe at one time they were used as hedges (to insure your own liability), but not anymore. Now you get Soros types betting on the failure of the dollar and then going about every way he can to destroy the American market.

I heard it described as like being able to buy fire insurance on your neighbor’s house. Because you don’t have a stake in the house not burning down (i.e., ownership), you have no reason to care if it does burn down, and maybe you even leave some gasoline and matches nearby, in hopes of someone doing your dirty work for you.

Furthermore, since every one of your neighbors can buy fire insurance on your house, the payout, if your house does burn down, isn’t the value of the house, but the value of your house times the number of derivatives sold on it.

Derivatives should be outlawed if you don’t have a vested interest in the underlying product.


24 posted on 10/22/2011 6:25:48 PM PDT by XEHRpa
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To: American Infidel

Thanks for inserting some sanity into this discussion. To elaborate further:

To those that want to ban all derivatives:

When a farmer pre-sells his crops, that is a derivative

If you own stock options on your employer, that is a derivative

If I want to insure a loan I am making I buy a CDS, a Credit Default Swap from an insurer. If that insurer decides to sell that exposure to another insurer that doubles the NOTIONAL VALUE outstanding but it does not increase the amount at risk.

For example, I lend US Steel $100 million. I buy a CDS from Goldman for $500,000. They turn around a insure their risk with JP Morgan for the same amount. The CDS’s total NOTIONAL VALUE is now $200 million, but there is ONLY $100 million at risk.

Take these total derivative numbers with a grain of salt. Much of it is an offset of another position.


25 posted on 10/22/2011 6:25:57 PM PDT by LRoggy (Peter's Son's Business)
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To: dennisw

$75 trillion... notational

assuming 100 : 1 risk, that means roughly $750 billion exposure. assuming offsetting bets, the minimum exposure would be $375 - 750 billion.

let them fail

the small banks will buy the assets... and become the new big banks, but with less risky practices

of course, these people are all lefties... their intention is to collapse the system. therefore I expect their failure and the 0bama group to bail them out.. with our money... jacking up the debt even higher

which means... they will continue printing more dollars, diminishing the dollar further

expect gold to continue to rise (as well as all commodities with inherent value)


26 posted on 10/22/2011 6:35:27 PM PDT by sten (fighting tyranny never goes out of style)
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We've Watched The Spinning Act In DC Long Enough


Click The Pic

Join Other Conservative Voices And Support FR

27 posted on 10/22/2011 6:42:34 PM PDT by DJ MacWoW (America! The wolves are here! What will you do?)
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To: rbg81
You can buy/sell options online.

Those are derivatives.

28 posted on 10/22/2011 6:53:29 PM PDT by Siena Dreaming
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To: apoliticalone
BofA is a publicly traded company. These "executives" serve at the pleasure of the board of directory. They have a fiduciary responsibility to the share holders. I plan on buying some stock in BofA and looking in to finding a way to sue the board members. I just hope I don't have to buy too much stock. I won't be able to buy enough to compete with Warren Buffet.

Mark

29 posted on 10/22/2011 7:10:47 PM PDT by MarkL (Do I really look like a guy with a plan?)
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To: rbg81

If the derivatives can’t be paid off, it won’t be because of the derivatives, it will be because bad government policy in the EU, US, China, and Japan crashed the world economy. Absent a systematic economic failure caused by out of control government, derivatives markets will be of no particular concern.

I would wager that the government parasites will cause the world economy to collapse and will then try to blame it on derivatives, markets, banks, global warming, and, of course, Bush.


30 posted on 10/22/2011 7:14:20 PM PDT by achilles2000 ("I'll agree to save the whales as long as we can deport the liberals")
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To: dennisw

The derivatives market creates massive fantasy (not real) wealth which becomes concentrated in a few hands and then it is used as a claim on real wealth (real property, portions of paychecks, ban savings, pensions etc of people both living now and yet unborn) through bailouts and various ‘stimulus’ schemes.

Those claims are being made now and will have repercussions for many generations. Here is but one example.

A Huge Housing Bargain — but Not for You
http://www.thestreet.com/story/11224917/1/a-huge-housing-bargain—but-not-for-you.html

The back door bailout of BOA is another example. If they are made whole through FDIC, what, if any, do you think will be left over to cover depositor losses?

Dangerous times.


31 posted on 10/22/2011 7:17:16 PM PDT by Lorianne
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To: FlyVet; dennisw

2009 : (BANK OF AMERICA ANNOUNCES IT HAS “SUSPENDED CURRENT COMMITMENTS” TO ITS CORPORATE PARTNER ACORN & WILL NOT ENTER INTO ANY FURTHER AGREEMENTS WITH ACORN OR ITS AFFILIATES)

NOVEMBER 30, 2010 : () -——Wikileaks Next Document Drop Will Probably Target Bank Of America, YAHOO Finance ^ | TUE November 30, 2010 | Katya Wachtel

NOVEMBER 30, 2010 : ()New York Attorney General Andrew Cuomo’s office refused to share some information with SEC lawyers...... -———Report: BofA First Got Favorable Deal From SEC On Merrill Settlement
By David Benoit
Of DOW JONES NEWSWIRES


32 posted on 10/22/2011 7:25:45 PM PDT by piasa (Attitude adjustments offered here free of charge)
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To: FlyVet

“Looking at several posts about B of A recently, it makes me wonder...is B of A the designated fall guy?”

Bank of America is most definitely the designated fall guy. Before the 2008 financial crisis Charlotte, NC was emerging as a major financial center which threatened the stranglehold the New York Wall Street banks and the New York Federal Reserve have over the US financial system. Two things happened during the financial crisis. First the Federal Reserve chose the save Citibank, Goldman Sachs and JP Morgan and sacrifice Wachovia, the second largest Charlotte bank.

Second step, Bank of America on its own was going to survive so Bernanke and Paulson forced Bank of America to buy Merrill Lynch. Since then New York state (Cuomo as attorney general), the SEC, the Federal Reserve, the mainstream media, and the Treasury Department have hounded Bank of America in an effort to further weaken it. Note that Bank of America picked up most of its derivative exposure due to the Merrill Lynch acquisition, not due to its own actions prior to the big bailout.

Now Bank of America will be brought down and its good assets divided among the New York banks after the taxpayers cover the bad debt. Wall Street will once again have monopoly control over the US financial system and Charlotte will see its unemployment rate skyrocket with thousands of unemployed bankers having no place to go.

As an aside Wells Fargo is probably avoiding the Bank of America treatment this time around because it is headquartered in San Francisco, Pelosi’s hometown. However, Pelosi is in her 70’s so in a few years when she retires the Wall Street boys will find a way to bring down Wells. We cannot have competition in the financial sector in this country.

If we really wanted to reform the financial system we would separate investment banking from commercial banking again and we would break up the big New York banks. Instead we live in a world where what’s good for Goldman, JP Morgan, and Citibank is good for America!


33 posted on 10/22/2011 7:27:27 PM PDT by Soul of the South (When times are tough the tough get going.)
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To: piasa

SEPTEMBER 2, 2009 : (REPORT : HASSAN NEMAZEE {FUNDRAISER OF KERRY, HILLARY CLINTON , OBAMA & OTHER DEMOCRATS -—see IRAN} WAS CHARGED LAST WEEK ON BANK FRAUD; HE DEFRAUDED AT LEAST THREE BANKS {see CITIBANK, BANK OF AMERICA CORP, & HSBC HOLDINGS})


34 posted on 10/22/2011 7:38:29 PM PDT by piasa (Attitude adjustments offered here free of charge)
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To: givemELL

Still difficult grasping these numbers, the defy immagination....32 millions years just to count them!

So why not outlaw them? Sounds like a huge Ponzi scheme to me? or is it there is no will in high places to do so?


35 posted on 10/22/2011 7:41:51 PM PDT by caww
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To: Lorianne

http://www.youtube.com/watch?v=5Z9eOZpRVuQ

Here is a clip of two British guys doing a comedy sketch on the housing crash. But I think they do a pretty accurate job on describing it in a simple way that an idiot like me can understand. I’ll need to search if they have on on derivatives. But is almost sounds similar.

Paraphrased excerpt:

“So the mortgage seller gives a poor black man in Alabama a mortgage. That mortgage gets combined with other risky mortgages from other poor black men in Alabama. It is then sold as a package as an investment to say somebody in Japan.

They in turn sell it to others, and so on.”

AND YOU MAKE MONEY ON THE SALE?

“Well of course, you don’t expect me to work for free?! And every time it is resold someone takes a cut.”

AND WHY DO PEOPLE BUY THESE FUNDS?

“Because they have good names. No - not the names and reputations of the banks. But good names. Like “High Value Enhanced Capital Managed Fund”

OH - HIGH IS GOOD!

“Yes, a very good name. Better than having ‘poor black man’s mortgage’ in the name somewhere.”

They also talk about the bailouts, etc.


36 posted on 10/22/2011 7:42:41 PM PDT by 21twelve
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To: rbg81

“Maybe because the long term is too dark to contemplate?”

Or maybe because if they “fail” - the government will just bail them out again because they are to big to fail.


37 posted on 10/22/2011 7:44:17 PM PDT by 21twelve
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To: SirKit

Quant ping!


38 posted on 10/22/2011 7:45:37 PM PDT by SuziQ
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To: Soul of the South
Bernanke and Paulson forced Bank of America to buy Merrill Lynch.

Since then New York state (Cuomo as attorney general), the SEC, the Federal Reserve, the mainstream media, and the Treasury Department have hounded Bank of America in an effort to further weaken it.

Note that Bank of America picked up most of its derivative exposure due to the Merrill Lynch acquisition, not due to its own actions prior to the big bailout.

Now Bank of America will be brought down and its good assets divided among the New York banks after the taxpayers cover the bad debt.

I remember this going down when the crap began hitting the fan.....Paulson and Bernanke were the "pressure" men of the hour... people in the know were furious.

39 posted on 10/22/2011 7:47:34 PM PDT by caww
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To: dennisw
The notional value of the derivative market is roughly $1.4 QUADRILLION.

Does anybody know what notional means?

40 posted on 10/22/2011 7:51:32 PM PDT by Moonman62 (The US has become a government with a country, rather than a country with a government.)
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To: 21twelve

21..That was an excellant video on the housing crash and in such simplist terms anyone can understand it. Oddly enough just changing their vocabulary makes this all the more deceptive.


41 posted on 10/22/2011 8:00:01 PM PDT by caww
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To: dennisw

Enormous amounts in derivatives were based on mortgages for real estate—houses. It appears that the author omitted that.


42 posted on 10/22/2011 8:11:58 PM PDT by familyop ("Dry land is not just our destination, it is our destiny!" --Deacon character, "Waterworld")
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To: dennisw

bookmark


43 posted on 10/22/2011 8:22:38 PM PDT by 2nd amendment mama ( www.2asisters.org | Self defense is a basic human right!)
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To: dennisw

What Cooked The World’s Economy?
http://www.freerepublic.com/focus/f-news/2209313/posts

And...

Here’s the link for the evidence in the information from the “Bank for International Settlements,” as mentioned in the full version of the excerpted article linked above.

http://www.bis.org/publ/otc_hy0805.pdf

...and a quote from it.

“The over-the-counter (OTC) derivatives market showed relatively steady growth in the second half of 2007, amid the turmoil in global financial markets. Notional amounts of all categories of OTC contracts rose by 15% to $596 trillion at the end of December (Table 1), following a 24% increase in the first half of the year.1”


44 posted on 10/22/2011 8:25:25 PM PDT by familyop ("Dry land is not just our destination, it is our destiny!" --Deacon character, "Waterworld")
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To: Auntie Mame

The simplest derivatives are options, the basic ones being puts and calls.

A put is a contract which gives the buyer of the put the right to sell a certain asset (e.g. a certain number of shares of XYZ corp., and oz. of gold, . . .) at a fixed price to the seller of the put at any time during the term of the contract (American version) or at the ending date of the contract (British version).

A call is a contract which gives the buyer of the call the right to buy a certain asset at a fixed price from the seller of the call (again at any time ruing the term of the contract or at the ending date of the contract).

A straddle is a contract that combines a put and a call (with different prices) on the same asset.

Puts were traditionally used to hedge downside risk when buying on margin (i.e. on credit), and calls to hedge risk of price rises when short-selling (selling borrowed assets).

Of course there are more exotic derivatives like credit default swaps in which one party pays the other for the right to sell some asset (usually a loan or portfolio of loans) at an agreed to price if some specified bad thing happens. (The “bad thing” is most often the borrower defaulting on the loan, but it could be something else.) The seller of the CDS either believes the bad thing won’t happen, or that even if it does the asset will be worth acquiring at the agreed price, or some probabilistic combination of the two, while the buyer is worried about the bad thing happening and thinks the asset won’t be worth holding onto if it does, and is willing to pay something to hedge against the bad thing happening and being stuck with the asset.

Anyone with a brokerage account can trade in options and maybe more exotic derivatives as well. Generally the only mutual funds that use derivatives much are hedge funds (hence the name).

That’s about all I know on the subject.


45 posted on 10/22/2011 8:42:24 PM PDT by The_Reader_David (And when they behead your own people in the wars which are to come, then you will know. . .)
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To: givemELL
The derivatives are long term borrowings (as long as 30 years as with mortgage backed securities)

Derivatives aren't "borrowings".

($16T went out for bank interest payment bailouts on derivative bond losses 2008-2010).

Huh? Derivative bond losses? Are you talking about derivatives or bonds?

The $1.5Quadrillion of world-wide derivatives, say at 1% interest due each year

They aren't debt, why would interest be due?

46 posted on 10/22/2011 8:49:51 PM PDT by Toddsterpatriot (Math is hard. Harder if you're stupid.)
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To: Moonman62

I’m not sure how it’s calculated for other derivatives, but the notional value of a call is the value of the stock (at current marke price) which the purchaser of the call has a right to buy at a fixed price, while the notional value of an interest rate exchange is the underlying principal amount.

Quite frankly, it seems adding up the notional values of derivatives is quite meaningless, and the huge sum doesn’t forebode anything. It’s rather like adding up the maximum possible payouts of all outstanding insurance policies of all types, then running around worrying that the sky is falling because the insurance companies don’t have anywhere near that amount in assets.


47 posted on 10/22/2011 8:53:41 PM PDT by The_Reader_David (And when they behead your own people in the wars which are to come, then you will know. . .)
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To: American Infidel

Quit making sense. You have to PANIC!!!


48 posted on 10/22/2011 8:57:43 PM PDT by Toddsterpatriot (Math is hard. Harder if you're stupid.)
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To: The_Reader_David
Quite frankly, it seems adding up the notional values of derivatives is quite meaningless, and the huge sum doesn’t forebode anything. It’s rather like adding up the maximum possible payouts of all outstanding insurance policies of all types, then running around worrying that the sky is falling because the insurance companies don’t have anywhere near that amount in assets.

Thank you. It's too bad the author or OP didn't explain it.

49 posted on 10/22/2011 9:21:42 PM PDT by Moonman62 (The US has become a government with a country, rather than a country with a government.)
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To: DHerion

Derivatives are long shot odds. I get $1 million for $1 investment if Michigan Sate beats Wisconsin on a Hail Mary pass with no time left in the game. Oh wait that just happened!!!


50 posted on 10/22/2011 9:30:48 PM PDT by Mike Darancette (999er for Cain.)
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