5 U.S. Banks Each Have More Than 40 Trillion Dollars In Exposure To Derivatives

The Obama administration proposes the Dodd-Frank act, which was designed to work against such infringement by large corporations, and it comes into law. Then the right lobbies against it and the vote to repeal it ends up with a count of 292-122, only 70 of the yes votes being from the left. My only point is that those of you who subscribe to a republican ideology should be aware that this is going on, because it seems to me big business is taking advantage of voters, even though they should have no real sway in the government at all. Surely the majority of regular republicans could not believe that allowing big business such liberties could be beneficial. I was under the impression that the majority of people who felt this way were those directly linked to these businesses in some way, be it from investments, employment, or some other affiliation.

And think about this: the courts upheld the Dodd-Frank act, and it was only done away with because of the congressional vote. If the courts upheld it then the claim that it was not Constitutional probably had little merit. This was done explicitly for the benefit of big business, and was of no benefit to the people whatsoever. Rather repealing it was a huge disservice to the US populace and the nation as a whole. And this act was one of the crowning achievements of the Obama administration in my opinion, and would have ensured us against exactly what the original poster is referring to. But ya know, we have to let big business and their goons in office run the show, most of whom are acting out of extreme conflicts of interest.

a reply to: JiggyPotamus

Interesting points.

Where in Dodd-Frank does it protect against these problems specifically?

Or do Federal Reserve regulations apply?



And, when was Dodd-Frank repealed?

originally posted by: NonsensicalUserName
am I the only one thinking the collapse would be more like what happened when the USSR collapsed (as some others have mentioned), and less like what preppers are thinking(total anarchy).

systems will be dismantled, "austerity" measures that primarily impact the poor and unemployed, as a result of this living standards, and education standards sharply decline.

I for one would be seeking to secure a place in the provisional government(s), and thinking of ways to provide relief on a community level when the dollar collapses.

Sitting in a bunker waiting for someone else to stabilize the situation will leave you out of the table when power re-consolidates.

This is how I imagine it will play out. The banks will end up as the new oligarchs (more so than they are already) since by virtue of calling in their loans which will default they will own a lot of property.

a reply to: xuenchen

Usually I'd say, think carefully about who you vote for, their backers, and who they are beholden to, but as we only get to vote for the choices offered us....... we still end up with pawns for other forces. Local elections, sure, we see elections determined by a single vote or very few here, but higher up, when it comes to Congressmen and Senators, especially in populated states...... the Political Machines rule and choose our choices for us. As for the Presidency..... we should be aware of the Powers That Be.... and those in Washington that have been in positions of power for decades and probably hand down positions to other family or group members, such as on the National Security Council. Presidents only last 4 or 8 years now. Senators can stay in power for decade after decade. Governing the banks in a practical and reasonable way? I guess that's gone. But if the government thinks the citizens will allow another bailout.... I hope they are very wrong.

originally posted by: Aazadan
The problem isn't that we can't create solutions, the problem is in implementing them. Investors are notoriously skittish just look at how middle east flareups effect the price of oil. Regulations make people nervous, which means they temporarily pull their money out until they can get a sense of the new financial landscape. It doesn't matter what the change is, any change that causes more than 1/54 (and before long 1/55, then 1/56) of the investors to pull their money out for a time will result in collapse. That is the issue.

You said "there are no solutions," so that is what I was disputing.

Fiat currency isn't the driving factor behind an economy, at least not a healthy one. The issue is not lack of participation of money handlers, but lack of participation on behalf of those who bring real world value to the society and economy. That would be 'us.' That is where the real market value lies, not in paper.

You are right that any change would result in at least a partial dismantling of the existing system. That is inherent to change. Depending on what that change is, it could either be beneficial or detrimental and that would apply uniquely to each given group in society. Change is, of course, inevitable.

There's plenty of post collapse solutions btw, for example we can take everyones now worthless currency, inflate our way out of the debt, then create an asset fund to back a new world currency, backed by immense amounts of the old currency and preferably some commodities as well. You can individualize that plans to nations too. There's lots of ways to go about it, the problem comes from the fact that all savings and debt will be wiped out in the process.

I prefer to focus on an economy that has a currency directly tied into a real world value that is relatively objective, rather than one that is driven by subjective perception of market value. Just creating a new, easily manipulated fiat currency places the problems on our children, or their children.

originally posted by: Serdgiam
You said "there are no solutions," so that is what I was disputing.

My fault for not being clear enough. There are no preventative solutions that we can implement. The very act of admitting there's a problem and saying we need to fix it will collapse the system. The mere act of suggesting that there may be a potential problem will collapse it.

Fiat currency isn't the driving factor behind an economy, at least not a healthy one. The issue is not lack of participation of money handlers, but lack of participation on behalf of those who bring real world value to the society and economy. That would be 'us.' That is where the real market value lies, not in paper.

Here's the problem with non fiat currency: There isn't enough to go around, it's an artificial limit on the money supply. There's not enough gold, silver, platinum, and every other precious metal in the world combined in existence to back just the USD to say nothing of every other currency on the planet. There's enough oil in the world but that means having a stockpile of oil that can be exchanged, and it means maintaining rather than using that stockpile. Currently oil is the only commodity this works for.

We could accept this and shrink the money supply (assuming the US has a supply of gold and silver still) and back the dollar with metals but shrinking the money supply also means shrinking the economy. If gold is worth $800/oz and there's $8000 out there you need 10 oz of gold. But when you raise the value of the dollar and gold is worth $50/oz, you've only got $500 out there. This isn't really an issue if we were isolationist as prices would fall in tandem with the decrease in the money supply but in an international world full of imports and exports a high value currency is actually a liability not an asset. In an international situation the currency in which the entire world can buy into at an advantage is the one people will prefer, essentially it's a race to the bottom and the weakest one wins.

a reply to: caterpillage>>> And don't forget to run in fear from ISIS and Ebola and make good old Mr. Government save us. That's why this hot and cold war is heating up, something has to keep the economy going when this banking scandal hits the fan.

You have multiple bad things going on in the US where our government and our banking system are concerned.

No. 1 - Decisions made by our Politicians cannot be influenced by banks or corporations or special interest groups. You can't make good decisions for the people you represent if you have these groups talking in your ear and lining your pockets. Any decision made to support a financial institution or a corporation or a special interest group that doesn't FIRST address the needs of the people, is a poor decision.

No. 2 - In order for these bad banking practices to stop and collapse on themselves, you have to have a back up in place otherwise you end up with an uncontrollable free fall that hurts everyone, including the uber-rich. It's time for the banking system to be setup back up with collateral behind it. Tangible assets have to back up the money in play. Like Gold. You can't have something for nothing. This has its limits. As the wealthy start to reappear in a NEW banking system you have to be able to regulate HOW wealthy someone can truly be otherwise you end up going down the same road with the uber-wealthy controlling the masses and the assets. Keeping the assets from being stockpiled and keeping the banking system fresh and flowing is the key. Letting the 1% hoard the assets and thereby gaining control of the many will take us right back down the same path.

No. 3 - Shoot all the lawyers.

a reply to: xuenchen

The derivatives are the primary instruments by which big banks manipulate markets - stock, commodity and currency.

And the root of this manipulation is the collusion between US treasury and big US banks.

So this will go on until this collusion is broken by force of circumstances.

a reply to: Aazadan

I would certainly agree that a foundation on precious metals is flawed, especially given that is the situation that led to where we are now. It also doesn't help that it is a dependent market, where value is still easily manipulated.

Then again, when I refer to 'real world value,' people tend to think solely in options we have already explored (such as precious metals). I view it to be the *direct* source of real world value, which lies in jobs, or the people, that create a real world item that is useful. That gold, or fiat money, can only buy or be turned into something that is actually useful. But they are not directly useful themselves. The value is in what they can be turned into. They are economic middlemen that place value on who can exploit the process the most efficiently, rather than the individuals that are actually driving our economy by transforming these items into things that facilitate the growth of society.

originally posted by: Serdgiam
a reply to: Aazadan

I would certainly agree that a foundation on precious metals is flawed, especially given that is the situation that led to where we are now. It also doesn't help that it is a dependent market, where value is still easily manipulated.

Then again, when I refer to 'real world value,' people tend to think solely in options we have already explored (such as precious metals). I view it to be the *direct* source of real world value, which lies in jobs, or the people, that create a real world item that is useful. That gold, or fiat money, can only buy or be turned into something that is actually useful. But they are not directly useful themselves. The value is in what they can be turned into. They are economic middlemen that place value on who can exploit the process the most efficiently, rather than the individuals that are actually driving our economy by transforming these items into things that facilitate the growth of society.

What you're getting at then is barter, the problem with barter is that no items have a set value and some items just don't nicely divide into others. How many shirts for a computer? How many canoes for a car?

The closest thing we have to a backed currency right now is bitcoin which is largely based on perceived value, but also runs into an issue with how much it costs to create one.

a reply to: Aazadan

If barter is an option we have already explored (and it is), then it isn't what I am talking about. I am speaking about the creation of new ideas for new economies.

What is more valuable in your mind; the commodity or the people who turn that commodity into something?

Personally, I feel the people carry more value, so I have designed a system that reflects that by incentives and values that revolve around people rather than products.

Instead of discussing that though, I am more interested in the creativity of others. The distribution of currency, commodities, or products to reflect a value isn't necessarily problematic in and of itself. However, where we place that value, and the subsequent revenue distribution, can completely corrupt the process. It can also allow it to thrive, though I am not sure we have seen that side yet.

What do you think would be a good variable to place that value? It is the foundation of the economic system, so something that remains relatively static over long periods of time is stronger. But, it also needs to evolve with technological and cultural changes. I feel its actually an interesting subject and maybe a better solution is just hiding in someone(s).

a reply to: Serdgiam

If you have a system in mind I'm afraid you'll have to give some details. The merits can't be debated unless it's laid out. For what it's worth early this year I wrote some of my ideas out for an economic system, Here it is. It wasn't very popular so I got few responses for or against but I think it would work. The basic premise is everyone is given a base value of a currency which is used to purchase luxury goods (things beyond food/shelter). The amount in circulation remains more or less static on a per capita basis, when it's spent somewhere it is redistributed to everyone else at the beginning of the next month.

Now, this doesn't do much on it's own but when you allow people who have excess money to purchase excess luxury points from other people using real money, suddenly everyone has a valuable market driven commodity that can be used to fund the basics in life.

It still takes advantage of the market, the rich still get rewarded for being rich, and the poor still have reason to try and improve their lives. However it allows for the poor to support themselves without a single dollar of welfare being spent.

a reply to: Aazadan

Your idea is same as socialism which is based on every citizen on State salary.

I think the world needs a world currency, a uniform currency free from national controls. This currency cannot be USD or Euro. It has to be a currency like Gold (a currency based on real assets).

A uniform worldwide currency will automatically uplift the poor people of the world and will cause a wave of worldwide integration of humanity.

We see rampant economic warfare at this time which promotes other forms of violence.

a reply to: GargIndia

A uniform worldwide currency will automatically uplift the poor people of the world and will cause a wave of worldwide integration of humanity.

How so?

Wealth distribution?

Tax distribution?

All that will do is cause bigger wars and conflicts and extreme jealousies worldwide.

And any financial crash would wipe out the Human Race.

a reply to: GargIndia

An uniform worldwide currency and wealth distribution is the dream of the elite behind the NWO, because the wealth they will distribute is the working class wealth no their own, the poor will still be poor and the filthy rich will control as today the wealth along with the rest of the world.

a reply to: xuenchen

The world wide exposure to derivatives is on the order of $1.2 quadrillion. Derivative exposure

According to one of the world’s leading derivatives experts, Paul Wilmott, who holds a doctorate in applied mathematics from Oxford University, $1.2 quadrillion is the so-called notional value of the worldwide derivatives market. To put that in perspective, the world’s annual gross domestic product is between $50 trillion and $60 trillion.

a reply to: th3dudeabides

Oh, is not over, the derivative market is well an alive, the con men are still at it and flourishing with the QEs that allow them to keep the scam going.

The Markets has become an illusion of wealth that only exist within those that controls them.

originally posted by: GargIndia
a reply to: Aazadan

Your idea is same as socialism which is based on every citizen on State salary.

It takes elements from socialism but it also takes elements from capitalism and communism. Every citizen has a base level income much like in some of the Scandinavian countries now but at the same time affording luxuries and the system as a whole runs off of dollars which aren't just printed into existence endlessly.

originally posted by: Aazadan

Here's the problem with non fiat currency: There isn't enough to go around, it's an artificial limit on the money supply. There's not enough gold, silver, platinum, and every other precious metal in the world combined in existence to back just the USD to say nothing of every other currency on the planet. There's enough oil in the world but that means having a stockpile of oil that can be exchanged, and it means maintaining rather than using that stockpile. Currently oil is the only commodity this works for.

We could accept this and shrink the money supply (assuming the US has a supply of gold and silver still) and back the dollar with metals but shrinking the money supply also means shrinking the economy. If gold is worth $800/oz and there's $8000 out there you need 10 oz of gold. But when you raise the value of the dollar and gold is worth $50/oz, you've only got $500 out there. This isn't really an issue if we were isolationist as prices would fall in tandem with the decrease in the money supply but in an international world full of imports and exports a high value currency is actually a liability not an asset. In an international situation the currency in which the entire world can buy into at an advantage is the one people will prefer, essentially it's a race to the bottom and the weakest one wins.

How it would work is that prices adjust to the value of the currency. So if the money supply reduces from, say, $10 trillion to $1 trillion, the $10 movie ticket would cost $1 in the value of the new currency. You don't need the same amount of currency in circulation to maintain the size of the economy.

However, this illustrates the exact reason that the money supply is not allow to contract and central banks constantly have inflation targets: debts cannot be repaid if the money supply shrinks, and the debt issuing entities (ie banks and others) would instantly collapse. This is the whole reason for fiat currency and inflation targeting, it is a wealth transfer from the general population to the banks and government to allow them to keep issuing debt and make money at the top of the pyramid.

Now onto derivatives. The notional amount outstanding is a scarily high number that is not even worth considering. If you speak to a bank about their derivative book, they will always talk to you about their 'net' position, not the notional value. This is because the vast, vast majority of derivatives held by the banks are held both ways: if i have sold protection against default of a certain company, i have also bought protection from the default of that company.

This illustrates the true risk of derivatives, and also why things began to unravel so quickly once Lehmann Brothers failed. If you have all these back-to-back transactions, it relies on ALL counterparties in the chain remaining solvent. The failure of ONE counterparty that is large enough sets off a chain reaction throughout the derivatives market in two ways. The first is that all contracts that protect against the failure of that counterparty get paid out, and someone loses as not every trade is fully hedged. the second, and far worse, reaction is that all the derivatives which had that counterparty in the chain are no longer offset. If i had sold protection to a company, and i had bought protection from Lehman, I am now fully exposed to the risk of the protection I sold.

In that environment, with a tangled web, the market basically locks up as nobody is willing to sell anymore instruments while company scramble to close their positions. It creates a domino effect that cascades through the markets and has the potential to take out every single player in that market.

So you guys see now why 'too big to fail' matters: if the wrong company is allowed to fail, everything could go before anything could be done about it. Lehmann came very close to doing it. The exposures are larger now, and the web even more tangled.