The $531 Trillion Dollar Derivatives Time Bomb

reply to post by Maxmars


What you and smirkley are failing to understand is that unlike gambling these hedgefunds are being bailed out by the FED and the US Treasury when their bets fall short and they lose. It's worse than gambling. If you lose at a game of poker the house collects you don't get your money back and if you did borrow the money to play in the first place YOU have to pay that person back. Same thing with derivatives and hedge funds. Smirkley is talking about insurance. Derivatives don't provide any insurance. It's the FED and the bailouts and the government that are providing this "insurance" when things go south. These hedge funds want to create a win win situation. There is no such thing in gambling and there is no such thing in the market. Derivatives are a complete and utter ponzi scheme. I mean where the hell do you think all these trillions of dollars that are unaccounted for have gone? Straight into the coffers of the three biggest derivative holders JP Morgan, Citibank, and Goldman Sachs.

reply to post by Zosynspiracy


I am inclined to agree with you.

I was trying to detach myself from the insult and injury the vehicles represent to someone not inclined to believe that one should get rich by unabashedly controlling global commerce for personal gain.

I was trying (sorry, apparently ineffectively) to evoke an understanding from someone regarding how such a scheme was justified and tolerated by people who surely must have known they were at least morally obliged (if not legally) to treat this as the economic threat it represents to those they swore to protect from enemies foreign and domestic.

[edit on 2-9-2009 by Maxmars]

A bad analogy I presume, but I will use it anyway....

...but I can kinda liken derivitives in the markets to real estate mortgage insurance.


1 - You dont have the cash, so you obtain a loan to fund your home purchase.

2 - The bank obviously see's you as a decent risk, as they did in fact approve the loan, but since you didnt have 20% to put down on the property value, they require a policy that helps them hedge their extention of credit toward you.


This mortgage insurance policy is in fact a derivitive of the loan and the property value and the loan amount. The risk of you being able to payoff the note is being subsidized extraneously, by another company or investment partner to the bank, that is in fact supporting insurance to the bank that they will be less likely to lose on their investment in you.


Since by far a large number of mortgages are obtained in this scenario (and I am not at all speaking of sub-prime notes), then this is a derivitive that does in essence provide insurance to help the banks more likely to approve notes, as well as more homes being turned over in the marketplace (liquidity).


Now, in this analogy, if you do include the sub-prime notes, then yes, you also now have significant increases in default rates and risk to the banks. They do in fact bundle and resell these risks after they have created and profited from them. They do get rebundled and resold and over and over again.

But somewhere in a faultering market, you find the bagholder. (AIG for ex.)

I do think there are problems in this area, and do not dispell that.

But that doesnt make ALL mortgage insurance policies (derivitives) bad or evil.






[edit on 2-9-2009 by smirkley]

Originally posted by Vinveezy

The $531 Trillion Dollar Derivatives Time Bomb

What are derivatives?

The Quintillion dollar question

What are derivitives?

And who holding the bag?

Originally posted by RetinoidReceptor
As someone mentioned, it is impossible for all of the derivatives to 'implode' at the same time. Not to mention derivatives equal many things such as OPTIONS, FUTURES, SWAPS, CDO'S, etc. Many of these derivatives are traded on organized exchanges with regulation and oversight (like with options and futures). Some are OTC (like the credit derivatives that got us into this mess). But the fact is, all the derivatives won't come crashing down all at once...it is actually mostly impossible.

You are right, but if I may add one caveat...

If a derivative loan were to be called in on any of the stocks, it would cause utter panic and chaos and may bring the exchange to an early close.... And we all know what kind of a ripple that would cause.

I say we need to centralise all loans of this nature throughna single regulatory body.

Korg.

Originally posted by RetinoidReceptor
As someone mentioned, it is impossible for all of the derivatives to 'implode' at the same time. Not to mention derivatives equal many things such as OPTIONS, FUTURES, SWAPS, CDO'S, etc. Many of these derivatives are traded on organized exchanges with regulation and oversight (like with options and futures). Some are OTC (like the credit derivatives that got us into this mess). But the fact is, all the derivatives won't come crashing down all at once...it is actually mostly impossible.

You are right, but if I may add one caveat...

If a derivative loan were to be called in on any of the stocks, it would cause utter panic and chaos and may bring the exchange to an early close.... And we all know what kind of a ripple that would cause.

I say we need to centralise all loans of this nature throughna single regulatory body.

Korg.