Step 1: Freeze the 1.5 Quadrillion Derivatives Bubble...

So much discussion revolves around "Will it/Won't it totally collapse?" it could seem like the 'prophets of doom' would gain some satisfaction from total meltdown. This misses the point entirely: unless the real possibility of total collapse is acknowledged the chances of avoiding it are close to zero.

This article explains the impending tsunami and suggests action —

Freeze the 1.5 Quadrillion Derivatives Bubble as a first step towards World Economic Recovery

(The following excerpts give the gist)

...We must first identify the immediate cause which has detonated the present unprecedented turbulence. That cause is unquestionably the $1.5 quadrillion derivatives bubble. Derivatives have provoked the downfall of Bear Stearns, Countrywide, Northern Rock, Lehman Brothers, AIG, Merrill Lynch, and Wachovia, and most other institutions which have succumbed. Derivatives have made J.P. Morgan Chase, Bank of America, Citibank, Wells Fargo, Bank of New York Mellon, Deutsche Bank, Société Générale, Barclays, RBS, and money center banks of the world into Zombie Banks.

Derivatives are financial instruments based on other financial instruments – paper based on paper. Derivatives are one giant step away from the world of production and consumption, plant and equipment, wages and employment in the production of tangible physical wealth or hard commodities. In the present hysteria of the globalized financial oligarchy, the very term of “derivative” has become taboo: commentators prefer to speak of toxic assets, complex securities, exotic instruments, and counterparty arrangements. At the time of the Bear Stearns bankruptcy, Bernanke warned against "chaotic unwinding." All of these code words are signals that derivatives are being talked about.

Derivatives include such exchange traded speculative instruments as options and futures; beyond these are the over-the-counter derivatives, structured notes, and designer derivatives. Derivatives include the credit default swaps so prominent in the fall of AIG, collateralized debt obligations, structured investment vehicles, asset-backed securities, mortgage backed securities, auction rate securities, and a myriad of other toxic variations. These derivatives, in turn, are pyramided one on top of the other, thus creating a house of cards reaching into interplanetary space.

As long as this huge mass of kited derivatives was experiencing positive cash flow and positive leverage, the profits generated at the apex of the pyramid were astronomical. But disturbances at the base of the pyramid turned the cash flow and exponential leverage negative, and the losses at the top of the pyramid became immense and uncontrollable. By 2005-6, the disturbances were visible in the form of a looming crisis of the automobile sector, plus the slowing of the housing bubble cynically and deliberately created by the Federal Reserve in the wake of the collapse of the dot com bubble, the third world debt bubble. and the other asset bubbles favored by Greenspan.

Financiers are trying to blame the current depression on poor people who acquired properties with the help of subprime mortgages, and then defaulted, thus – it is alleged -- bringing down the entire world banking system! This is a fantastic and reactionary myth. The cause of the depression is derivatives, and this means that the perpetrators to be held responsible are not poor mortgage holders, but rather globalized investment bankers and hedge fund operators, the derivatives merchants. We are now in the throes of a world wide derivatives panic. This panic has been gathering momentum for at least a year, since the fall of Bear Stearns. There is no power on earth which can prevent this panic from destroying most of the current mass of toxic derivatives. It is however possible that the ongoing attempts to bail out, shore up, and otherwise preserve the deadly mass of derivatives will destroy human civilization as we have known it. We must choose between the continued existence of derivatives speculation on the one hand, and the survival of human society worldwide on the other...

...Derivatives must be banned going forward, but this by itself will not be sufficient. The ultimate goal must be to wipe out and neutralize the existing mass of $1.5 quadrillion in notional values of toxic derivative instruments. Some governments may be able simply to decree that derivatives be shredded, deleted, and otherwise liquidated, and they should do so at once. Virtually all governments should be able to use their emergency economic powers to freeze derivatives and set them aside for at least five years or for the duration of the crisis, whichever lasts longer. Legal issues can be settled over the coming decades in the courts. Humanity is in agony, and we must act against derivatives now. Going forward, we must ban the paper pyramids of derivatives in the same way that the Public Utility Holding Company Act of 1935 banned the pyramiding of holding companies...

...The $1.5 quadrillion derivatives bubble is comparable to the black holes of astrophysics, those artifacts of gravity collapse which will irresistibly suck in all matter that comes near them. This compares to a world GDP of a mere $55 trillion, itself a figure inflated by financial speculation. The derivatives are the black holes of financial engineering, and can easily consume all the physical wealth and all the money in the world, and still be bankrupt. Gordon Brown’s demand of $500 billion for the IMF is enough to bankrupt several nations, but pitifully inadequate to deal with the derivatives. They can only be dealt with by re-regulation — a quick freeze, leading to extinction and permanent illegality. We reject Brown’s IMF world derivatives dictatorship...

...Derivatives pose the question of fictitious capital -- financial instruments created outside of the realm of production, and which destroy production. In 1931-2, fictitious capital appeared as tens of billions of dollars of reparations imposed on Germany, plus the war debts owed by Britain and France to the United States. These debts strangled world production and world trade. Bankers and statesmen tried desperately to maintain these debt structures. But US President Herbert Hoover proposed the Hoover Moratorium of 1931-1932, a temporary freeze on all these payments. The Lausanne Conference of June 1932 was the last chance to wipe out the debt permanently. But the Lausanne Conference failed to act decisively, and passed the buck. By the end of 1932, there was near-universal default on reparations and war debts anyway. And by January 1933, Hitler had seized power...

...It is time to lift the crushing weight of derivatives from the backs of humanity before the world economy and the major nations collapse into irreversible chaos and war...

[edit on 19/4/10 by pause4thought]

This is an really relevant post that everyone needs to see. Yeah the concept of negative capital or debt structuring on a deeper level deals with human lives being taken to wipe out the bubble. Its all pretty sick an criminal how they create this illegal crap and call it legal just cause they're a huge bank. They have taken all your assets as well as there own and tossed them down and endless rabbit hole

this was written in march of 2009, by an unknown, and un-named author, who makes statements with no proof or reference.
also on the bottom it says that this is the opinion of the author.

this has as much validity as a CGI produced UFO

reply to post by jimmyx


I never bothered replying to your 'nothing-to-see-here-please-move-along' post as too many people know full well the derivatives bubble issue is VERY real, and if all you can do is come up with an ad hom attack on the author coupled with a UFO straw man I'm happy to let intelligent members draw their own conclusions.



Now for those who are prepared to base their opinions on the real-world facts:

How about we go the second mile and only use publicly-available MSM sources? Who knows — some people might have their minds opened (though some might just regurgitate an agenda) —

World Gross Domestic Product is of the order of $70 trillion (2009 estimate) according to the CIA library 'Economy' statistics, which is also fairly apparent from this graph created from World Bank data: World GDP Graph.

So, bearing this figure in mind, what kind of figures do the MSM put on the derivatives market? —

Check out this news report, issued today. (The 2 and a half minute video is all you need to see.)

CNN's Figure on the Derivatives Market

So there you have it. Anyone can appreciate that any market that is 8.5x the size of global GDP by conservative estimate is, shall we say, playing with fire.


Whether the new measures outlined in the above-said article might bring some semblance of sanity to this market is far from certain. The initial signs are far from encouraging:

...the bill virtually ignores the increasingly insolvent government-owned mortgage giants Fannie Mae and Freddie Mac, beyond studying their problems...

...In fact, House Minority Leader John Boehner, R-Ohio, called for the repeal of the reform bill hours before the Senate even passed it.

Yet Republican Maine Sens. Olympia Snowe and Susan Collins, as well as Massachusetts Sen. Scott Brown voted for the bill, joining 57 Democrats to limit debate and move forward...

...After it's passed, the bill is expected to be signed into law as early as Friday. Then regulators take over.

...The bill leaves many tough decisions in the hands of federal regulators, ranging from the size of bank capital cushions to how much collateral firms must post to make a derivative trade...

(Source as above)

I therefore repeat the main premise of the OP:

...It is time to lift the crushing weight of derivatives from the backs of humanity before the world economy and the major nations collapse into irreversible chaos and war...

I missed this the first time around. but thanks for bumping it. This is a good article, whether you agree with everything in it or not.

It is the 8,000lb elephant in the room.