$1 Quadrillion of Unregulated Debt At Core of Coming Derivatives Crisis
By John Tiffany
Despite all the blather and swearing-on-the-Bible
pronunciamentos from establishment “pundits,” our house-of-cards financial
system is not fundamentally sound.
Expect such indices as the Dow to tumble even much lower when the Pandora’s box
of derivatives is fully opened.
Believe it or not, the Dow is still not far from its all-time peaks, with a lot
further to fall. The depression is still in its early stages. We are looking at
$1 quadrillion of unregulated debt, with much of it at risk. (And we used to
think $1 trillion was a lot.)
These are literally inconceivable sums. Counting one dollar per second, it would
take 32 million years to count to one quadrillion.
The stock market in this era of the privately owned Federal Reserve Bank is a
giant craps shoot. Much of it is quite unregulated, especially the invisible
market of derivatives. The sub-prime mortgage market collapsed, which is now
being followed by a giant credit crisis. Now we are looking at the possible
collapse of the derivative market.
President Bush failed at every business he has been associated with. He has
always had his dad to bail him out to avoid bankruptcy. But this time his dad
and even Henry Paulson can’t keep Bush from facing the failure of his economic
policies at the helm of the U.S. economy.
America’s oversized debt pyramid has just begun to wind down. The Federal
Reserve has announced that it is giving an $85 billion loan to American
International Group (AIG), the world’s largest financial conglomerate, in
exchange for a nearly 80 percent stake in the firm.
The Associated Press calls it a “government takeover,” but as Ellen
Brown, J.D., author of The Web of Debt, says, this is not a real
nationalization like the purchase of Fannie Mae/Freddie Mac stock by the U.S.
Treasury. “The Federal Reserve,” she points out, “has the power to print the
national money supply, but it is not actually a part of the U.S. government.
It is a private banking corporation, owned by a consortium of private banks. The
private banking industry just bought the world’s largest insurance company.” But
they used taxpayer money to do it.
Proposals for reforming the banking system are not even on the radar screen of
establishment politics, but the current system is collapsing at train-wreck
speed. Says Brown: “We need to stop funding the culprits who brought us this
debacle at our expense. We need a public banking system that makes a
cost-effective credit mechanism available for homeowners, manufacturing,
renewable energy, and infrastructure; and the first step to making it cost
effective is to strip out the swarms of gamblers, fraudsters and profiteers now
gaming the system.”
John Tiffany is the copy editor for American Free Press. He is also the
assistant editor of THE BARNES REVIEW (TBR) historical magazine. For a sample
copy of TBR (editor’s choice) send $3 to TBR, P.O. Box 15877,Washington, D.C.
20003.
Just What Are Derivatives?
Derivatives are financial instruments whose value
changes in response to the changes in underlying variables. The main types of
derivatives are futures, forwards, options and swaps.
The main use of derivatives is to reduce risk for one party. The diverse range
of potential underlying assets and pay-off alternatives leads to a wide range of
derivatives contracts available to be traded in the market. Derivatives can be
based on different types of assets such as commodities, equities (stocks),
bonds, interest rates, exchange rates or indexes (such as a stock market index,
consumer price index (CPI)—inflation derivatives—or even an index of weather
conditions, or other derivatives). Their performance can determine both the
amount and the timing of the pay-offs.
Stock index futures and options are known as derivative products because they
derive their existence from actual market indices, but have no intrinsic
characteristics of their own. In addition to that, one of the reasons some
believe they lead to greater market volatility is that huge amounts of
securities can be controlled by relatively small amounts of margin or option
premiums. One reason derivatives are popular is because they can be transacted
off balance sheets.
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(Issue # 40, October 6, 2008)
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