When The Derivatives Market Crashes (And It Will) U.S. Taxpayers Will Be On The Hook

[JimBowie1958]

This guy thinks so.

When The Derivatives Market Crashes (And It Will) U.S. Taxpayers Will Be On The Hook | Hawaii News Daily — World

Warren Buffett once said that derivatives are "financial weapons of mass destruction", and that statement is more true today than it ever has been before. Recently, JP Morgan made national headlines when it announced that it was going to take a 2 billion dollar loss from derivatives trades gone bad.

Well, it turns out that JP Morgan did not tell us the whole truth. As you will see later in this article, most analysts are estimating that the losses will eventually be far larger than 2 billion dollars.

But no matter how bad things get for JP Morgan, it will not be allowed to fail. JP Morgan is the largest bank in the United States, so it is essentially the "granddaddy" of the too big to fail banks. If JP Morgan gets to the point where it is about to collapse, the U.S. government and the Federal Reserve will rush in to save it. Because of this "security blanket", banks such as JP Morgan feel free to take outrageous risks.

Today, JP Morgan has more exposure to derivatives than anyone else in the world. If they win, they win big. If they lose, U.S. taxpayers will be on the hook. Not only that, but thanks to Dodd-Frank, U.S. taxpayers are on the hook for bailing out the major derivatives clearinghouses if there is ever a major derivatives crisis. So when the derivatives market crashes (and it will) you and I will be left holding a gigantic bill.

Derivatives almost caused the complete collapse of insurance giant AIG back in 2008. But instead of learning our lessons, the derivatives bubble has gotten even larger since that time.

A Bloomberg article that was published last year contained a great quote from Mark Mobius about derivatives....


Mark Mobius, executive chairman of Templeton Asset Management’s emerging markets group, said another financial crisis is inevitable because the causes of the previous one haven’t been resolved.

“There is definitely going to be another financial crisis around the corner because we haven’t solved any of the things that caused the previous crisis,” Mobius said at the Foreign Correspondents’ Club of Japan in Tokyo today in response to a question about price swings. “Are the derivatives regulated? No. Are you still getting growth in derivatives? Yes.”

Never in the history of the world have we ever seen anything like this derivatives bubble.

But instead of getting it under control, we just allowed it to get bigger and bigger and bigger.

I am afraid he is right as this is essentially what got all the European nations in trouble; the governments assuming responsibility for the debts of their big banks.

We could stop it through Congress, but I have tried to speak with someone on the matter several times with both Senators and my Rep to no response in all three cases.

 

[iamwhatiseem]

The derivative market crash will create a massive realignment of our entire economy. The taxpayers could not possibly bear the burden as it is too big. The top 3 banks in America have a combined exposure of $200 trillion. Not even the American gov't can cover that.
What will happen is going to be revolutionary. The people will cry out loudly. There will be a hatred and mistrust of the financial system like never before. And it will be what comes after that - that will be fatal. The government will step in and take over the industry, and the free market system will be dead.
I am far from a conspiracy theorist. In 2005 when I began to talk about a coming collapse I wasn't a theorist then either.

 

[iamwhatiseem]

Oh and BTW - one of the founding fathers of the derivative markets is Larry Summers. Who is Obama's top financial adviser on two different boards.

 

[iamwhatiseem]

And on that note....Fitch: U.S. Rating Could Suffer in 2013 Without Credible Plan | Fox Business

 

[JimBowie1958]

The derivative market crash will create a massive realignment of our entire economy. The taxpayers could not possibly bear the burden as it is too big. The top 3 banks in America have a combined exposure of $200 trillion. Not even the American gov't can cover that.
What will happen is going to be revolutionary. The people will cry out loudly. There will be a hatred and mistrust of the financial system like never before. And it will be what comes after that - that will be fatal. The government will step in and take over the industry, and the free market system will be dead.
I am far from a conspiracy theorist. In 2005 when I began to talk about a coming collapse I wasn't a theorist then either.

Dude, I wish to God you were wrong, but all the tried and true prognosticaters I have read over the last 17 years agree with you.

The proverbial and legendary fodder is about the fit the shan.

 

[Rshermr]

The derivative market crash will create a massive realignment of our entire economy. The taxpayers could not possibly bear the burden as it is too big. The top 3 banks in America have a combined exposure of $200 trillion. Not even the American gov't can cover that.
What will happen is going to be revolutionary. The people will cry out loudly. There will be a hatred and mistrust of the financial system like never before. And it will be what comes after that - that will be fatal. The government will step in and take over the industry, and the free market system will be dead.
I am far from a conspiracy theorist. In 2005 when I began to talk about a coming collapse I wasn't a theorist then either.

Yup. You have the problem nailed. Issue is, how do you fix it?

I am of my own opinion, based on all I have read or heard about the issue. I see the problem with doing anything about it as:
1. No uproar. The average citizen does not know, nor does he want to, what derivatives are or what the danger is.
2. Too much money is being made. The big financial institutions do not want to see this perceived cash cow taken away.
3. No way to protect buyers from their own stupidity.
4. The usual buying of politicians. The sellers of derivatives own way too many of our national politicians, who will therefor not set rules.

In my humble but correct opinion, we need to regulate derivative activities. The whole concept of commercial banks and insurance companies,in particular, who can most hurt their customers, dealing in these instruments is way to dangerous and the risk is way to great.

 

[Mr. Jones]

The derivative market crash will create a massive realignment of our entire economy. The taxpayers could not possibly bear the burden as it is too big. The top 3 banks in America have a combined exposure of $200 trillion. Not even the American gov't can cover that.
What will happen is going to be revolutionary. The people will cry out loudly. There will be a hatred and mistrust of the financial system like never before. And it will be what comes after that - that will be fatal. The government will step in and take over the industry, and the free market system will be dead.
I am far from a conspiracy theorist. In 2005 when I began to talk about a coming collapse I wasn't a theorist then either.

The small percentage of Americans who are aware and informed are puzzled why the banksters have escaped with their financial crimes without prosecution. The answer might be that the banks “too big to fail” are adjuncts of Washington and the Federal Reserve in maintaining the stability of the dollar and Treasury bond markets in the face of an untenable Fed policy.

How long can the manipulations continue? When will the proverbial hit the fan? There is a limit to how many stupid mistakes and corrupt financial policies the rest of the world is willing to accept from the US. When that limit is reached, it is all over for “the world’s sole superpower” and for holders of dollar-denominated instruments.

Financial deregulation converted the financial system, which formerly served businesses and consumers, into a gambling casino where bets are not covered. These uncovered bets, together with the Fed’s zero interest rate policy, have exposed Americans’ living standard and wealth to large declines. Retired people living on their savings and investments, IRAs and 401(k)s can earn nothing on their money and are forced to consume their capital, thereby depriving heirs of inheritance. Accumulated wealth is consumed.

As a result of jobs offshoring, the US has become an import-dependent country, dependent on foreign made manufactured goods, clothing, and shoes. When the dollar exchange rate falls, domestic US prices will rise, and US real consumption will take a big hit. Americans will consume less, and their standard of living will fall dramatically.

The serious consequences of the enormous mistakes made in Washington, on Wall Street, and in corporate offices are being held at bay by an untenable policy of low interest rates and a corrupt financial press, while debt rapidly builds.

Eventually, inflation would erode the dollar’s purchasing power and use as the reserve currency, and the US government’s credit worthiness would waste away. However, the Fed, the politicians, and the financial gangsters would prefer a crisis later rather than sooner. Passing the sinking ship on to the next watch is preferable to going down with the ship oneself.

Everyone wants a solution, so I will provide one. The US government should simply cancel the $230 trillion in derivative bets, declaring them null and void. As no real assets are involved, merely gambling on notional values, the only major effect of closing out or netting all the swaps (mostly over-the-counter contracts between counter-parties) would be to take $230 trillion of leveraged risk out of the financial system. The financial gangsters who want to continue enjoying betting gains while the public underwrites their losses would scream and yell about the sanctity of contracts. However, a government that can murder its own citizens or throw them into dungeons without due process can abolish all the contracts it wants in the name of national security.

Taken from this interesting point of view-

Paul Craig Roberts: Collapse At Hand | Wake Up From Your Slumber