Bandaids On A Gaping Wound
"Derivative contracts total about three-quarters of a quadrillion dollars in "notional" amounts, according to the Bank for International Settlements. These contracts are tallied in notional values because no one really can say how much they are worth.
But valuing them correctly is exactly what we should be doing because these comprise the viral disease that has infected the financial markets and the economies of the world.
Try as we might to salvage the residential real estate market, it's at best worth $23 trillion in the U.S. We're struggling to save the stock market, but that's valued at less than $15 trillion. And we hope to keep the entire U.S. economy from collapsing, yet gross domestic product stands at $14.2 trillion.
Compare any of these to the derivatives market and you can easily see that we are just closing the windows as a tsunami crashes to shore."
posted by nolocontendere at 12:14 AM
5 Comments:
Trying to wrap my head around the concept of derivatives makes my head hurt. I'm surely no economic guru, but I can't figure out what real value they have or what useful purpose they serve, other than as a totally artificial device to make someone money. They're not much different than a ponzi scheme, in my admittedly uninformed opinion.
As I understand it, derivatives are basically insurance contracts for investments. The biggest issuers of these contracts worldwide were U.S. firms like AIG. That is why AIG is on the hook for Trillion$ in losses, worldwide. And because they are such a politically well-connected firm, the Federal Reserve is printing out of thin air and giving them a 100 billion bucks or so every week it seems like. Basically, the whole world is in economic collapse, and the issuers of these deriviative contracts are legally obligated to reimburse all those trillions of dollars worth of investors worldwide for their losses. And because America is a thoroughly corrupt corporate state, the American taxpayer will then be expected to bail out the derivatives issuers.
So the only question now is, which dead president's portrait makes better toilet paper?
Thanks MTH, that helps. But I have a followup. If AIG covered the banks' losses on bad investments, and we paid AIG so they could pay off on those insured losses, why did we also give the banks billions? Aren't they being paid twice (and aren't we paying twice)?
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Abi:
I don't think AIG could be paid enough to cover all the losses they are facing. I just heard the other day that, at this moment, they have $1.6 trillion in losses they can't cover. And as more and more of these derivative contracts blow up in the coming months, that figure will skyrocket.
One interesting thing about AIG is that they have long been known to serve as "cover" for CIA activities (especially in Asia). AIG's agents overseas are often CIA operatives. Makes you wonder if they haven't quietly extorted all this money from the Feds by threatening to blow these CIA agents cover if the bailout billions stop flowing in.
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