Wednesday, April 25, 2012

Derivatives - The Unregulated Global Casino for Banks

LONG STORY: A derivative is a legal bet (contract) that derives its value from another asset, such as the future or current value of oil, government bonds or anything else. Ex- A derivative buys you the option (but not obligation) to buy oil in 6 months for today's price/any agreed price, hoping that oil will cost more in future. (I'll bet you it'll cost more in 6 months). Derivative can also be used as insurance, betting that a loan will or won't default before a given date. So its a big betting system, like a Casino, but instead of betting on cards and roulette, you bet on future values and performance of practically anything that holds value. The system is not regulated what-so-ever, and you can buy a derivative on an existing derivative.
Most large banks try to prevent smaller investors from gaining access to the derivative market on the basis of there being too much risk. Deriv. market has blown a galactic bubble, just like the real estate bubble or stock market bubble (that's going on right now). Since there is literally no economist in the world that knows exactly how the derivative money flows or how the system works, while derivatives are traded in microseconds by computers, we really don't know what will trigger the crash, or when it will happen, but considering the global financial crisis this system is in for tough times, that will be catastrophic for the world financial system since the 9 largest banks shown below hold a total of $228.72 trillion in Derivatives - Approximately 3 times the entire world economy. No government in world has money for this bailout. Lets take a look at what banks have the biggest Derivative Exposures and what scandals they've been lately involved in. Derivative Data Source: ZeroHedge.


One Hundred Dollars
$100 - Most counterfeited money denomination in the world.
Keeps the world moving.
Ten Thousand Dollars
$10,000 - Enough for a great vacation or to buy a used car.
Approximately one year of work for the average human on earth.
100 Million Dollars
$100,000,000 - Plenty to go around for
everyone. Fits nicely on an ISO / Military
standard sized pallet.

$1 Million is the cash square on the floor.
1 Billion Dollars
$1,000,000,000 - This is how a billion dollars looks like.
10 pallets of $100 bills.
1 Trillion Dollars
$1,000,000,000,000 - When they throw around the word "Trillion" like it is nothing, this is the reality of $1 trillion dollars. The square of pallets to the right is $10 billion dollars. 100x that and you have the tower of $1 trillion that is 465 feet tall (142 meters).
1 Million, 100 Million, 1 Billion, 1 Trillion
Derivatives - The Unregulated Global Casino for Banks

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