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Forum topic by TopamaxSurvivor posted 1015 days ago 1545 views 0 times favorited 16 replies Add to Favorites Watch
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TopamaxSurvivor

14617 posts in 2279 days


1015 days ago

Topic tags/keywords: derivatives high stakes gambling fdic capitalism

Bank of American and JP Morgan Chase are reported to hold more than $140 Trillion in derivatives. The annual total economic activity of the world is only $60 Trillion; the US is $15 Trillion. The banksters are moving this gambling operation into their commercial divisions to take advantage of FDIC insurance; ie, you and I just got screwed again! ;-(( This will dwarf what AIG’s failure did to the US debt load.

http://www.nakedcapitalism.com/2011/10/bank-of-america-deathwatch-moves-risky-derivatives-from-holding-company-to-taxpayer-backstopped-depositors.html

-- "some old things are lovely, warm still with life ... of the forgotten men who made them." - D.H. Lawrence


16 replies so far

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TopamaxSurvivor

14617 posts in 2279 days


#1 posted 1015 days ago

A Primer: Understanding Derivatives

Heidi is the proprietor of a bar in Detroit …
She realizes that virtually all of her customers are unemployed alcoholics and, as such, can no longer afford to patronize her bar.

To solve this problem, she comes up with a new marketing plan that allows her customers to drink now, but pay later.

Heidi keeps track of the drinks consumed on a ledger (thereby granting the customers loans).
Word gets around about Heidi’s “drink now, pay later” marketing strategy and, as a result,
increasing numbers of customers flood into Heidi’s bar. Soon she has the largest sales volume for any bar in Detroit .

By providing her customers freedom from immediate payment demands, Heidi gets no resistance when, at regular intervals,
she substantially increases her prices for wine and beer, the most consumed beverages.
Consequently, Heidi’s gross sales volume increases massively.

A young and dynamic vice-president at the local bank recognizes that these customer debts constitute valuable
future assets and increases Heidi’s borrowing limit.
He sees no reason for any undue concern because he has the debts of the unemployed alcoholics as collateral!
At the bank’s corporate headquarters, expert traders figure a way to make huge commissions,
and transform these customer loans into DRINKBONDS.

These “securities” then are bundled and traded on international securities markets.
Naive investors don’t really understand that the securities being sold to them as “AAA Secured Bonds”
really are debts of unemployed alcoholics. Nevertheless, the bond prices continuously climb -
and the securities soon become the hottest-selling items for some of the nation’s leading brokerage houses.
One day, even though the bond prices still are climbing, a risk manager at the original local bank decides that
the time has come to demand payment on the debts incurred by the drinkers at Heidi’s bar. He so informs Heidi.

Heidi then demands payment from her alcoholic patrons. But, being unemployed alcoholics—
they cannot pay back their drinking debts.
Since Heidi cannot fulfill her loan obligations she is forced into bankruptcy.
The bar closes and Heidi’s 11 employees lose their jobs. Overnight, DRINKBOND prices drop by 90%.
The collapsed bond asset value destroys the bank’s liquidity and prevents it from issuing new loans,
thus freezing credit and economic activity in the community.

The suppliers of Heidi’s bar had granted her generous payment extensions and had invested their firms’ pension funds in the BOND securities.
They find they are now faced with having to write off her bad debt and with losing over 90% of the presumed value of the bonds.
Her wine supplier also claims bankruptcy, closing the doors on a family business that had endured for three generations,
her beer supplier is taken over by a competitor, who immediately closes the local plant and lays off 150 workers.

Fortunately though, the bank, the brokerage houses and their respective executives are saved and
bailed out by a multibillion dollar no-strings attached cash infusion from the government.
The funds required for this bailout are obtained by new taxes levied on employed,
middle-class, nondrinkers who have never been in Heidi’s bar.

Now do you understand?

-- "some old things are lovely, warm still with life ... of the forgotten men who made them." - D.H. Lawrence

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rsladdwoodworks

311 posts in 1773 days


#2 posted 1015 days ago

we loss aget now you have to bared with your out so they stick it when you gone

-- Robert Laddusaw and no I am not smarter then a fifth grader ( and no I canot spell so if it is a problem don't read it ))

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lilredweldingrod

2495 posts in 1710 days


#3 posted 1015 days ago

One word…...GREED.

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David Grimes

2072 posts in 1243 days


#4 posted 1015 days ago

We lost our agets ? Damn ! ;=)

-- If you're going to stir the pot, think BIG spoon or SMALL boat paddle. David Grimes, Georgia

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jeepturner

920 posts in 1396 days


#5 posted 1014 days ago

You lost me right after I started thinking about free beer.

JK, nice analogy,

-- Mel,

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ShaneA

5258 posts in 1202 days


#6 posted 1014 days ago

Apparently one of Heidi’s customers?

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Dez

1113 posts in 2681 days


#7 posted 1014 days ago

I’ve always said they should change their name to Bank of Mexico!! Now I do not know what they should change it to except incompetent and self serving!!!!!
I think it is time to go back to local small town banks!

-- Folly ever comes cloaked in opportunity!

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TopamaxSurvivor

14617 posts in 2279 days


#8 posted 1014 days ago

WE do not have a capitalist economy, it is an oligarchy or plutocracy when we have 4 monopolies controlling the majority of the banking assets.

-- "some old things are lovely, warm still with life ... of the forgotten men who made them." - D.H. Lawrence

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Woodfix

323 posts in 1903 days


#9 posted 1014 days ago

Us Australians are in only marginally better shape. An Australian company convinced the Government to pay it a $16 million grant to keep manufacturing in Australian. Within a year, the company had paid most of that to its board as bonuses and shut down all Australian manufacturing. Either our government officials are stupid or corrupt. I will let you guess which.

In the end, what can you do about it. NOTHING.

-- Living is a constant gamble, life is about working the odds in your favour

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YanktonSD

189 posts in 1135 days


#10 posted 1014 days ago

140 trillion????? Maybe we should look at your facts or your source———when everything on the planet is worth 55 trillion dollars. C’mon Topa!

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YanktonSD

189 posts in 1135 days


#11 posted 1014 days ago

I agree with the premise. We do not have capitalism, if we did we would have let the market decide and let the banks fend for themselves. We would also not hava dad laws on the books requireing them to make loans to people who probably could not pay them back. If we would have let the banks fail theire would be a boom for smaller banks or maybe a economic collapse like that of 1871…1888…1892 well you get the idea. But many believe that these economic collapses are the proper redistribution of wealth instead of taxing people out of exsistance.

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bluekingfisher

992 posts in 1583 days


#12 posted 1014 days ago

I don’t know what we are worried about…..I’m sure they have our interests at heart.

Besides, I have been reading your beloved first lady is doing her best to spend her way out of economic depression. Money and power do not bode well with people of little intelect.

-- No one plans to fail, they just, just fail to plan

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TopamaxSurvivor

14617 posts in 2279 days


#13 posted 1014 days ago

YanktonSD Those are only 2 of the institutions holding them. No one knows what the total liability of the derivatives market is. It is many times the net worth of the entire world and far beyond the GWP for decades!! ;-(( That has been the concern of responsible financial people ever since they were invented. Greenspan maintained responsible people ran the institutions and markets so regulation and oversight were not necessary. We all know better than that, don’t we?

France now has a law against investing in American garbage put together by Wall Street. The criminals at Goldman Sachs apparently screwed them too badly betting against the AAA rated securities they sold them ;-)

-- "some old things are lovely, warm still with life ... of the forgotten men who made them." - D.H. Lawrence

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BOB67CAM

269 posts in 1675 days


#14 posted 1014 days ago

my understanding of the debaclle is fairly similar, however, which a couple big exceptions #1 being they(banks) had been regulated to only being able to borrow 60% (as i recall) over what they actually had, then the “dodd-frank bill” came into play where that regulation was let to expire, to give homes to people that plainly didnt make enough to cover their loans, especially on any of the squirrelly stuff like ARMS or balloon type morgtages especially. An example would be : u want to buy a ferrarri for $190,000, who doesnt?..lol the bank approves you based on your income of $40,000 or $3333/month figuring you can pay it back in 5 years because the 1st year will be interest free so $38,000 for that year is feasable, with the mere payment of $3167/month who really needs to eat anyways?..lol so yay!, its affordable!
then the next year the apr goes to 2% for a barely upped year to pay $4560/month, which starts the spiral obviously, if you had a couple hundred extra lbs you wanted to drop anyways..lol
the next year the rate goes to 5% while youve lost all the food stocks youve had, your already in collections and low and behold your employer cuts back your hours…....
i personally can only blame the govt for starting it, and since that wasnt good enuff, the govt for bailing out those idiots, but not only did they bail out the banks, but the people who walked in and got a loan which in all actuallity they didnt look at because it was confusing or whatever, but bottom line is a family of 4 were gonna try and live off of 250/month income after the loan was paid…..
we bought our house just after the houseing market started to climb and i recall plain as day the loan they were willing to give us was way more then we could have afforded to pay, unless of course we didnt need to eat or need gas to get to work, long story short is we said no to jumping in a hole
who i actually feel sorry for is maaybe 10-20% of them where they needed a house, they figured out what they could do and were maybe even a bit scraping by but then they pulled up to the gas pump and found 4 dollar/gallon gas… i dont feel for the idiot bankers, nor the foolish people getting themselves into a bad situation… i think the mere idea of the bailouts SHOULD have been laughed at and those needing it because of their own doing should have been let to fail…
me and my wife both lost our jobs almost 3 years ago now, we still havent gotten any bailout that we havent created for ourselves while a buddy of mine refinanced during the boom and got $260,000 for a house worth about 125-150, which i may add was based on a finished basement that he was planning to do, a huge garage, that he was planning to build, and a landscaped yard he was planning to create….. he lost his house a year later, with basicly no grass, no garage, and a partially finished basement, he got nailed in the gas crunch as his job was 90 miles round trip, that being said i dont at all feel sorry for him losing the place as he was just barely making it when he refied, he knew better but thought he could pull iot off, and it was close i was impressed for quit awhile
blaming the bankers to me is like blaming a hoodlum for selling you overpriced stuff, if you havent done your research and watched your back, expect he will screw ya, hes in it for him, your the only person in it for yourself, that being said we shouldnt have to pay for a house for that hoodlum either!

-- if you dont have it, build it, especially when its a stupid idea

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NathanAllen

376 posts in 1748 days


#15 posted 1014 days ago

Maybe over-simplifying, but the derivatives value held by the large banking institutions is the amount they are guranteeing during the moving process not the amount of risk they are exposed to during the Credit Default Swaps, Future and Forward Orders, Credit Derivatives and Options at Purchase.

Their exposure to risk is only if the parties that are involved are playing a crooked game.

It’s the equivelent of playing three card monte with a billion shells and only one doesn’t have a bean under it. If the banks hit the one without a bean the entire world economy collapses in a heartbeat, but really what are the odds of that happening?

As for the idiots who bought overpriced homes; yeah that was an issue, but the problem in our economy is only loosly related to people not paying back the banks; it’s the banks not paying back other banks when the sure thing bet they packaged and sold pieces of those home loans as part of a securitized debt structure.

Again; someone taking a $200,000 loan on a house and not paying it has a negative impact of something like $1,000,000 in net impact because the value of the promise of the loan gets assigned a value that is traded.

Event More Simple: Wimpy borrows a hamburger today and agrees to pay you on Tuesday. You make a bet with Olive Oil that he will pay you on Tuesday, You make another bet with Popeye and Bluto that he won’t pay you on Tuesday. Oilive Oil, not to be outdone makes another bet with Popeye that even if Wimpy doesn’t pay you that you’ll pay her and Bluto gets in on the action by betting with Popeye that Olive Oil’s bet with him will be paid even if Wimpy pays you but you don’t pay Olive Oil, etc. etc.

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