Yes, I am talking about the crash and the ensuing recession, the unemployment, foreclosures and the tune continues…….you may know that your 401k is not worth the paper it is printed on…..but do you know just how the crash happened?
I am guessing that most Americans either do not know or maybe they just do not give a crap……but if you are truly interested in educating yourself on how you were screwed….then by all means read on…….if not then maybe a good episode of “Jersey Shore” that teaches a lot about life is on MTV….if you do not care enough to learn what happen then keep thy mouth shut when it blows up again….and make NO mistake ….IT WILL!
A very good explanation has been written by Zeus Yiamouyiannis……..
Here is how the counterfeit value derivative con works. It’s a game of “I pretend, you pretend, we all pretend, and the taxpayer will pay in the end”.
1) I’ll create an instrument, say a credit default swap (CDS), an unregulated insurance with no capital requirements, with a certain “notional” value. Notional value is just something I assign. It does not have to be attached to or backed by any real asset or actual money/principal, but I can pretend as if it is. (Notional amount.)
2) As a seller, I will just declare that this swap covers the full value X of this company, contract, etc. if credit event Y happens. I receive lucrative insurance premiums and fees for my unbacked promise. The CDS’s value is based in nothing more than my promise to pay. I don’t have to have adequate capital reserves on hand, but I can pretend as if I do perhaps with some mini-reserves based on objective-seeming risk ratios calculated by my mathematical models. (credit default swap.)
3) As a buyer, you can then buy as many of these CDS’s as you want, even for a single default. If you are really sure something is going to tank you can insure it 30 times over (or a 100 or 1,000) and get 30 (or 100 or 1,000) times the return when it goes bust! In regulated insurance it is unacceptable to insure beyond the full replacement value of the underlying asset. Not so with CDS’s. The seller has gotten 30x the premiums and the buyer gets 30x value in the event of default. As a buyer of this phony “insurance” you don’t have a stake in the affected properties, but you can essentially pretend you do.
4) As buyer and seller of CDS’s either one of us can assign our risks to a third party through another contract, and pretend as if we are covered in case our own game playing blows up in our faces. This allows us to retain even less reserve capital and spend freed-up funds on more high-risk, high-(pseudo) return speculation. (The monster that ate Wall Street.)
5) We can purchase and sell of these derivative contracts to each other at unlimited rates to generate massive volume and huge fees and profits. We can simply hyper-cycle risk and take our chunk each time.
According to the Bank of International Settlements, as of June 2011 total over-the-counter derivatives contracts have an outstanding notional value of 707.57 trillion dollars, ( 32.4 trillion dollars in CDS’s alone). Where does this kind of money come from, and what does it refer to? We don’t really know, because over-the-counter derivatives are not transparent or regulated.
The answer to your questions are not as difficult to understand as the msm and the economists want you to believe……..once you learn the facts then you can keep your bank and brokers in check….that is if you really give a crap……and Dodd-Frank is a blowjob….it does little to keep the financial sector from gaming the system again and causing another meltdown….personally, I want to see someone go to prison because of what has been done to the economy and beyond that I want to make sure these con men cannot either game the system again so that we, the taxpayer, give them an out…..let them ROT in their own deceitfulness!