"When financial markets in the United States crash, so does the U.S. economy.
Just remember what happened back in 2008. The financial markets crashed, the
credit markets froze up, and suddenly the economy went into cardiac arrest.
Well, there are very few things that could cause the financial markets to crash
harder or farther than a derivatives panic. Sadly, most Americans don't even
understand what derivatives are. Unlike stocks and bonds, a derivative is not
an investment in anything real. Rather, a derivative is a legal bet on the
future value or performance of something else. Just like you can go to Las
Vegas and bet on who will win the football games this weekend, bankers on Wall
Street make trillions of dollars of bets about how interest rates will perform
in the future and about what credit instruments are likely to default. Wall
Street has been transformed into a gigantic casino where people are betting on
just about anything that you can imagine. This works fine as long as there are
not any wild swings in the economy and risk is managed with strict discipline,
but as we have seen, there have been times when derivatives have caused massive
problems in recent years. For example, do you know why the largest insurance
company in the world, AIG, crashed back in 2008 and required a government
bailout? It was because of derivatives. Bad derivatives trades also caused the
failure of MF Global, and the 6 billion dollar loss that JPMorgan Chase recently suffered
because of derivatives made headlines all over the globe. But all of those
incidents were just warm up acts for the coming derivatives panic that will
destroy global financial markets. The largest casino in the history of the
world is going to go "bust" and the economic fallout from the financial crash
that will happen as a result will be absolutely horrific..."
at http://theeconomiccollapseblog.com/archives/the-coming-derivatives-panic-that-will-destroy-global-financial-markets
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