Derivatives and the Coming Bust

Derivatives and the Coming Bust
by
David Schlecht

There is a serious and gravely overlooked disaster staring us in the face, one that is part of the current financial crisis but has the potential to completely destroy America’s and the world’s economy, for good. This disaster is the Derivatives Market.

The Republican Congress of the 90s (with the help of Clinton) destroyed the safeguards that prevent our banks from becoming casinos and betting on anything and everything. Today, many of our financial institutions own lots and lots of derivatives that they will soon find to be worthless.

What are derivatives? In simple terms, they’re bets, multi-billion-dollar-bets. Remember how the banks bundled up the risky mortgages, into securities, thereby masking the true risk of the investment. Derivatives as when investors bet that a particular stock or security or commodity would go up or go down. These derivatives were “derived” from the value of the original investment. Then, the next “master of the universe” would bundle these derivatives again, adding more bets. As you can see, $100 worth of investment can be resold endless times by bundling and by creating derivatives.

If this sounds like a Ponzi scheme to you, you’re right on the money. It’s a scam, but it’s bundled so the investors don’t really know what they’re getting.

You may be wondering how pervasive the derivatives market really is. If you guess it must be pretty darned big in order to be bigger than our existing crisis. then you’d be right. The total investment in all the derivatives is more than 100 times greater than all the Gross Domestic Product on the entire planet. When they go down in flames, there won’t be enough money in the world to bail them out.

Until we see how other countries deal with this, it’s impossible to say just how bad things will get. Common sense, however, indicates that this could be the event that causes the entire world to re-invent our financial systems. It could be that the only way we can survive this coming crash is to let all the investors that bought the bad derivatives jump out of their windows and start up the investment systems from scratch.

This could be a good change in the long run but it is not a good time to be getting this news and it will be many years of bad times, fighting with the Always-Been-Wrong Republican Party’s obstruction getting this fixed.

More of the Same

More of the Same
by
David Schlecht

The Republicans in Congress marched in Nazi-like lock-step against any form of reform to get us out of the mess that their past 30 years of failed policies have caused.All they can do is keep chanting the same slogans that we Americans mistakenly fell for in the past, hoping that we’ll all be too stupid to realize it. You should be asking yourself why a political party would elect to continue failed policies that have us in the brink of the next Great Depression, in lock step, rather than considering trying something new.

There’s not a single Republican representative that doesn’t know that continued “feed the rich” policies will decimate the American economy and destroy the vast middle class. Since they know it will make the rich richer while destroying American middle class, they obviously want to destroy the middle class. This couldn’t be any plainer than what we see today.Yes, we’re on the brink of total melt down and they want more. They’re not worried about what it will do to our society. In fact, they hope it destroys the America we have grown to know and love in favor of a new America run by the Oil Industries, and the poisonous Peanut butter companies.

On top of that, they know that if we get through a jobs package that saves our economy they will be revealed for what they really are, bankrupt. However if they can obstruct any sort of economic relief by poisoning the bills with their failed tax cuts for the oil companies, then when they fail, the Republicans can say, see, Jobs Programs don’t work, and lets go back to destroying the middle class.

Again, we have to ask, what kind of political party would do such a thing? Only the Republican Party!