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Thread: Derivatives - AN OPEN LETTER

  1. #16
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    Quote Originally Posted by zengrifter View Post
    Yes it is, no you're not. zg
    Prime commercial paper backs the creation of new money, at least, according to my college economics professor. Formerly, there was a 20% gold or silver, and 80% prime commercial paper requirement. then I believe it was reduced to 10%/90%. Finally, the gold or silver backing was eliminated altogether.
    Last edited by aslan; March 12th, 2008 at 09:44 AM.
    Aslan 11/1/90 - 6/15/10 Stormy 1/22/95 -8/23/10
    “There are not one hundred people in the United States who hate The Catholic Church,
    but there are millions who hate what they wrongly perceive the Catholic Church to be.”
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    “It takes a very long time to become young.” Pablo Picasso

  2. #17

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    Quote Originally Posted by aslan View Post
    Prime commercial paper backs the creation of new money, at least, according to my college economics professor.
    I don't think so, not even back then. zg
    "The dogs bark but the caravan moves on."
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    The Zengrifter / James Grosjean Reputation Debate
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    “Truth, like gold, is obtained not by growth, but by washing away all that is not gold.” — Leo Tolstoy........
    "Is everything a conspiracy? No, just the important stuff." ZG

  3. #18

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    Quote Originally Posted by zengrifter View Post
    I don't think so, not even back then. zg


    EXPLODING THE MYTHS ABOUT MONEY
    Our money system is not what we have been led to believe. The creation of money has been "privatized," or taken over by a private money cartel. Except for coins, all of our money is now created as loans advanced by private banking institutions — including the private Federal Reserve. Banks create the principal but not the interest to service their loans. To find the interest, new loans must continually be taken out, expanding the money supply, inflating prices — and robbing you of the value of your money.
    Reviews
    Ellen Brown has applied her training as a litigating attorney, researcher and writer to the monetary field, unearthing facts that even the majority of banking and financial experts ignore: ranging from the privatization of money creation, to the Plunge Protection Team, to the Federal Reserve's "Helicopter Money." Read it; you'll get information you need in order to understand what is going on in our financial markets today.
    Bernard Lietaer, former European central banker who helped design the Euro,
    author of The Future of Money And Of Human Wealth

    MORE- http://www.webofdebt.com/
    "The dogs bark but the caravan moves on."
    .....................The Zengrifter Interview (PDF) |
    The Zengrifter / James Grosjean Reputation Debate
    -----------------------------------------
    “Truth, like gold, is obtained not by growth, but by washing away all that is not gold.” — Leo Tolstoy........
    "Is everything a conspiracy? No, just the important stuff." ZG

  4. #19
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    Quote Originally Posted by zengrifter View Post

    EXPLODING THE MYTHS ABOUT MONEY
    Our money system is not what we have been led to believe. The creation of money has been "privatized," or taken over by a private money cartel. Except for coins, all of our money is now created as loans advanced by private banking institutions — including the private Federal Reserve. Banks create the principal but not the interest to service their loans. To find the interest, new loans must continually be taken out, expanding the money supply, inflating prices — and robbing you of the value of your money.
    Reviews
    Ellen Brown has applied her training as a litigating attorney, researcher and writer to the monetary field, unearthing facts that even the majority of banking and financial experts ignore: ranging from the privatization of money creation, to the Plunge Protection Team, to the Federal Reserve's "Helicopter Money." Read it; you'll get information you need in order to understand what is going on in our financial markets today.
    Bernard Lietaer, former European central banker who helped design the Euro,
    author of The Future of Money And Of Human Wealth

    MORE- http://www.webofdebt.com/

    What do you think this is? Money is created via loans; ie, prime commercial paper; ie, loans to the banks' best customers.
    Last edited by aslan; March 12th, 2008 at 07:09 PM.
    Aslan 11/1/90 - 6/15/10 Stormy 1/22/95 -8/23/10
    “There are not one hundred people in the United States who hate The Catholic Church,
    but there are millions who hate what they wrongly perceive the Catholic Church to be.”
    Bishop Fulton J. Sheen

    “It takes a very long time to become young.” Pablo Picasso

  5. #20

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    Quote Originally Posted by aslan View Post

    What do you think this is? Money is created via loans; ie, prime commercial paper; ie, loans to the banks' best customers.
    If only it was that simple and honest. zg
    THE END OF A 300 YEAR PONZI SCHEME

    Ellen Brown, September 3rd, 2007


    Panic struck on Wall Street, as the Dow Jones Industrial Average plunged a thousand points between July and August, and commentators warned of a 1929-style crash. To prevent that dire result, the U.S. Federal Reserve, along with the central banks of Europe, Canada, Australia and Japan, extended a 315 billion dollar lifeline to troubled banks and investment firms. The hemorrhage stopped, the markets turned around, and investors breathed a sigh of relief. All was well again in Stepfordville. Or was it? And if it was, at what cost? Three hundred billion dollars is about a third of the total paid by U.S. taxpayers in personal income taxes annually. A mere $188 billion would have been enough to repair all of the 74,000 U.S. bridges known to be defective, preventing another disaster like that in Minneapolis in July. But the central banks' $300 billion was poured instead into the black hole of rescuing the very banks and hedge funds blamed for the "liquidity" crisis (the dried up well of investment money), encouraging loan sharks and speculators in their profligate ways.

    Where did the central banks find the $300 billion? Central banks are "lenders of last resort." According to the Federal Reserve Bank of Atlanta's Economic Review, "to function as a lender of last resort [a central bank] must have authority to create money, i.e., provide unlimited liquidity on demand."1 In short, central banks can create money out of thin air. Increasing the money supply ("demand") without increasing goods and services ("supply") is highly inflationary; but this money-creating power is said to be necessary to correct the periodic market failures to which the banking system is inherently prone.2 "Busts" have followed "booms" so regularly and predictably in the last 300 years that the phenomenon has been dubbed the "business cycle," as if it were an immutable trait of free markets like the weather. But in fact it is an immutable trait only of a banking system based on the sleight of hand known as "fractional-reserve" lending. The banks themselves routinely create money out of thin air, and they need a lender of last resort to bail them out whenever they get caught short in this sleight of hand.

    Running through this whole drama is a larger theme, one that nobody is talking about and that can't be cured by fiddling with interest rates or throwing liquidity at banks making too-risky loans. The reason the modern banking system is prone to periodic market failures is that it is a Ponzi scheme, one that is basically a fraud on the people. Like all Ponzi schemes, it can go on only so long before it reaches its mathematical limits; and there is good evidence that we are there now. If we are to avoid the greatest market crash in history, we must eliminate the underlying fraud; and to do that we need to understand what is really going on.

    MORE- http://www.webofdebt.com/articles/market-meltdown.php

    "The dogs bark but the caravan moves on."
    .....................The Zengrifter Interview (PDF) |
    The Zengrifter / James Grosjean Reputation Debate
    -----------------------------------------
    “Truth, like gold, is obtained not by growth, but by washing away all that is not gold.” — Leo Tolstoy........
    "Is everything a conspiracy? No, just the important stuff." ZG

  6. #21
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    Quote Originally Posted by zengrifter View Post
    If only it was that simple and honest. zg
    Well, I didn't mean to imply it was simple. But if you think about it, how do the banks that "create money" get that money into the economy. They surely don't drop it out of airplanes. They do what banks do, they loan it. That is how prime commercial paper becomes the backing of the dollar. This also inflates the money supply, which is the ticking time bomb all these articles allude to. When the money is repaid they don't retire it, they loan it out again. So the bubble gets bigger and bigger each time the Fed creates new money. The only real value the money has, aside from promises to repay it, is the full power and authority of the US government in guaranteeing it's acceptance as legal tender. No matter how worthless the dollar becomes, I can still pay my mortgage with it.

    Will the economy collapse like a house of cards? Is it just a Ponzi scheme that can have no good ending? I'm not an economist and I can't answer these questions. Some economists are raising the warning flags. Others are confident in the system (I hope they don't all work for the Bush administration). The thing is, the bankers who control the money supply don't need to wait for any natural disaster to occur, they can destroy out economy at will, just as they did in 1929. They can destroy it by not acting in a way that would save it. They can destroy it by taking deliberate measures to ensure its collapse. We are really at their mercy anyway, so why worry about the process--it's the entire system that is the problem.

    We need to regain our national sovereignty by throwing off the shackles of the English bankers, and possibly a larger conspiracy of world bankers, and take back control of our own money supply and system. A second and hopefully bloodless revolution is necessary. The country must be refounded on its original founding principles. Nothing short of this will do. As a first step, the Federal Reserve System must be abolished and we must return to some form of the gold standard to create stability in our monetary system.
    Last edited by aslan; March 13th, 2008 at 05:31 PM.
    Aslan 11/1/90 - 6/15/10 Stormy 1/22/95 -8/23/10
    “There are not one hundred people in the United States who hate The Catholic Church,
    but there are millions who hate what they wrongly perceive the Catholic Church to be.”
    Bishop Fulton J. Sheen

    “It takes a very long time to become young.” Pablo Picasso

  7. #22

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    Quote Originally Posted by aslan View Post
    We need to regain our national sovereignty by throwing off the shackles of the English bankers, and possibly a larger conspiracy of world bankers, and take back control of our own money supply and system. A second and hopefully bloodless revolution is necessary. The country must be refounded on its original founding principles. Nothing short of this will do. As a first step, the Federal Reserve System must be abolished and we must return to some form of the gold standard to create stability in our monetary system.
    Viva La Revolución!! zg

    "The dogs bark but the caravan moves on."
    .....................The Zengrifter Interview (PDF) |
    The Zengrifter / James Grosjean Reputation Debate
    -----------------------------------------
    “Truth, like gold, is obtained not by growth, but by washing away all that is not gold.” — Leo Tolstoy........
    "Is everything a conspiracy? No, just the important stuff." ZG

  8. #23
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    ...all men are created equal...they are endowed by their Creator with certain unalienable Rights...among these are Life, Liberty and the pursuit of Happiness...whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government...

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    Aslan 11/1/90 - 6/15/10 Stormy 1/22/95 -8/23/10
    “There are not one hundred people in the United States who hate The Catholic Church,
    but there are millions who hate what they wrongly perceive the Catholic Church to be.”
    Bishop Fulton J. Sheen

    “It takes a very long time to become young.” Pablo Picasso

  9. #24

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    CREDIT DEFAULT SWAPS:
    DERIVATIVE DISASTER DU JOUR

    Ellen Brown, April 10th, 2008
    WebOfDebt.com

    When the smartest guys in the room designed their credit default swaps, they forgot to ask one thing – what if the parties on the other side of the bet don't have the money to pay up? Credit default swaps (CDS) are insurance-like contracts that are sold as protection against default on loans, but CDS are not ordinary insurance. Insurance companies are regulated by the government, with reserve requirements, statutory limits, and examiners routinely showing up to check the books to make sure the money is there to cover potential claims. CDS are private bets, and the Federal Reserve from the time of Alan Greenspan has insisted that regulators keep hands off. The sacrosanct free market would supposedly regulate itself. The problem with that approach is that regulations are just rules. If there are no rules, the players can cheat; and cheat they have, with a gambler's addiction. In December 2007, the Bank for International Settlements reported derivative trades tallying in at $681 trillion – ten times the gross domestic product of all the countries in the world combined. Somebody is obviously bluffing about the money being brought to the game, and that realization has made for some very jittery markets.

    "Derivatives" are complex bank creations that are very hard to understand, but the basic idea is that you can insure an investment you want to go up by betting it will go down. The simplest form of derivative is a short sale: you can place a bet that some asset you own will go down, so that you are covered whichever way the asset moves. Credit default swaps are the most widely traded form of credit derivative. They are bets between two parties on whether or not a company will default on its bonds. In a typical default swap, the "protection buyer" gets a large payoff if the company defaults within a certain period of time, while the "protection seller" collects periodic payments for assuming the risk of default. CDS thus resemble insurance policies, but there is no requirement to actually hold any asset or suffer any loss, so CDS are widely used just to speculate on market changes. In one blogger's example, a hedge fund wanting to increase its profits could sit back and collect $320,000 a year in premiums just for selling "protection" on a risky BBB junk bond. The premiums are "free" money – free until the bond actually goes into default, when the hedge fund could be on the hook for $100 million in claims. And there's the catch: what if the hedge fund doesn't have the $100 million? The fund's corporate shell or limited partnership is put into bankruptcy, but that hardly helps the "protection buyers" who thought they were covered.

    To the extent that CDS are being sold as "insurance," they are looking more like insurance fraud; and that fact has particularly hit home with the ratings downgrades of the "monoline" insurers and the recent collapse of Bear Stearns, a leading Wall Street investment brokerage. The monolines are so-called because they are allowed to insure only one industry, the bond industry. Monoline bond insurers are the biggest protection writers for CDS, and Bear Stearns was the twelfth largest counterparty to credit default swap trades in 2006.1 These players have been major protection sellers in a massive web of credit default swaps, and when the "protection" goes, the whole fragile derivative pyramid will go with it. The collapse of the derivative monster thus appears to be both imminent and inevitable, but that fact need not be cause for despair. The $681 trillion derivatives trade is the last supersized bubble in a 300-year Ponzi scheme, one that has now taken over the entire monetary system. The nation's wealth has been drained into private vaults, leaving scarcity in its wake.

    It is a corrupt system, and change is long overdue. Major crises are major opportunities for change.

    The Wall Street Ponzi Scheme

    The Ponzi scheme that has gone bad is not just another misguided investment strategy. It is at the very heart of the banking business, the thing that has propped it up over the course of three centuries.

    MORE- http://www.webofdebt.com/articles/de...e-disaster.php
    "The dogs bark but the caravan moves on."
    .....................The Zengrifter Interview (PDF) |
    The Zengrifter / James Grosjean Reputation Debate
    -----------------------------------------
    “Truth, like gold, is obtained not by growth, but by washing away all that is not gold.” — Leo Tolstoy........
    "Is everything a conspiracy? No, just the important stuff." ZG

  10. #25

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    Quote Originally Posted by zengrifter View Post
    Trade Dollars vs. Derivatives

    (An Open Letter)

    Dear Mr. XXX

    In response to your opening letter of the 6/13/06 XXX Report, wherein you described derivatives as having an "important purpose" and offering protection from risk, I must say that I bristled in dismay as you went on to describe small business barter-generated trade dollars as yet another form of these derivatives.

    I have another name for these so-called derivative instruments: "synthetic financial aberrations"!

    To quote you:
    "Sophisticated investors use .... derivatives, to hedge risk. Those who don’t understand derivatives often claim that they are merely speculative instruments and akin to gambling."

    Au contraire, mon frere!

    Credit derivatives do not truly provide protection against risk and default because the institutions who issue these instruments are actually in precarious financial positions themselves, and thus sell the derivatives because they are desperate for the cash flow.

    In truth, in our current economic environment, a credit derivative is mainly used to provide the "accounting-fiction" that certain mostly worthless assets on a company's books still have value.

    Derivatives, which are therefore nothing but huge side bets, comprise the exponentially growing 'sludge' core of a rampant global casino economy. And resultantly, a huge derivatives "casino-bubble".

    At present there exists in excess of $150 trillion in outstanding derivatives contracts, which is several times the GDP of the entire world economy. The staggering implications of this, quite simply, is that the world economy is thoroughly bankrupt!

    Thus the derivatives market, overall, is designed to hide the bankruptcy of the system by providing "virtual assets" with which to cover-up its gaping holes, as well as garnering cash flow from selling mafia-like protection to companies ravaged by mafia-like market manipulations.

    As Thomas Greco, Bernard Lietaer, Elisabet Sahtouris and other revolutionary thinkers of this current and most dangerous financial era have written, alternative currencies -- including small business trade dollars, local exchange trade systems, time-based currency schemes, consumer direct-trade Web platforms, and other emerging signs of a planetary paradigm shift in our relationship to money -- offer a way out of this horrific collapsing monetary trap within which the world economy currently finds itself enmeshed.

    I have been an avid reader of XXX News and the XXX Report for years, and your well-intentioned comparison between financial credit derivatives and exchange-managed trade dollars was not lost upon me, but let us not make the mistake of confusing the currency of the future with a monstrous mistake from the past.

    Seen in the correct light, derivatives are a symptom of the disease for which barter is the cure!

    Very Respectfully,
    [zengrifter]
    Prophetic, if I do say so myself. zg
    "The dogs bark but the caravan moves on."
    .....................The Zengrifter Interview (PDF) |
    The Zengrifter / James Grosjean Reputation Debate
    -----------------------------------------
    “Truth, like gold, is obtained not by growth, but by washing away all that is not gold.” — Leo Tolstoy........
    "Is everything a conspiracy? No, just the important stuff." ZG

  11. #26
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    Quote Originally Posted by zengrifter View Post
    Prophetic, if I do say so myself. zg
    Congratulations! You nailed it!

    PS--I'm running a little short. Could you be so kind as to cash a little check for me. The money's in the bank.
    Last edited by aslan; July 12th, 2008 at 11:55 AM.
    Aslan 11/1/90 - 6/15/10 Stormy 1/22/95 -8/23/10
    “There are not one hundred people in the United States who hate The Catholic Church,
    but there are millions who hate what they wrongly perceive the Catholic Church to be.”
    Bishop Fulton J. Sheen

    “It takes a very long time to become young.” Pablo Picasso

  12. #27
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    Quote Originally Posted by zengrifter View Post
    Prophetic, if I do say so myself. zg
    Forsooth.

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    Default What are Derivatives?

    Sunday, July 13th, 2014 | Posted by Marilyn MacGruder Barnewall
    WHAT ARE DERIVATIVES?


    WHAT ARE DERIVATIVES?
    PART 4


    … by Marilyn MacGruder Barnewall, Global Financial Affairs Editor


    July 13, 2014

    Part 4: US Debt Obligations Known as CDO’s, aka Derivatives

    When one invests in derivatives, two entities are betting: The broker and the investor. Sometimes, the broker is betting against the investor to whom he is selling the derivative. If you doubt that, check out stories about Goldman Sachs being fined for doing exactly that.

    Derivatives are synthetic. “Synthetic” means artificial. It means unreal, non-genuine. “Synthetic” means a thing made in imitation of something that is natural. Breast implants are a good example of “synthetic.”

    In addition to being an imitation rather than an original, derivative investments also allow product developers to create securities that do not actually exist. What did I just say? You read it correctly. Derivatives are imitations of a real investment… they mimic real securities but do not have to be real, and the security being mimicked doesn’t have to exist. If that doesn’t confuse you, nothing will.

    What can be turned into derivatives? Life insurance, credit card debt – any kind of debt can be turned into a derivative… home mortgages were used in the last go around. Why does debt lend itself so nicely to being made into a derivative? Because people pay interest on debt so there is a ready-made income stream when it is used as an investment product.

    The total notional value of derivatives contracts around the world has ballooned to an astounding $770 trillion. No, I’m not exaggerating. Yes, that much money does – or can – exist.

    MORE:
    http://www.veteranstoday.com/2014/07/13/what-are-derivatives/

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    Ending Marilyn's article:

    Investment banks can get very, very sick and the nation’s economy may get a bad case of the flu. If commercial banks get very, very sick, the nation’s economy may die. The two kinds of banking should have been kept separate – should once again be made separate.

    As for derivatives, they are in my opinion unlawful because there is much evidence that securitization is unlawful and securitization is usually part of the derivatives process. That, however, is just an opinion. Here’s another opinion: Derivatives are largely worthless pieces of paper with no value attached to them.

    Keep that in mind the next time you hear that all of the debt being taken on by the U.S. Treasury via the Federal Reserve System is collateralized by derivatives.
    In other words, all of that debt is collateralized by junk paper.

  15. #30
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    Cool Special Depository Receipts

    IMF Special Depository Receipts (SDRs) are another important derivative. Some financial reporters have stated that use of SDRs as a global currency will occur to unwind the next financial crisis.

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