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.Continue Reading at TheEconomicCollapseBlog.com…
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