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View Diary: Lawmakers Probe $75T Derivatives Dump by Bank of America (238 comments)

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  •  Let's back up a minute. Where in the world is (14+ / 0-)

    this $74 trillion supposed to come from to pay off the derivative holders?  Do they really think they can saddle the American people with this kind of debt?

    There is nobody in this country who got rich on his own. Nobody. - Elizabeth Warren

    by Susan Grigsby on Mon Oct 31, 2011 at 11:43:15 PM PDT

    [ Parent ]

    •  Money is a figment of the imagination. (15+ / 0-)

      It only has value, if someone is willing to trade some good or service in exchange.  It's like a language that only has meaning if someone else understands it.
      Maybe we could say the banks are dealing in the equivalent of glossolalia.
      When people engage in glossolalia, it's a sign of the Holy Spirit.  It's also called "speaking in tongues" or gibberish.

      http://youtu.be/...

      Glossolalia at BoA.

      People to Wall Street: "LET OUR MONEY GO"

      by hannah on Tue Nov 01, 2011 at 01:03:15 AM PDT

      [ Parent ]

    •  easy it is called hyper inflation (13+ / 0-)

      not tomorrow or next year but over the next 30 years
      for sure.
      if the 1% get what they want.
       it happened before here in germany just as an example
      i still have a 320 billion mark note which bought you some bread.
      so 75 trillion are no problem for the 1%
      they just screw the rest of us.
      if we dont stop it this time.

    •  There is no $74 trillion here. (3+ / 0-)

      It's a number (we call it the "notional" amount) that is used to calculate an amount due.  That number could be, say, 2% of the notional.

      74 trillion isn't going to change hands; only a fraction of a fraction ever will.

      •  I'd like my cut too, please. (3+ / 0-)
        Recommended by:
        jimreyn, milkbone, divineorder

        I understand and agree with your point.

        Nice work - if you can get it.  I guess I should attend more $10,000 a plate fundraising dinners.

        I'll settle for .1 %

        The Fail will continue until actual torches and pitchforks are set in motion. - Pangolin@kunstler.com

        by No one gets out alive on Tue Nov 01, 2011 at 06:00:00 AM PDT

        [ Parent ]

      •  Is (1+ / 0-)
        Recommended by:
        divineorder

        there someplace that explains that detail?

        •  There is no one explanation (13+ / 0-)

          The term, "derivative" is very vague.  It just means a security (stock-like or bond-like piece of paper) that "derives" from some other security.

          The diary is confusing the amount of the derivative with the amount of the "other security."

          For example, puts and calls are derivatives.  They are the right to sell or buy a share in the future.  They are used as a kind of insurance.

          So if I buy 1 share of Microsoft at $100, hoping it goes to $110, but worried it might fall to $90, I can ensure (or "hedge") my investment to make sure I don't lose money.

          I would buy a "put" that gives me the right to sell 1 month from now at $100 if the price falls below $90.

          Puts are very cheap.  For a share at that market price and strike price, the put option price it might be 60 cents.

          If the share goes down to $90, instead of up, I can force my "counterparty" to buy my share at $100.  He may have lost $10.  I protected myself.

          If the share goes up or is at any price above $90, I'm not going to exercise my put option.  I just let it expire.  The counterparty has made 60 cents.

          Notice there's no more than a 50/50 chance that counterparty is going to lose, and even less if the price of the put is based on research about which way the MS share is going.

          This reporting treats the 60 cent put as a $100 liability.  Even worse, there are studies showing these numbers include all sorts of crazy things like adding the 60 cents, to the $10 potential loss to the $100 underlying share, plus adding in the price of every trade in the put (ie if the counterparty sells his option and they buyer sells on down a chain of 10 people all ten prices are added).

          There are many, many kinds of derivatives, including interest rate protections, currency swing protection, and so on, and generally the price of the derivative is a tiny fraction of the "notional" price.

          A scientist once called a fellow scientists paper so ridiculous that it 'wasn't even wrong.'  

          The $75 trillion number isn't even wrong.  It's a number that makes you dumber rather than smarter for reading it.

          •  Yes, but (1+ / 0-)
            Recommended by:
            Laconic Lib

            the $75 trillion is also the number Wall Street uses to justify executive bonuses in the mere billions of dollars.

            Passengers: Feel free to rearrange the deck chairs, but please remember that the bridge is off limits.

            by happymisanthropy on Tue Nov 01, 2011 at 12:58:57 PM PDT

            [ Parent ]

          •  There is absolutely no reason to believe that (1+ / 0-)
            Recommended by:
            Laconic Lib

            the derivatives in question are simple puts and calls, however. Credit Default Swaps are called "derivatives" because they are called "swaps" but that naming is fraudulent and was done pure and simple to evade the rules and regulations relating to insurance contracts, which is what they are.

            Try replacing "derivatives" in the various places it occurs with "insurance contracts covering the face value of worthless underwater mortgages" and you will arrive at something far closer to reality than if you pretend that they are puts.

            That, in its essence, is fascism--ownership of government by an individual, by a group, or by any other controlling private power. -- Franklin D. Roosevelt --

            by enhydra lutris on Tue Nov 01, 2011 at 03:38:24 PM PDT

            [ Parent ]

      •  Or it could be 97%, you have no clue what (1+ / 0-)
        Recommended by:
        Laconic Lib

        the fraction is because none of us have any clue what those so-called derivatives are. If they are all CDS on worst tier tranches of underwater mortgages, the amount due could be very near the nominal value.

        That, in its essence, is fascism--ownership of government by an individual, by a group, or by any other controlling private power. -- Franklin D. Roosevelt --

        by enhydra lutris on Tue Nov 01, 2011 at 04:06:19 PM PDT

        [ Parent ]

    •  Don't pay (1+ / 0-)
      Recommended by:
      Laconic Lib
      Where in the world is this $74 trillion supposed to come from to pay off the derivative holders?

      They simply will not be able to pay the $74 Trillion. Fuck the bank and fuck the greedy derivative holders.

      Keep Christian mythology out of science class!

      by cybersaur on Tue Nov 01, 2011 at 01:21:55 PM PDT

      [ Parent ]

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