THE TRIPLE D BOMB:
DERIVATIVE DOMINO DESTRUCTION
by Michael Edward
U.S. banks have already duped you by using derivatives to help Enron, WorldCom, Global Crossing, and Parmalat pirates "cook their books."
So, what do they have in store for you now?
THE DANGEROUS MYTH ABOUT DERIVATIVES
The biggest myth spewed out of the mouths of banks and financial paper brokerages, regarding derivatives, is that they reduce risk. But the reality is that they simply do not reduce any risk! In layman's terms, derivatives transfer risk, such as from a bank to another bank or entity.
The alchemy of derivatives rests on complicated mathematical models that predict how markets and derivative gambling risks will behave under certain conditions. These computer models use past market performance to predict the future, but they can't account for the unaccountable. Right now, computers worldwide are creating financial plutonium; and as with all nuclear mishaps, there are no small accidents. Get ready for the Chernobyl of the Financial World.
THE DOMINO EFFECT
Due in part to the current Parmalat derivatives scam, a chain of events is unfolding that will - sooner more likely than later - set off these derivative time-bombs one-by-one. America's biggest banks are carrying hidden gambling risks that no one has warned you about, and they are all tied up in U.S. bank derivative portfolios.
The problem few people understand is this: With most derivative bets, you have to supply a certain amount of collateral (cash) to the other party in order to cover your bet. This amount depends on the bank's credit rating. If the bank gets into financial difficulties, its credit rating will drop. The result is that the bank will have to supply more cash collateral to its derivative contract. This would easily cause a cash liquidity crisis, which, in turn, would lead to a further credit rating downgrade, which would set off a downward spiral. If only one major U.S. bank falls, they'll all begin to topple like dominoes. Now, get ready for the bad [sic] news...
This nightmare scenario has already begun.
JP MORGAN'S HOUSE IS ENGULFED WITH FLAMES
Right now, U.S. banks are like a group of mountain climbers all tied together with a 'safety' rope. JP Morgan Chase is at the top of that rope. If it falls, the others will topple down the mountain with it, one after the other. The end result will make the 1929 U.S. economic collapse look small in comparison.
Ever since Chase Manhattan bid $33 billion for JP Morgan in September 2000, the bank has been on an out of control downward financial spiral. The bank claimed it would provide huge new growth, but that hasn't come about. But instead of striking new profits, the bank has produced an endless well of red ink. It has lost billions of dollar$ through bad loans and derivatives connected with Enron, K-Mart, Global Crossing, Tyco, Argentina, and Parmalat. In 3 short years, JP Morgan Chase laid off over 10,000 workers and closed hundreds of branches.
JP Morgan Chase has become the largest gambler in economic history. Its derivatives portfolio is equal to 1.5 times the size of the entire global economy. According to the Office of the Comptroller and Currency (OCC), JP Morgan Chase has more U.S. dollar$ at risk in derivatives than it has in capital. As of September 2003, It carried a shocking $7.97 in risk per dollar of capital. Just a 13% loss on its derivative books would be enough to wipe it out... and that risk keeps rising. Some analysts are estimating that the Parmalat scheme may have eroded 5-8% already.
THE PHANTOM ECONOMY
The hidden financial economy is 17 times the size of the "official" U.S. economy. Since 1990, a lethal economic bubble has been quietly forming in the Over-The-Counter (OTC) Derivatives market. If you don't know what that is, don't feel alone as most investors are completely unaware of what goes on behind the closed doors at banks, major brokerage houses, and large public corporations.
Derivatives have been at the core of almost every major economic disaster since 1987. They were directly responsible for Black Monday, the Asian crisis, the Long-Term Capital Management (LTCM) hedge fund disaster, the crash of Barings Bank, the bankruptcy of Orange County, and the major collapses of Enron, Parmalat, WorldCom, Global Crossing, and even Argentina.
Derivatives will soon be responsible for what will be the greatest economic disaster ever known. Their fast and explosive growth has given birth to an underground economy so powerful and complex that no-one really understands it. This Phantom Economy carries threats that have the power to blow up the U.S. financial system with a single spark.
NERO FIDDLES WHILE U.S. BANKING BURNS
As the U.S. 'Fed' Chairman, Greenspan has refused to allow derivatives be regulated. He claims that derivatives are good for the economy, and that they provide for an efficient, flexible, and safer financial system. Who is he kidding?
In a November 19, 2002 address to the Council on Foreign Relations regarding derivatives, Greenspan admitted that there was a "remote possibility" that they could cause a chain reaction resulting in a financial implosion. Perhaps he defines the word 'remote' different than the rest of us.
Two and a half years prior, in a May 2000 bankers' speech, he admitted that "The rapid growth and increasing importance of derivative instruments has been a particular concern."
In 1986, the global derivatives market was just over $1 trillion U.S. Dollars. As of September 2003, that figure reached a staggering $170 trillion according to the latest figures from the Bank of International Settlements. More than 1/3 of these derivatives are concentrated in the hands of just 3 U.S. banks: JP Morgan Chase, Bank of America, and Citigroup.
All these derivative deals are done behind closed doors by a few powerful men. These men are dangerously balancing your future on a complicated portfolio of derivatives bets. They have been allowed to create monstrously large derivative portfolios without investors and bank depositors being even remotely aware of the mounting tidal wave of risk.
These men, the "powers that be," have absolutely no responsibility to report or reveal anything about their derivative acts to bank shareholders.
What they have in store for you, and I, and every person in America is a collapse that no generation has ever experienced before.
Happy Friday the 13th.