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Wall Street Breakfast: Must-Know News

Here's a link that explains derivatives in plain english:
cbsnews.com/stories/20...

Wall Street Breakfast: Must-Know News

I paid 25% down on my house and bought within my means.

I pay my mortgage and my bills and save what I can. Who's going to "rescue" me from the bailout?

Do not believe for one second that this is caused by the evil sub-prime borrower. There is a root cause for all of this and it is DEREGULATION, which like it or not is a Republican mantra. There is however, enough blame to go around.

The thing they are just now starting to talk about that has the Big Boyz soiling themselves are "Derivatives." These are "complex financial instruments" created out of smoke and mirrors by WALL STREET.

You need to know these things. Derivatives have ZERO underlying assets. They have a notional "value" of tens of TRILLIONS or HUNDREDS of trillions of dollars. Nobody knows for sure because they were completly UNREGULATED and they are opaque as MUD.

It wasn't the collapse of the Securities backed by sub prime mortgages (bad as that was) that brought down Banks and AIG, it was the failure by said intitutions to reserve enough capital to pay off if these "side bets" went bad. Nobody knows how much or who holds the liability but ALL the financial institutions, some insurance companies, and most all the hedge funds have a MOUNTAIN of this toxic garbage swept under the rug. That is the "counterparty risk" everyone keeps yacking about.

THIS is what has banks hoarding cash and eying each other with distrust.

Even if you take the lowest estimate of 50 trillion (or 50 thousand billion) you can see that the "bailout" of $700 billion is like trying to bail out the ocean with a soup spoon.

If you take the higher estimates of hundreds of trillions, you are talking about more than the entire annual GDP of the entire freaking planet!

Lest you think I exagerate, look at Iceland. Ponder on the fact that some nations in Europe have guaranteed all deposits in their banks, to the tune of 3 times their annual GDP.

Either we let the institutions and the investors who took the risks fail and go bankrupt or we bankrupt the whole planet.