Unchained Preppers

Off Topic/ B.S. => General Off Topic => Topic started by: JohnyMac on October 21, 2013, 08:48:58 AM

Title: Derivatives: Are they the next "Can't fail?"
Post by: JohnyMac on October 21, 2013, 08:48:58 AM

I have been hearing a lot of late concerning derivatives and how they can cause the biggest collapse the world has known.

Wikipedia defines derivatives as:

Quote

A derivative is a financial contract which derives its value from the performance of another entity such as an asset, index, or interest rate, called the "underlying".[1][2] Derivatives are one of the three main categories of financial instruments, the other two being equities (i.e. stocks) and debt (i.e. bonds and mortgages). Derivatives include a variety of financial contracts, including futures, forwards, swaps, options, and variations of these such as caps, floors, collars, and credit default swaps. Most derivatives are marketed through over-the-counter (off-exchange) or through an exchange such as the Chicago Mercantile Exchange; while most insurance contracts have developed into a separate industry.

https://en.wikipedia.org/wiki/Derivative_%28finance%29

James Rawles writes:

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Interest rate turmoil again affected holding company trading revenues heavily in the first and second quarters of 2013. According to the latest report from the U.S. Office of the Compttroller of the Currency (OCC), rate trading derivatives losses were $3.018 Billion in 1Q 2013 and $3.804 Billion in 2Q 2013.

It is noteworthy that the present-day casino in credit derivatives has built up in the era of ZIRP, where interest rate changes have been miniscule. The losses reported in the first two quarters were apparently triggered by the unexpected rate moves of less than 20 basis points. (Two tenths of one percent.)

While the total credit exposure to risk based capital has declined for the top four U.S. commercial banks that do derivatives trading, the notional value of their derivatives increased by $2.2 trillion, to $233.9 trillion. And JPMorgan (the world's biggest derivatives trader) just by itself holds derivatives contracts with a notional value of around $71 Trillion! (To be precise: $71,289,673,000,000.) To put that in perspective, the total value of the US economy is around $15 trillion.

The counterparty risk in credit derivatives would be gigamongous, if interest rates were to spike several full points, and any large institutions then subsequently failed. If you thought that the bailouts back in 2009-2010 were huge, then just wait and see what the next credit crisis brings. - JWR

So with $233.9T bet in the derivatives market, and they bet against things like, interest rates, crude oil, value of a currency: And our current economy is around $15T , plenty of opportunity for disaster.

I brought this up hoping that someone may know more than I do about derivatives (Which is nothing) and could share their knowledge on the subject.  :coffeeNews:

Title: Re: Derivatives: Are they the next "Can't fail?"
Post by: Well-Prepared Witch on October 21, 2013, 10:12:20 AM

Welp, I don't really have anything to say on this - these are out of my area of expertise.  I am interested to see if anyone else knows anything about them.

Title: Re: Derivatives: Are they the next "Can't fail?"
Post by: Deathstyle on October 22, 2013, 12:46:24 AM

Here you go guys:
http://www.survivalblog.com/derivatives.html (http://www.survivalblog.com/derivatives.html)

Sure hope this helps. :thumbsUp:

Also you might want to look into Boomerang by Michael Lewis.
http://www.amazon.com/Boomerang-Travels-New-Third-World/dp/0393343448/ref=la_B000APZ33E_1_4?s=books&ie=UTF8&qid=1382416658&sr=1-4 (http://www.amazon.com/Boomerang-Travels-New-Third-World/dp/0393343448/ref=la_B000APZ33E_1_4?s=books&ie=UTF8&qid=1382416658&sr=1-4)

He is best known for writing "The Blindside" the book about Michael Oar that was turned into the movie with Sandra Bullock. I was flipping through this in a bookstore and it is interesting view of th economimc situation and explores what the future will hold.

Kinda talks about the financial system and national debt and spending to various degrees but I dont know how much it focuses on dericatives specfically. I know he talks with one financial investor who saw the 2008 crash coming and profited from it and invested a couple million in nickels. Oh and the guy also bought a ranch in Texas, bought a couple of guns and was talking about going into business with Chris Kyle.

The book also dedicated one chapter solely to California and how much trouble it is in. So Im pretty screwed. :lmfao:

Title: Re: Derivatives: Are they the next "Can't fail?"
Post by: JohnyMac on October 22, 2013, 10:07:48 AM

Great couple of links Deathstyle. Oddly enough after reading them I am more concerned.  :facepalm: