The entire concept of "money" and all the derivations are a human created reality that has become an identity. History teaches us that it takes collecrive sacrifice to unify behind a single moment or movement. In "today's world" people create hypotheticals and hypotheses that justify the construct. Everything now becomes a theory backed only by statements and true meaning is lost.

The overlapping of that reality with the "gold standard" drives the market and justifies the legacy-driven politicos. Everyone is experiencing an identity crisis that if "we" don't figure out will be the demise of thought and progression.

Buying more guns on the right and writing more books on the left will do nothing more except seal fate inside a cacoon of indifference.

I loved how when Jamie Dimon testified before the House committee he was sure to wear his inscribed presidential seal cufflinks that he'd received as a gift from Obama.

This is my blood pressure topic. I get so pissed off hearing financial pundits bragging that they don't really understand derivatives, and then launching into attacks on Europe, etc... for creating such a drag on the economy with excessive spending and being lazy.

Meanwhile Bernanke is funneling untold trillions into trying to keep the whole thing from unraveling. And I doubt it can be stopped, mainly because the last time we had to address this we didn't change anything. We just rewarded the bankers who did it and let them keep gambling. This is the ultimate economic nightmare.

Derivatives are behind everything we're seeing, and Europe was not in trouble before Goldman Sachs started "helping" Greece and others using fancy derivatives to disguise debt.

Of course our economic talking heads are placing the blame on Europe's 30 years of socialism or whatever. The invention of the siesta. It's really shocking considering we did this to the world in a few short years with derivatives.

I thought this was an interesting quote:

President of the EU Commission, Jose Manuel Barroso:
“This crisis was not originated in Europe. Seeing as you mention North America, this crisis originated in North America, and much of our financial sector was contaminated by, how can I put it, unorthodox practices from some sectors of the financial market.”

Of course, the fact that he's right will be overwhelmed by our moronic talking heads blaming everything on everybody else from irresponsible home owners to lazy union workers to socialism in Europe, etc....

It's the derivatives, stupid.

Brought to you by the owners of the Portland Timbers. Truly bizarre.

True, Derivatives played a large part. Recall that it was derivative that also triggered the Asian Flu in 1997.

But the biggest contributer to the present crisis was the collapse of the Real Estate bubble. Investments that were "safe as houses" became worthless.

I think, though I cannot prove it, that the real estate collapse started with the high gas prices in the summer of 2008.

People had to spend more of their income on fuel and started putting off the house payment. It cascaded from there.

The real estate bubble was derivatives. Those were insurance policies on baskets of subprime mortgages all sliced and diced and sold around the world many times. In fact, the amount of lending to homeowners was a desperate attempt to front load the derivatives racket. They needed the raw material of mortgages so they would have something to chop up and turn into derivatives. That's why they didn't really care about the quality of the loans. They just wanted to generate the revenue from agreeing to insure them. It's so crazy.

Derivatives derive from something and, in that case, it was housing.

It all was very profitable until housing collapsed but here's the key part: The housing itself was no big deal. However the insurance policies on the housing? The derivatives derived from the housing? That's where you got into your scenario of unimaginable losses.

The derivatives balloon is currently at over 600 trillion dollars.

Anybody have 600 trillion lying around?

derivatives shmerivatives. This economic vise now squishing the life out of people is a time-tested and -proved mechanism of repression.
'derivatives' is only the latest obfuscation and obscuration of it. 600 trillion
600 shmillion

See here, Chapter 11, Secrets of the Federal Reserve, by Eustace Mullins, 1953 describing the players and plunders of 'world economy' during the 1920s --
players blowing bubbles bigger, intending they burst and the Great Depression.
Player mechanics.

There are only 3 human motivations -- money, sex, power; accordingly, each can be gamed for gain -- economic prosecution, social prosecution, political prosecution.

The economic squeeze on the U.S. is mainly regulated by London, still, going on 400 years, (Pilgrims in 1620 landed on Plymouth Rock with British gold 'valuation' in their purses), only the last hundred years of which causes our catastrophy today. Even after U.S. became 'richest' country, (1970s?), England remained Director of US Prosperity. In the person of who owns the Bank of England, the Rothschild family. ... and there's all that greed, 'invention of capitalism,' money-making history 1635-2012 of the in-breeding Rothschilds (who control majority share in the Federal Reserve) to search out and study up

In the Rothschild World Reign gold was the matter of control. That designed device inexorably fails (them), because, as explained in the best scripture of 'economics' I've seen, Web of Debt, Ellen Hodgson Brown, 2012: you can NOT denote a swelling value, or worth, (e.g. populations, productivities), in terms of a finite supply (of value) such as gold or other precious metal.
(So voices calling US to 'return to the [British] gold standard' are desperados grasping for some ('standard') thing (meme), which they might well understand the workings of, but which doesn't work any more ... since about 1970, when microsecond-investing computers got into digital money-making.)

The thing in the 1970s was the US 'officially' wrote off the gold standard, AND (with new microsecond satellite communications) a 'world reserve currency' began transacting in petrodollars.

derivatives shmerivatives. There's only so much oil in the ground. 'Drill baby drill' translates as: produce more money; just print it. Which is impossible now; the planet petroleum pool has peaked and is shrinking. And that is the economic vise squeezing the life out of people.

The foretold End of the World 2012 'collapse' is that interval of nothingness between the time when you handle your last dollar, I mean, Federal Reserve Note, and the time when you have for your labor, or productivity, wages in a new currency (which can obtain you your purchases).

Abandon the dollar. The US has about six different regions, each with a different regional social bearing and a different regional political bearing. The only thing holding the Lower 48 together, that they have in common, is a 'US' economic bearing, meaning 'dollar' currency.

It ('apocalypse') happens at the same time: people abandon the dollar (for tendering public and private legalities), AND the USA downsizes into about six regions (new UN seats) each with its own regional economy and a currency in it.
(Maybe like S&H Green Stamps. That's a form of currency.)

There is more to say, both in details and in the human nature (the philosophy) of money, the digital and the analog. Maybe this new 'bitcoin' business (look it up) has the early sense of what our lives today are involved in. You have bitcoins. You go on the web and buy things (products, services, information) by spending bitcoins. You have a website. People visit your website and pay your account a bitcoin per minute of visit -- that's how you get paid your bitcoins. So whatcha gonna have on your website to lure and hold visitors?

But I just urge fun for WTF, We The Folks, to picture the expression on the faces of the capitalistically 'rich' 1%-ers the day the dollar is taken down, (destroyed, disappeared), and their secretary tells them, "you have no money, and I don't take pay in dollars anymore so I am out of here, and you have to get a job and go to work."

Perhaps for a moment we could ignore derivatives and examine how the Fed/govt decides to invest in our country. This is basically the giving of buckets of money to banks. Which I guess is supposed to keep rates low and encourage banks to lent.

Slight problem, Joe Average has no money. No money to invest, no money to take out loans with, no money to buy things. Unless you are at the banks level and your focus is just get and keep as many dollars as possible.

Instead of all this stimulus nonsense (most of the state stimulus went to pay for benes), how about instead just giving out a $1T tax cut and actualy get the average guy some more money in his pocket? He could then pay off his debts (lessening bank dependence) or buy things (stimulating the economy the old-fashioned way).

We really need to wean ourselves off the idea that banks and govt know what is best for us.

When was the last time anyone heard a bank bragging about their growth in "LIABILITIES" (deposits)?

From the time they are Baby Bankers, they are told to "grow ASSETS"...meaning LOANS!

So who remembers WAY back when depositors were PAID 5%, Loans were 8%, branch managers knew their customers and approved loans, there were few "fees" or "defaults" or refinances... AND they made a PROFIT? None of which happens today!

Today, deposits earn 1/3%, Loans are only made to other financial institutions, branch managers must call Indonesia to get a $ 5 credit card fee reversed for a good customer, most loans never last to term (if not defaulted), fees for everything....and they're lucky if they survive each year.

All because the "Central Planners" think they know better than the marketplace.

Tenkswatawa,
You're trying to describe who's running the show. I'm talking about the weapons they're using to do it.
Yes, this may be just the latest manifestation of a centuries old movement to consolidate power through currency, but the difference is back in the 1600s or whenever they had the financial equivalent of bows and arrows.

Derivatives are the nuclear bombs. That's why Warren Buffett calls them "Financial weapons of mass destruction."

The Soviet Union without nuclear bombs wasn't much of a threat, because their ideas were dumb. Communism was a dumb idea. What made the Soviet Union dangerous was their weapons.

Derivatives are the weapons we're facing now and defusing them will be damn near impossible.

"Derivatives are the weapons"

You do realize insurance policies could be considered as derivatives? That is, you pay a limited amount to insure against a much greater potential loss. In addition, the options and futures market has been running for 40+ years in stocks.

I'm not disagreeing that some of these derivatives were not the problem, but the issue has been more with how risk has been assessed. One way is the pricing on some of these derivatives assumed we'd never have a simultaneous implosion of debt.

Then again, govt seems to think that it needs to step in when the risk works against banks, who, funnily enough, never seem to recompense for govt help when risk works in their favor.

Steve,
The problem was that the Wall Street overlords got Congress to change the rules starting in 1999. The protections put in place after the Great Depression were rolled back, allowing banks to become casinos.

Then when they got in trouble, they were bailed out and rewarded.

All this would have been fine except for the nature of these new kinds of security swaps and other unregulated financial instruments, that were based in large part on fraudulently labeled Triple A mortgages that were junk, and then bet on over and over around the world.

The mind-numbing part was the extreme amounts that would be necessary to pay up if these new derivatives - these new insurance policies - went bad. Oh, and some of the investment houses who sold these things were betting against them. That's proof right there that a swindle occurred. But that's a minor issue. The main thing is the exposure these new derivatives gave us in a few short years.

I'm not an economics guy, but I sense a financial exposure of 600 trillion - or 10 times the economy of planet earth - is a little risky. By the way, since nothing was done to reign in these banks after 2008, that number is now estimated to be at 700 trillion. 700 TRILLION.

This is why the trillions flow out from the Federal Reserve and we're still not getting anywhere. Greece, Spain...it'll go on and on until the wealth of America has been transferred elsewhere, and we collapse. Unless we kiss the whole thing off, and start arresting the bankers who did it.

That's the part that none of the pundits on Fox Business want to get into: This was a crime. This was fraud. The biggest fraud in the history of the world.

Every gambler knows you have to be able to pay up if you lose. Yet, the suits on Wall Street put themselves in a position where there was no possible way for them to pay up. That's when they came to the US taxpayer to bail them out, but the amounts are so great, there's no way America can do it. 10 planet earths couldn't cover this if it all goes bad.

"The problem was that the Wall Street overlords got Congress to change the rules"

Well, I think that's a start. I really don't have a problem with derivatives. If Jamie Dimon wants to buy a ton of these and burn down JP Morgan - Fine with me.

My issue is the moral hazard (i.e. the govt will save the banks.) On the upside, the bank makes profit, on a losing bet, we pay for it.

Now Bernanke wants to put more money in the system. So now the banks are really flush with funds and they want to bump their yield instead of making long-term investments. They pay more for higher risk instruments because Geithner/Obama/Bush/Paulsen/Bernanke will bail them out if it goes south.

We really need a change.

So who remembers WAY back when depositors were PAID 5%, Loans were 8%, branch managers knew their customers and approved loans, there were few "fees" or "defaults" or refinances... AND they made a PROFIT?

Amen. I remember those days well.

I agree with Thomas Jefferson and Andrew Jackson - to name just a few - private banks have no business creating and issuing government currency.

All of these issues revert back to that central point and we have fought off the bankers throughout our history.

Time to do it again.

Now you are talking. We ain't gonna git anywhere without a bigass goobermint (read the Fed) induced recession, clearing the way for basic economics to do its thing, eventually setting the stage for a rip-roaring old fashioned economic recovery. One to three years of pain is needed to reset the machinery.

The derivative most abused of all is the good ole US dollar -- Ben prints them and Timmy borrows them. Value, not financial shenanigans and Keynesian trickery, need to drive the system.

There seems to be a bit of confusion as to the cause and effect in many of the comments here.

Derivatives, changes in the law, big government manipulation and all the other problems are just symptoms of the real issue. The banks got so big and powerful they were able to alter laws, rig the system and generally make a mess of things.

And why shouldn't they? They are not government, they are just looking to make money. But now they are so big and powerful they are able to blatantly socialize private debt. They've become so large they are, in effect, a branch of government.

Not saying all the other things mentioned here aren't problems, I'm saying that the root of the problem has not been identified (not here anyway).

How to fix it? Bust the banks up. Then maybe you can get something done in D.C. Then maybe all these ideas we have can see the light (fixing derivatives, recreate middle class buying power, etc...).

Realistically, however, the entrenchment is so deep I'm not sure what can be done strategically. The power is so strong I see no practical answers that might actually be implemented.

Sorry for the downer tone of this post. I'm just calling it like I see it.