Brexit and the Derivatives Time Bomb By Ellen Brown

1 July 2016 — Ellen Brown

Brexit could trigger a $500 trillion derivatives meltdown, by forcing the EU to allow insolvent member governments and banks to write down debt. Italy is in financial crisis and is already petitioning for that concession. How to avoid collapse of the massive derivatives house of cards? Alternatives are considered.

Sovereign debt – the debt of national governments – has ballooned from $80 trillion to $100 trillion just since 2008. Squeezed governments have been driven to radical austerity measures, privatizing public assets, slashing public services, and downsizing work forces in a futile attempt to balance national budgets. But the debt overhang just continues to grow.

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Goldman Sachs Sued for Selling Libya Billions in Worthless Options By Richard Smallteacher

31 January 2014 — Corpwatch Holding Corporations Accountable

Goldman Sachs, the Wall Street investment bank, is being sued in London for selling Libya “worthless” derivatives trades in 2008 that the country’s financial managers did not understand. Libya says it lost approximately $1.2 billion on the deals, while Goldman made $350 million.

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Larry Summers and the Secret “End-Game” Memo By Greg Palast

22 August 2013 — Vice Magazine

When a little birdie dropped the End Game memo through my window, its content was so explosive, so sick and plain evil, I just couldn’t believe it. 
The Memo confirmed every conspiracy freak’s fantasy:  that in the late 1990s, the top US Treasury officials secretly conspired with a small cabal of banker big-shots to rip apart financial regulation across the planet.  When you see 26.3% unemployment in Spain, desperation and hunger in Greece, riots in Indonesia and Detroit in bankruptcy, go back to this End Game memo, the genesis of the blood and tears.
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My Big Fat Greek Minister By Greg Palast

20 May 2013 — Vice Magazine

It wasn’t too difficult picking out the Fat Bastard in the crowd of Russian models, craven moochers and media mavens. Besides, Fat Bastard and I were both desperate for coffee and heading for the same empty urn.

(We’d both signed on for Kazakhstan’s annual Eurasia Media Forum, a kind of Burning Man festival for Eastern oilgarchs and their media camp followers.)

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It Can Happen Here: The Confiscation Scheme Planned for US and UK Depositors By Ellen Brown

28 March, 2013– webofdebt

Confiscating the customer deposits in Cyprus banks, it seems, was not a one-off, desperate idea of a few Eurozone “troika” officials scrambling to salvage their balance sheets. A joint paper by the US Federal Deposit Insurance Corporation and the Bank of England dated December 10, 2012, shows that these plans have been long in the making; that they originated with the G20 Financial Stability Board in Basel, Switzerland (discussed earlier here; and that the result will be to deliver clear title to the banks of depositor funds.

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Ellen Brown: How Greece Could Take Down Wall Street

21 February 2012 — Web of DebtGlobal Research

In an article titled “Still No End to ‘Too Big to Fail,’” William Greider wrote in The Nation on February 15th:

Financial market cynics have assumed all along that Dodd-Frank did not end “too big to fail” but instead created a charmed circle of protected banks labeled “systemically important” that will not be allowed to fail, no matter how badly they behave.

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Keiser Report with very special Hollywood guest

27 April, 2010 —

This time Max Keiser and co-host Stacy Herbert look at a handful of the many Goldman Sachs fraud metaphors; the scandals of what the US bankers, regulators and government knew about Repo 105 before it helped take down Lehman Brothers, and of President Clinton’s big mistake on derivatives. In the second half of the show, Stacy interviews Max Keiser, in virtual Hollywood, about the box office futures market.

William Blum: Anti-Empire Report, Number 68, 4 April, 2009 Some thoughts about socialism

4 April, 2009

‘History is littered with post-crisis regulations. If there are undue restrictions on the operations of businesses, they may view it to be their job to get around them, and you sow the seeds of the next crisis.’ — Liz Ann Sonders, chief investment analyst, CharlesSchwab & Co., a leading US provider of investment services.[1]

And so it goes. Corporations, whether financial or not, strive to maximize profit as inevitably as water seeks its own level. We’ve been trying to ‘regulate’ them since the 19th century. Or is it the 18th? Nothing helps for long. You close one loophole and the slime oozes out of another hole. Wall Street has not only an army of lawyers and accountants, but a horde of mathematicians with advanced degrees searching for the perfect equations to separate people from their money. After all the stimulus money has come and gone, after all the speeches by our leaders condemning greed and swearing to reforms, after the last congressional hearing deploring the corporate executives to their faces, the boys of Wall Street, shrugging off a few bruises, will resume churning out their assortment of financial entities, documents, and packages that go by names like hedge funds, derivatives, collateralized debt obligations, index funds, credit default swaps, structured investment vehicles, subprime mortgages, and many other pieces of paper with exotic names, for which, it must be kept in mind, there had been no public need or strident demand. Speculation, bonuses, and scotch will flow again, and the boys will be all the wiser, perhaps shaken a bit that they’re so reviled, but knowing better now what to flaunt and what to disguise.

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Economics 101 – Interesting times By William Bowles

24 October 2008

‘May you live in interesting times’, traditional Chinese curse

Being raised in a family of Reds has its pluses and its minuses, one of the minuses being a decidedly unworldly approach to economics. It was as if we already lived in a socialist world but of course nobody else did. The upshot of this was a total incomprehension as to the value of money, and not merely the value but its importance.

This must sound strange coming from someone who professes to know the ‘answers’ to what ails us but then life is complicated, people are contradictory and we don’t always do what’s in our own best interests, besieged as we are by the forces of capital. For alongside this there is always the question of fear and insecurity about the future, about who we are and what we should be.

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Anti-Empire Report, October 1, 2008 By William Blum

Read this or George W. Bush will be president the rest of your life

101 ways to get rich without doing anything socially useful
Why do we have this thing called a ‘financial crisis’? Why have we had such a crisis periodically ever since the United States was created? What changes occur or what happens each time to bring on the crisis? Do we forget how to make things that people need? Do the factories burn down? Are our tools lost? Do the blueprints disappear? Do we run out of people to work in the factories and offices? Are all the services that people need for a happy life so well taken care of that there’s hardly any more need for the services? In other words: What changes take place in the real world to cause the crisis? Nothing, necessarily. The crisis is usually caused by changes in the make-believe world of financial capitalism.

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The media’s moola madness By William Bowles

22 September, 2008

What does it take for the corporate media to speak the truth about the economic meltdown? Take the BBC Website for example: It has a page titled ‘Q&A: Financial crisis and you’ where you would expect to find an explanation of this, the latest crisis of capital. Dream on folks, dream on.

Actually the best place to look (aside from this and many other progressive sites) is the press that serves the interests of capital (don’t bullshit a bullshitter as the saying goes):

“As we get to the other side of this, the dollar will get crushed,” said John Taylor, chairman of New York-based International Foreign Exchange Concepts Inc., the world’s biggest currency hedge-fund firm, which manages about $15 billion.

“The dollar fell against 14 of the world’s most-traded currencies on Sept. 19, including the euro, as Paulson unveiled the plan, while the Standard & Poor’s 500 Index rose 4 percent. The plan may end the rally that began in June and drove the U.S. currency up 10 percent versus the euro, 2 percent against the yen and almost 13 percent compared with Brazil’s real, strategists said.”


“The downdraft on the dollar from the hit to the balance sheet of the U.S. government will dwarf the short-term gains from solving the banking crisis,” said David Woo, London-based global head of foreign-exchange strategy at Barclays, the third- biggest currency trader, according to a 2008 survey by Euromoney Institutional Investor Plc.” — ‘Dollar May Get `Crushed’ as Traders Weigh Up Bailout (Update3)’, Bloomberg, 22 September, 2008.

But all of a sudden the ‘popular’ press is all gung ho to tell the public what ‘short selling’ is, but they balk at actually unpacking the mechanisms that make it all possible. The BBC has a page that allegedly explains what short selling is called predictably, ‘Q&A: What exactly is short-selling?’ where we read:

“It is a technique that sees investors borrow an asset, such as shares, currencies or oil contracts, from another investor and then sell that asset in the relevant market hoping the price will fall.

“The aim is to buy back the asset at a lower price and return it to its owner, pocketing the difference.

“The same effect can be achieved without even borrowing the shares at all, but simply by using derivatives contracts – glorified bets.”

It goes on to tell us that:

“This practice may have been to blame for the slump in the shares of HBOS after it announced plans to raise £4bn through a rights issue back in April, and contributed to further huge falls in its shares in the three days before its takeover was announced.” — ‘So what is short-selling?’, BBC News Website, 22 September, 2008.

And finally, excuses the entire disaster by telling us:

“Are short sellers solely to blame for the slump in HBOS shares?

“Many analysts say no.” (ibid)

Well nobody is saying that short selling is the sole cause but it is definitely part of an entire package of speculations in shares, currency values and interest rates. Short sellers have been made the culprits (with the help of the BBC) but they are only one example of what happens when you have a completely unregulated capitalism (and in any case, as with with insider trading, it’s virtually impossible to stop, see below).

And of course you’ll still have to know what a ‘derivative’ is. Not surprisingly, the BBC doesn’t have a page entitled ‘So what is a derivative?’ but elsewhere, business mavens are less circumspect in their explanation of a derivative:

“One of the conclusions of this paper is that the sheer magnitude of derivative instruments combined with the principle of credit risk or assumed credit risk makes for a potentially devastating banking crisis.” — ‘Derivatives 101 – Big Bets’ By Chris Laird, 17 May, 2004.

The same article explains:

“A derivative contract is basically a contract between two parties that is linked to interest rates, currency exchange rates or indexes. The derivative contract links the holder of the contract to the risk and rewards of holding or owning a financial instrument, but without actually holding the instrument. It has tremendous leveraging effects.” (ibid)

Laird’s kicker is:

“In fact…derivatives are basically big bets made with heretofore unattainable leverage, and in amounts that are simply astounding, even to financially savvy mindsets. They expose not only the holders of the derivatives contracts to the risk, but the dealer banks as well if the holders default, (counter-party risk).”


One of the principles of derivatives is that the risks are managed, but only to the extent that things are foreseen in the model. UNEXPECTED events are highly dangerous as a result.” (ibid)

Whoa, tell me about it! And this article was written in 2004! Note the use of the term ‘model’. These are complex algorithms that pretend to fathom the working of the betting shop, sorry, the stock exchange.

The piece ends with the following, well, warning:

“If any one party defaults, a cascade of time dependent defaults follows. Since the amounts involved are so huge, any weak link is a major risk to the system. As of today, interest rates are moving. So, since the majority of derivatives are tied to interest rates, and interest rates are in flux right now, this is a time of higher risk than we have seen in recent years.”(ibid)

But all derivatives hold one thing in common: Hedging (one’s bet), dealing and speculating, and of course, the interest rate which like shares and currencies is also subject to speculation, betting on its value at some point in the future, whether up or down.

Ultimately it’s a pyramid scheme of astounding, nay, mind-numbing size, in fact tens of trillions of dollars have not only been stolen, but worse, it uses fictional money (as is the case with all pyramid schemes, large and small). Fictional because all the trading in futures, derivatives, hedge funds, call them what you will, relies on the involvement of the central banks and government in the scam, not only in printing the money to keep the fraud going, but by making it legal to setup these pyramid schemes in the first place. It’s called ‘de-regulation’.

The people and institutions who end up with the moola are those who set them up in the first place (as is the case with all pyramid schemes) when they sold their bits of paper to people and institutions like banks and insurance companies just as greedy as they are.

The wealth is real but it’s been siphoned off as part of the gigantic paper trading schemes that goes on between hedge funds, insurance companies, banks, and investment corporations, with each one raking off a pecentage, a fee or charges resulting from insuring (and re-insuring, even re-re-insuring) the transactions, all of which are really bad debts as no real wealth has been created.

For the real values of all the pyramid selling are not what the bits of paper say they are, so sooner or later those at the bottom of the pyramid—that’s the great majority of us and who never asked to be part of the pyramid—are paying the price, that’s what the ‘bailout’ is all about. That’s what nationalizing the big financial corps is all about. When capitalism fails, the state, using our money, steps in. But it doesn’t end here as governments will have to borrow the money to shore up capitalism, thus look forward to greater cuts in social spending and rising taxes.

The panic is palpable as the recent decision to ban all short trading (until January 2009) reveals but it will do nothing to halt the slide, it’s much too late for that, and more to the point it looks good in the corporate media, apparently dissing all those greedy traders. The reality is something else as:

“While the SEC measure will prohibit small investors from profiting on the downturn, big investors have a very easy way around this.

“They will simply go short [sell] on complete indexes like the Dow Top 30, FTSE 100 or S&P 500 and will then go long, i.e. buy, all single stocks in that index that are not the ones they want to target. The net effect is a short position on the targeted financials only.

“It will take a day or two for large hedge funds to set this up effectively and reprogram their computers to automate the process. Then the financial stocks will sink again as is appropriate.

“The SEC would have to prohibit all index option trading to prevent this, but that would freeze and ruin lots of investors like pension funds that have done nothing wrong.” — ‘How To Still Short Financials’, – Moon of Alabama.

What all of this reveals is the total chaos of capitalist economics, made all the more fragile by the interconnectedness of hundreds of ‘national’ economies, that have little or no control over the international nature of capitalism.