Financial Weapons Of Mass Destruction: Top 25 US Banks Have 222 Trillion Dollars Derivatives Exposure

 

The recklessness of the “too big to fail” banks almost doomed them the last time around, but apparently they still haven’t learned from their past mistakes.  Today, the top 25 U.S. banks have 222 trillion dollars of exposure to derivatives.  In other words, the exposure that these banks have to derivatives contracts is approximately equivalent to the gross domestic product of the United States times twelve.  As long as stock prices continue to rise and the U.S. economy stays fairly stable, these extremely risky financial weapons of mass destruction will probably not take down our entire financial system.  But someday another major crisis will inevitably happen, and when that day arrives the devastation that these financial instruments will cause will be absolutely unprecedented.

During the great financial crisis of 2008, derivatives played a starring role, and U.S. taxpayers were forced to step in and bail out companies such as AIG that were on the verge of collapse because the risks that they took were just too great.

Coming Soon To A Checkout Lane Near You: Stock Giftcards

This is tantamount to predatory sales of high interest credit cards to young college students. What’s going to be interesting is how the naïve “investors” may not realize the tax implications and are going to get hit for capital gains. What if there’s a “buy” or “sell” option for cards? The average person on the street might not know these basic fundamentals. Legal ramifications involving shareholder revolts and lawsuits could also get a little interesting for companies as well.

Are age limits still going to apply? Depending on what state you live in, the age limit is 18 or 21 for buying, selling and trading.

There’s many questions and this will definitely be something to keep tabs on. Wall Street has just entered into ‘desperate mode’.

 

As we noted this morning, in the New Normal world, the only marginal buyer of Index futures are central banks [and] when it comes to individual stocks, the biggest buyer is the company itself.

The retail “dumb money” abandoned ship long ago after watching 40% of their 401ks go up in smoke on the heels of a meltdown catalyzed by the implosion of the American home ownership dream which, thanks to the Fed and Wall Street, had been supercharged and securitized. To the extent the turmoil in September and October of 2008 didn’t drive the individual investor permanently onto the sidelines, the subsequent realization that the entire “market” is nothing but a giant casino being manipulated at every turn by greedy cabals with names like “The Cartel” finished the job. 

Another Oligarch Preaches to the Peasants – Charlie Munger Says “Prepare for Harder World”

While several exceptionally wealthy and successful people have admirably come out and spoken passionately of the broken nature of financial markets and the political system, as well as the threat this poses to society in general (think Paul Tudor Jones and Nick Hanauer), there have been several examples of oligarchs coming out and conversely demonstrating their complete disconnect from reality, as well as a disdain for the masses within a framework of incredible arrogance.

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The latest example comes from Charlie Munger, Warren Buffett’s right hand man, who tends to demonstrate an incredible capacity for verbal diarrhea. Recall his commentary on gold: “gold is a great thing to sew onto your garments if you’re a Jewish family in Vienna in 1939.”