Weimar republic
By now you will have noticed that something has seriously gone wrong in the US. Many banks have serious problems and are writing of billions of dollars in “bad loans” aka the “subprimal slime” . The most prominent recent example of that was Bear Stearns, a former triple A bank that fell down hard. The bank, formerly advised as a solid investment by many financial advisers, nearly went bankrupt and was purchased by JP Morgan, another major US bank.
So all is well? Bear Stearns has been “saved” by JP Morgan and we can all go back to sleep? After all, the fear of subprimal loan write offs have been met by the Federal Reserve and the market…
Not really. The underlying financial US swamp of misery is huge. Banks in the US are in love with banking on financial derivatives. Derivatives are financial instruments whose value is derived from the value of something else. The main types of derivatives are futures, forwards, options, and swaps.
Derivatives massively leverage the debt in an economy. This makes it extremely hard for the “real economy” to service its debt obligations and curtailing real economic activity, which can cause a recession or even depression.
And now JP Morgan bought Bear Stearns and acquired $84.000 billion (!) on derivates. To give you an idea how big that amount is: it is the same amount as the total US Gross National Product (GNP)!
And how much equity does JP Morgan support to carry the weight of this truckload of derivates? $123 Billion. This implies that JP Morgan has 0.14% of securities backing all these derivates. Wow. The result: when JP Morgan would make a loss of 0,14% on their derivates, they will explode too, like Bear Stearns.
And JP is not the only US bank who is tied to high risk derivates. A few big ones follow closely.
Citigroup: $35.700 billion on derivates
Lehman Brothers: $21.700 billion on derivates
Goldman Sachs: $92.000 billion on derivates
Morgan Stanley $77.000 billion on derivates
Merrill Lynch: $56.000 billion on derivates
This is a huge problem. Basically, the explosion of high risks is caused by criminal large bankers who conspired against the hardworking US citizens for profits, of course. This is my conclusion. And, in the mean time, the Fed’s main man Bernanke is printing dollars to get more liquidity in the market. A desperate measure…The whole situation looks frighteningly like the pre-WWII German Weimar Republic that ended in hyperinflation and more misery.
Why don’t US citizens wake up from their deep consumer sleep and smell the coffee. Wakie wakie, eggs and bakie.
I realized that it’s getting bad, business is very slow in our area, but not the restaurant business, when it comes to food, people just eat like there’s no tomorrow, which I don’t understand at all, I don’t know if it’s a status symbol, no wonder we’re the fattest nation in the world. I’d expect things to be bad for the next 2 years, and many of our retirement money, one being 401K really gets hit hard, last year was a real bad year for me, and not a pretty picture for this year or next year. Some people that I know actually blame it on this year being the presidential election year, and that it’ll get better (a wishful thinking I believed,) but it’s more than that, people are living above their means, sort of living in the bubble and it’s busting, just like the loan or housing market right now. One business that I foresee that is blooming is the mental institution; I think that’s where a lot of people are heading. Don’t act too happy, I’m not going there.