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=By= Michael Snyder

Did you know that there are 5 “too big to fail” banks in the United States that each have exposure to derivatives contracts that is in excess of 30 trillion dollars?  Overall, the biggest U.S. banks collectively have more than 247 trillion dollars of exposure to derivatives contracts.  That is an amount of money that is more than 13 times the size of the U.S. national debt, and it is a ticking time bomb that could set off financial Armageddon at any moment.  Globally, the notional value of all outstanding derivatives contracts is a staggering 552.9 trillion dollars according to the Bank for International Settlements.  The bankers assure us that these financial instruments are far less risky than they sound, and that they have spread the risk around enough so that there is no way they could bring the entire system down.  But that is the thing about risk – you can try to spread it around as many ways as you can, but you can never eliminate it.  And when this derivatives bubble finally implodes, there won’t be enough money on the entire planet to fix it.

A lot of readers may be tempted to quit reading right now, because “derivatives” is a term that sounds quite complicated.  And yes, the details of these arrangements can be immensely complicated, but the concept is quite simple.  Here is a good definition of “derivatives” that comes from Investopedia…

A derivative is a security with a price that is dependent upon or derived from one or more underlying assets. The derivative itself is a contract between two or more parties based upon the asset or assets. Its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes.

I like to refer to the derivatives marketplace as a form of “legalized gambling”.  Those that are engaged in derivatives trading are simply betting that something either will or will not happen in the future.  Derivatives played a critical role in the financial crisis of 2008, and I am fully convinced that they will take on a starring role in this new financial crisis.

And I am certainly not the only one that is concerned about the potentially destructive nature of these financial instruments.  In a letter that he once wrote to shareholders of Berkshire Hathaway, Warren Buffett referred to derivatives as “financial weapons of mass destruction”…

The derivatives genie is now well out of the bottle, and these instruments will almost certainly multiply in variety and number until some event makes their toxicity clear. Central banks and governments have so far found no effective way to control, or even monitor, the risks posed by these contracts. In my view, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.

Since the last financial crisis, the big banks in this country have become even more reckless.  And that is a huge problem, because our economy is even more dependent on them than we were the last time around.  At this point, the four largest banks in the U.S. are approximately 40 percent larger than they were back in 2008.  The five largest banks account for approximately 42 percent of all loans in this country, and the six largest banks account for approximately 67 percent of all assets in our financial system.

So the problem of “too big to fail” is now bigger than ever.

If those banks go under, we are all in for a world of hurt.

Yesterday, I wrote about how the Federal Reserve has implemented new rules that would limit the ability of the Fed to loan money to these big banks during the next crisis.  So if the survival of these big banks is threatened by a derivatives crisis, the money to bail them out would probably have to come from somewhere else.

In such a scenario, could we see European-style “bail-ins” in this country?

Ellen Brown, one of the most fierce critics of our current financial system and the author of Web of Debt, seems to think so…

Dodd-Frank states in its preamble that it will “protect the American taxpayer by ending bailouts.” But it does this under Title II by imposing the losses of insolvent financial companies on their common and preferred stockholders, debtholders, and other unsecured creditors. That includes depositors, the largest class of unsecured creditor of any bank.

Title II is aimed at “ensuring that payout to claimants is at least as much as the claimants would have received under bankruptcy liquidation.” But here’s the catch: under both the Dodd Frank Act and the 2005 Bankruptcy Act, derivative claims have super-priority over all other claims, secured and unsecured, insured and uninsured.

The over-the-counter (OTC) derivative market (the largest market for derivatives) is made up of banks and other highly sophisticated players such as hedge funds. OTC derivatives are the bets of these financial players against each other. Derivative claims are considered “secured” because collateral is posted by the parties.

For some inexplicable reason, the hard-earned money you deposit in the bank is not considered “security” or “collateral.” It is just a loan to the bank, and you must stand in line along with the other creditors in hopes of getting it back.

As I mentioned yesterday, the FDIC guarantees the safety of deposits in member banks up to a certain amount.  But as Brown has pointed out, the FDIC only has somewhere around 70 billion dollars sitting around to cover bank failures.

If hundreds of billions or even trillions of dollars are ultimately needed to bail out the banking system, where is that money going to come from?

It would be difficult to overstate the threat that derivatives pose to our “too big to fail” banks.  The following numbers come directly from the OCC’s most recent quarterly report (see Table 2), and they reveal a recklessness that is on a level that is difficult to put into words…

Citigroup

Total Assets: $1,808,356,000,000 (more than 1.8 trillion dollars)

Total Exposure To Derivatives: $53,042,993,000,000 (more than 53 trillion dollars)

JPMorgan Chase

Total Assets: $2,417,121,000,000 (about 2.4 trillion dollars)

Total Exposure To Derivatives: $51,352,846,000,000 (more than 51 trillion dollars)

Goldman Sachs

Total Assets: $880,607,000,000 (less than a trillion dollars)

Total Exposure To Derivatives: $51,148,095,000,000 (more than 51 trillion dollars)

Bank Of America

Total Assets: $2,154,342,000,000 (a little bit more than 2.1 trillion dollars)

Total Exposure To Derivatives: $45,243,755,000,000 (more than 45 trillion dollars)

Morgan Stanley

Total Assets: $834,113,000,000 (less than a trillion dollars)

Total Exposure To Derivatives: $31,054,323,000,000 (more than 31 trillion dollars)

Wells Fargo

Total Assets: $1,751,265,000,000 (more than 1.7 trillion dollars)

Total Exposure To Derivatives: $6,074,262,000,000 (more than 6 trillion dollars)

As the “real economy” crumbles, major hedge funds continue to drop like flies, and we head into a new recession, there seems to very little alarm among the general population about what is happening.

The mainstream media is assuring us that everything is under control, and they are running front page headlines such as this one during the holiday season: “Kylie Jenner shows off her red-hot, new tattoo“.

But underneath the surface, trouble is brewing.

A new financial crisis has already begun, and it is going to intensify as we head into 2016.

And as this new crisis unfolds, one word that you are going to want to listen for is “derivatives”, because they are going to play a major role in the “financial Armageddon” that is rapidly approaching.

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Michael Snyder is a graduate of the University of Florida law school and he worked as an attorney in the heart of Washington D.C. for a number of years. Today, Michael is best known for his work as the publisher of The Economic Collapse Blog and The American Dream. If you want to know what things in America are going to look like in a few years read his new book The Beginning of the End.

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CATEGORY MAIN

=By= Timothy Alexander Guzmam

The threat of war against Iran is not just about its natural resources, strategic control and supposedly to protect Israel, it is also about the US dollar being used for its oil trades. Iran is moving forward to replace US dollars for its foreign trade with Russia in rials and Russian rubles. This past January, Iran made a significant move by “stopping mutual settlements in dollars with foreign countries.” According to RT news “the Central Bank of Iran (CBI) has said. “In trade exchanges with foreign countries, Iran uses other currencies, including Chinese yuan, euro, Turkish lira, Russian ruble and South Korean won,” Gholamali Kamyab, CBI deputy head, told the Tasnim state news agency. Iranian and Russian delegates have met to discuss new trade agreements. The Iran Daily just published a report that Iran and Russia are in the process of “establishing a joint bank account with Russia to facilitate trade between the two countries in their own currencies.” The Central Bank of Iran (CBI) governor Valiollah Seif stressed the importance of connecting their banking sectors to bolster trade between Iran and Russia. Seif says that a special committee is needed to overcome any obstacles (U.S. sanctions) and to provide lines of credit. The Iran Daily reported what Iran’s ambassador had said in January regarding Iran and Russia’s trade in their own currencies:

ran’s Ambassador to Russian Mehdi Sanaei said in late January that Tehran and Moscow are working on a plan to switch their bilateral trade to national currencies for which he said the two countries will create a joint bank or a mutual account. “Both sides plan to create a joint bank, or joint account, so that payments may be made in Rubles and Rials and there is an agreement to create a working group [for this],” said Sanaei

This past March, Iran and Russia signed an agreement to jointly create a regulation committee to “oversee interbank financial transactions between the two countries.” The positive outcome of the agreements is to avoid any future sanctions Washington and its crony allies use as a financial weapon against its adversaries. The Iran daily concluded what the outcome would achieve in the long term:

The agreement – that was signed between the Iranian and Russian central banks – took both countries one step closer toward the establishment of the promised joint bank – which is believed to have been specifically designed to help dodge the effects of US-led sanctions on the two countries

That is why Washington is desperate to overthrow the Assad government and that is to weaken Iran’s influence in the region. If Assad is successfully removed, Israel would then concentrate on Hezbollah with an all-out attack. If Syria and Hezbollah is defeated militarily, then Iran would be threatened with a joint Israel-US led war possibly with nuclear weapons especially if Hillary Clinton or most of the Republican front-runners were to become president. Iran is sure making Washington very nervous.

The Currency War on Oil producing countries: Iraq, Venezuela and Libya

Iraq, Venezuela and Libya tried to drop US dollars for oil trades but were met with resistance from Washington. Before the 2003 invasion of Iraq, Saddam Hussein (a former U.S. ally) decided he wanted to use Euros instead of US dollars for oil transactions. That was one of the main reasons that the Bush regime wanted to remove Saddam Hussein in the first place, not because of the fabricated “Weapons of Mass Destruction (WMDs)” story published by the New York Times author Judith Miller which was the justification for the U.S. invasion of Iraq (codename ‘Operation Iraqi Freedom’). The U.S. government and its big oil companies control world oil-markets with its dollar as the “fiat” international trading currency, but Iraq’s President Saddam Hussein defied the U.S. and it dollar supremacy by replacing it with the Euro. In 2006, Former Texas congressman Ron Paul explained Washington’s real motives behind their WMD lies against Iraq and the coup attempt against Venezuelan President Hugo Chavez by the Bush regime concerning the US dollar before the U.S. House of Representatives:

In November 2000 Saddam Hussein demanded Euros for his oil. His arrogance was a threat to the dollar; his lack of any military might was never a threat. At the first cabinet meeting with the new administration in 2001, as reported by Treasury Secretary Paul O’Neill, the major topic was how we would get rid of Saddam Hussein– though there was no evidence whatsoever he posed a threat to us. This deep concern for Saddam Hussein surprised and shocked O’Neill.

It now is common knowledge that the immediate reaction of the administration after 9/11 revolved around how they could connect Saddam Hussein to the attacks, to justify an invasion and overthrow of his government. Even with no evidence of any connection to 9/11, or evidence of weapons of mass destruction, public and congressional support was generated through distortions and flat out misrepresentation of the facts to justify overthrowing Saddam Hussein

One of the main reasons of the invasion of Iraq was about Saddam Hussein’s goal to eliminate the US dollar and replacing it with the Euro for Iraq’s oil sales, but that did not stop there. Ron Paul also mentioned Venezuela under the leadership of President Hugo Chavez at the time:

In 2001, Venezuela’s ambassador to Russia spoke of Venezuela switching to the Euro for all their oil sales. Within a year there was a coup attempt against Chavez, reportedly with assistance from our CIA. After these attempts to nudge the Euro toward replacing the dollar as the world’s reserve currency were met with resistance, the sharp fall of the dollar against the Euro was reversed. These events may well have played a significant role in maintaining dollar dominance

Iran is a long term goal for regime change. However, with Russia and China in the picture, it seems very “less likely” to happen. Russia and China are major obstacles for the pentagon war planners. The US has hopes that the Islamic state can create more chaos in the region allowing ISIS to target Iran within its borders but that is a long shot. Iran is leading the charge in the Middle East to replace the US dollar with other currencies and Washington is panicking. Syria, Hezbollah and Russia stand in the way as the US dollar loses its dominance. Washington’s call for war will get louder as more countries around the world seek to replace the US dollar. Washington wants to make Iran an example to let the world knows what happens if you abandon their currency, just like they did to Iraq, Venezuela and even Libya. Libyan President Muammar Gaddafi’s planned a “single African currency” linked to gold that would have dethroned US dollars and the Euro for African oil trades and possibly other transactions which was the reason why Washington ordered US-NATO forces to remove Gaddafi from power.

Will Washington force Iran to use its dollars for its oil transactions with the threat of war? With major powers backing the Islamic republic, it will be an impossible task to accomplish. As more countries demand less US dollars, a decline in the “exchange value” will result in a weaker dollar. Usually when countries demand a certain currency on the foreign exchange markets, the value of that particular currency increases. So will the US war machine attempt to force countries such as Iran to use its dollars for its oil trades to keep the dollar afloat? There is a “currency war” currently being waged by Iran and Russia. Who can blame them? Washington started this war with its economic sanctions on Iran and Russia because they do not comply with its demands as Imperial power that makes all the rules for the world to follow. Now Iran and Russia will finish it by dropping the US dollars for their business transactions, a solution long overdue.

 

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Timothy Alexander Guzman is an independent researcher and writer with a focus on political, economic, media and historical spheres. He has been published in www.Globalresearch.ca, The Progressive Mind, European Union Examiner, News Beacon Ireland, www.whatreallyhappened.com, EIN News and a number of other alternative news sites. He is a graduate of Hunter College in New York City.

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Globalization

=By= Prof. James Petras

The IMF is the leading international monetary agency whose public purpose is to maintain the stability of the global financial system through loans linked to proposals designed to enhance economic recovery and growth.

In fact, the IMF has been under the control of the US and Western European states and its policies have been designed to further the expansion, domination and profits of their leading multi-national corporations and financial institutions.

The US and European states practice a division of powers:  The executive directors of the IMF are Europeans; their counterparts in the World Bank (WB) are from the US.

The executive directors of the IMF and WB operate in close consultation with their governments and especially the Treasury Departments in deciding priorities, deciding what countries will receive loans, under what terms and how much.

The loans and terms set by the IMF are closely coordinated with the private banking system.  Once the IMF signs an agreement with a debtor country, it is a signal for the big private banks to lend, invest and proceed with a multiplicity of favorable financial transactions.  From the above it can be deduced that the IMF plays the role of general command for the global financial system.

The IMF lays the groundwork for the major banks’ conquest of the financial systems of the world’s vulnerable states.

The IMF assumes the burden of doing all the dirty work through its intervention.  This includes the usurpation of sovereignty, the demand for privatization and reduction of social expenditures, salaries, wages and pensions, as well as ensuring the priority of debt payments.  The IMF acts as the ‘blind’ for the big banks by deflecting political critics and social unrest.

Executive Directors as Hatchet Persons

What kind of persons do the banks support as executive directors of the IMF? Whom do they entrust with the task of violating the sovereign rights of a country, impoverishing its people and eroding its democratic institutions?

They have included a convicted financial swindler; the current director is facing prosecution on charges of mishandling public funds as a Finance minister; a rapist; an advocate of gunboat diplomacy and the promotor of the biggest financial collapse in a country’s history.

IMF Executive Directors on Trial

The current executive director of the IMF (July 2011-2015) Christine Lagarde is on trial in France for misappropriation of a $400-million-dollar payoff to tycoon Bernard Tapie while she was Finance Minister in the government of President Sarkozy.

The previous executive director (November 2007-May 2011), Dominique Strauss-Kahn, was forced to resign after he was charged with raping a chambermaid in a New York hotel and was later arrested and tried for pimping in the city of Lille, France.

His predecessor, Rodrigo Rato (June 2004-October 2007), was a Spanish banker who was arrested and charged with tax evasion, concealing ϵ27 million euros in seventy overseas banks and swindling thousands of small investors who he convinced to put their money in a Spanish bank, Bankia, that went bankrupt.

His predecessor a German, Horst Kohler, resigned after he stated an unlikely verity – namely that overseas military intervention was necessary to defend German economic interests, such as free trade routes.  It’s one thing for the IMF to act as a tool for imperial interests; it is another for an IMF executive to speak about it publically!

Michel Camdessus (January 1987-February 2000) was the author of the “Washington Consensus” the doctrine that underwrote the global neo-liberal counter-revolution. His term of office witnessed his embrace and financing of some of the worst dictators of the time, including his own photo-ops with Indonesian strongman and mass murderer, General Suharto.

Under Camdessus, the IMF collaborated with Argentine President Carlos Menem in liberalizing the economy, deregulating financial markets and privatizing over a thousand enterprises.  The crises, which ensued, led to the worst depression in Argentine history, with over 20,000 bankruptcies, 25% unemployment and poverty rates exceeding 50% in working class districts . . . Camdessus later regretted his “policy mistakes” with regard to the Argentine’s collapse.  He was never arrested or charged with crimes against humanity.

Conclusion

The criminal behavior of the IMF executives is not an anomaly or hindrance to their selection.  On the contrary, they were selected because they reflect the values, interests and behavior of the global financial elite:  Swindles, tax evasion, bribery, large-scale transfers of public wealth to private accounts are the norm for the financial establishment.  These qualities fit the needs of bankers who have confidence in dealing with their ‘mirror-image’ counterparts in the IMF.

The international financial elite needs IMF executives who have no qualms in using double standards and who overlook gross violations of its standard procedures.  For example, the current executive director, Christine Lagarde, lends $30 billion to the puppet regime in the Ukraine, even though the financial press describes in great detail how corrupt oligarchs have stolen billions with the complicity of the political class (Financial Times, 12/21/15, pg. 7).  The same Lagarde changes the rules on debt repayment allowing the Ukraine to default on its payment of its sovereign debt to Russia.  The same Lagarde insists that the center-right Greek government further reduce pensions in Greece below the poverty level, provoking the otherwise accommodating regime of Alexis Tsipras to call for the IMF to stay out of the bailout (Financial Times, 12/21/15, pg.1).

Clearly the savage cut in living standards, which the IMF executives decree everywhere is not unrelated to their felonious personal history.   Rapists, swindlers, militarists, are just the right people to direct an institution as it impoverishes the 99% and enriches the 1% of the super-rich.

 

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