Derivatives Bubble is 1.4 Quadrillion Dollars

Can the derivatives bubble wipe out the wealth of a Nation? What are derivatives and how can you prepare?

The dictionary says derivatives are "an arrangement or instrument (such as a future, option, or warrant) whose value derives from and is dependent on the value of an underlying asset." In plain English derivatives are (in some situations) nothing more than legalized gambling, sometimes gambling with your grandmothers pension fund.

Warren Buffet said many years ago "Derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal." What most people don't know is that he still uses them, has made billions from them, but he fully understands the potential disaster they will cause.
A overly simplistic view of derivatives is this. You and I meet and I say "I bet my neighbor Mr. Johnson is going to default on his mortgage" You say, "Johnson owns a Bentley, and is very rich, Ill take that bet" So you bet he will pay his mortgage I bet he defaults. Now we don't even have to use our own money, we only need to put in 2-10% of our total bet and tell each other we are good for the rest. Now picture all the neighbors betting on whether Mrs Jones apple tree business will yield fruit, Mr. Davis hardware store will go under, so on and so forth. Our bets are not really tied to the actual value of anything. And everyone makes a ton of money until Mr Johnson actually loses his house, Mr. Davis Hardware store goes under, and Mrs Jones apple trees all perish from drought. Now all of a sudden these bets come due and everyone realizes nobody actually has money to cover these bets because you only put in 2-10% of the bet. But deep down we didn't care because the taxpayers will probably bail us out anyway. If you are a US taxpayer you already owe about $190,000 on your share of the US National debt alone which stands at 23 trillion dollars.
Think 23 trillion is a lot of money? the derivatives market some suggest is as high as 1.4 quadrillion dollars. That's 10 times the size of the entire global economy. Which is fine - as long as the system keeps working as it should. But what if something goes wrong?
The 2008 collapse most people think was just a housing bubble. Reality is that nobody actually knows what exactly caused the crisis, but what do you think subprime mortgage backed securities are? They're derivatives. Bank lends money to a home buyer, bank sells the mortgage to Fannie Mae, Fannie resells the mortgage in secondary markets, the hedge fund splits up the mortgage backed security into higher and lower risk portions, and sells it. You get higher interest if you bet on riskier mortgages or parts of mortgages further into the mortgage term. This is all fun until people can't pay their mortgages. Then we have the collapse where the taxpayers, thats you, bail out the big banks as a reward for the enormous risks and bets they took that made them billions. I guess its not risky though when you know someone else will bail you out.
But they fixed everything after the last collapse right? No. Huge reforms were attempted by Obama which banks fought against and basically won. Not only did the CEO's responsible for the collapsing the economy not go to jail, the industry sued anyone trying to regulate them, they lobbied, they used every trick at their disposal to circumvent regulation, get back to boom days and today nothing has changed. The top 6 banks that were too big to fail now account for 2/3rds of the entire banking industry.
Last year Deutsche Bank started laying off 18,000 people and had an estimated 49 trillion dollars in derivatives exposure. By the way JP Morgan 48 trillion in derivatives, Citigroup 47 trillion, Goldman Sachs 42 trillion. Now you may not have heard of Deutsche Bank, but you should know that if this bank falls, and it is struggling right now, laying off 10's of thousands of people, and doing major restructuring, which includes trying to sell off some of these useless, worthless derivatives that nobody wants, if it falls the interconnections between all global banks will quite possibly set off a domino effect throughout the entire world. The IMF says Deutsche Bank poses a greater threat to global financial stability than any other bank,......... and they said that back when DB was in much better financial shape.
Nobody knows what will start the next recession but derivatives might be a big part of that problem. The good news is if you are prepared recessions are fantastic opportunities. We just uploaded a video on recession proof business and why starting a business in a recession is actually a great time. link above. Gold and precious metals can also be a wise investment you can watch that video by clicking below. please like and subscribe - Thanks for watching.

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