Here is a great, plain-English explanation for the economic clusterf*ck

[dixiegrrrrl]

" The fact is the third rock from the Sun has technically gone 'negative equity.' "

Here is how the money game has been played:

Bets made by brokers, bankers and speculators about the future direction of interest rates, oil, stocks, currencies, house prices, etc, . The curious thing about these bets made over the past few years is that they never get called. Instead of paying out, the house (in this case the world's banking system, ah, here they are, the prime brokerage service providers) simply allow the players to continuously raise the stakes by borrowing more money (for a fee, the banks' incentive to keep game going); a dependency, i.e., an addiction ensues as the debt-addicted funds borrow more from their debt/crack dealing banks. Meanwhile, the pot of money at the center of the game (collateralized by Earth's natural resources) keeps going up and up.

"............ this pot of money, held mostly offshore in Cayman banks, has a 'notional value' of over 85 trillion dollars. To put this in perspective, the entire output (GDP) of all the countries of the world is about 65 trillion dollars.
In other words, if the game were to come crashing down, there wouldn't be enough money to pay back the lenders even if every country in the world liquidated its economy. There is simply no collateral backing up this pot of money. That's why banks refer to this amount as 'notional.' It's a notion, or concept, a theory if you like, but it's not real in any sense of that word you or I might imagine it. It's just blips on a screen."

Full story....worth the read...

http://www.stwr.org/global-financial-crisis/get-ready-for-a-financial-tsunami.html

[ayeshahaqqiqa]

1. somehow I knew that it was gambling with stuff

that really isn't real. And yet, because of its ties to the banking industry, folks like me who won't even play the state lottery wind up paying dearly. This just isn't right. Socialize the banks and make the speculators earn an honest living doing something else--like raising vegetables to feed the hungry.

[truedelphi]

2. Scary times we live in. n/t

[NMDemDist2]

3. Money as Debt, watch the video if you haven't already

http://video.google.com/videoplay?docid=-9050474362583451279

[HamdenRice]

4. Sorry, but that just reads like financial "word salad"

Reads like some guy on the subway explaining the financial crisis by reference to radio transmissions being beamed into his dental fillings.

Hardly a true or logical statement in the entire paragraph.

[anigbrowl]

7. The article is rather better than the extract would suggest (and has one huge win point)

I'm not carrying a torch for the author, but I know who he is and he's fairly smart, though sexing it up a little for the sake of quotability. But hey, I have the same problem when I pick up a copy of Fortune. I've become overtrained by the Economist...

But anyway, the interesting fact is that it was written in 2005. While ignoring the fact that many derivatives actually offset each other (which he knows well but doesn't explain to the reader) and that GDP is a measure of annual productivity rather than equity (which I suspect he also knows), it's fairly prescient.

[specimenfred1984]

5. Not 1 single mention of the word "Crime"

and therein lies the problem.

[JohnWxy]

6. What made Credit Default Swaps legal and unregulated was the Commodity Futures Modernization act

introduced as a rider by Phil Gramm ("People are suffering a 'mental' recession") to the Omnibus Spending Bill (19,000 pages long) 2000. THis bill was voted down twice before. THe only way the Repubs could get it passed was to sneak it through.

THis bill specifically prohibited the CFTC from keeping any data on CDSs or regulating them.

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=114&topic_id=46775&mesg_id=46775