Author Topic: What are derivatives?  (Read 472 times)

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Offline Matthew

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What are derivatives?
« on: March 14, 2008, 05:14:55 PM »
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  • From an economics forum:

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    I have an idea, but I'm still mostly confused about the whole OTC derivatives thing. What exactly is it, and how is it worth 550 trillion?


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    They figured out a scheme to package loans into it's own financial package that could be sold off as an investment, at an exponential value. The real criminal scam here is that these companies that bought them, could actually hedge their bet with two of them. Normally, with an equal hedge, one would equally cancel the other out. With these, they always made a slim profit of virtual money that they could book on their balance sheets. Crazy, huh?

    Problem comes in when auditors entered the picture due to the new regulations. Now they have to price these to their actual value instead of "in house" models. They look at the base of these and find they are mortgages that have lost value. These packages now lost exponential value, which creates a huge writedown. Also, you have a company that actually wants to sell one that should have profited by it's "bet", but now no one will buy it back. That creates distrust between the financial institutions and they don't even want to lend to each other, bringing a liquidity crisis.

    Now for the part you actually care about .. to solve the liquidity crisis and the lost capitol due to writedowns of wrongly booked value of these things, they have to bail them out by printing money and getting it to them cheap. This monetary inflation, trashes the dollar and voila! Gold goes up! silver then follows gold because it's coupled with a "loose" leash of monetary relativity.

    I'll leave it at that, its the most simplistic version I can come up with for a short post. Hope that helps. If you understand this, congratulate yourself.
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    Offline gladius_veritatis

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    What are derivatives?
    « Reply #1 on: March 15, 2008, 03:40:27 PM »
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  • See Edgar Steel's recent article on this very topic here: http://www.conspiracypenpal.com
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    Offline gladius_veritatis

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    What are derivatives?
    « Reply #2 on: March 15, 2008, 03:41:26 PM »
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  • The gentleman's name is spelled "Steele".
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