TFC & Sabrosky on Iran Situation

[1] DBS says the derivatives market will crash the whole system. He’s right – sort of.

Banks don’t pay on derivatives claims (e.g. CDCs). They just sell the insurance, collect the money for it, and don’t pay.

If you buy insurance (derivatives) to cover your investments, and your investments go bad because there is a default, then you go to the party who sold you the insurance.

However this is not like a house burning down, or a tanker sinking.

The agency that decides whether there has been default is the International Swaps and Derivatives Association (ISDA), which is owned by the world’s largest banks and hedge funds – i.e. the people who sold you the insurance. They say, “There has been no default,” and voila: no insurance payout. You lose everything, as do all your pensioners, IRA clients, and so on.

This is what finished MF Global last October (the eighth-largest U.S. bankruptcy). 

MF Global used complex repurchase agreements (“repos”) for funding and for leveraging profit.  MF Global then used this leveraged money to make a bad trade in Euro-stocks and bonds worth $6.3 billion. Since MF Global was leveraged anywhere from 40 to 1, to 80 to 1 (depending on whose figures you believe) the losses were FAR bigger than $6.3 billion. And when European bondholders supposedly agreed to a “haircut” of 50%, MF Global faced total collapse. 

But hey, MF Global had bought insurance (derivatives), right? So MF Global went to the big banks and hedge funds who sold the insurance, and tried to collect. But the insurance sellers said there had been no default, and thus no payout.

So MF Global went down, and JP Morgan / Chase directly and blatantly stole $1.2 billion from the crash.

Contrary to popular opinion, derivatives don’t threaten the big banks and hedge funds directly, since they don’t pay. Derivatives threaten the rest of the system, which was built on a house of cards, consisting of worthless insurance policies. And now that everyone realizes this, investors are clamming up, making the depression even worse.

Greece went into default years ago when its debt exceeded its GDP.  But the bankers claim that Greece has not defaulted, since the Greek government survives by continuing to take on more debt. This cannot continue much longer. The Greek masses are in agony, and it gets worse every day. Certainly Greece will break this year.

But the banks won’t pay out. Hence we will see a domino line of MF Globals, because they are all leveraged. That is, they have a dollar, which they bet in the hope of getting a $100 profit. But when the bet goes bad, they must pay $100.

Thus, DBS is correct, albeit indirectly. It’s terrifying, but what can we do?

We could solve all this with a public central bank, but the private bankers own everything, and won’t allow a public bank. South Dakota has one, but it was set up decades ago, and SD’s population is only 824,000, equal to one of the suburbs of Los Angeles.

No, we’re on this ride all the way to the end of the line.

[2] DBS’ guest Sabrosky thinks we will see a repeat of WW II in which extremely leftist or right regimes rise amid the chaos. I think this is wishful thinking, based on the hope of having a war in which everything is rationed, but we at least have food. 

Sabrosky thinks the trigger will be an Israeli or US attack on Iran. I say there will be no such attack. The West is currently engaged in a financial attack, which is far more devastating on Iran.

Military attacks unite and galvanize the target victims. Financial attacks cause hunger, reducing your victims to savages who turn against each other.

Incredibly, Sabrosky thinks US elections are not totally controlled. He thinks Obama will attack Iran if Obama thinks he will lose to a Republican candidate.

[3] Sabrosky says the routine Jewish slaughter of Palestinians is treated as a conflict between equals.

Yes. I grimace when I hear people refer to the Israeli-Palestinian “conflict.”

Last Sunday in Afghanistan there was no massacre. There was a “conflict.”

[4] DBS has no faith in Putin. I don’t either.