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Jim Cook



Every once in a while I switch the TV channel from Fox to CNBC to see what the liberals are saying.  After listening awhile I get a deep sense of hopelessness and foreboding for our country.  The most important thing for the left is giving money to people.  They are happy to see the growth of food stamps, disability payments, housing subsidies, free healthcare and all the other welfare benefits.  They utterly fail to see the damage it is doing to the recipients.  Whole cities that once flourished have deteriorated into rotting eyesores populated with shambling hulks of chemically dependent drones.  These people are no longer employable.  They have become incompetent and helpless and the liberals can’t see that it’s their doing.

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The Best of Jim Cook Archive

Best of Bill Buckler
June 10, 2008
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There is a monster stalking the world's banking and financial system. It broke loose in August 2007 when the inter-bank system came to a sudden halt and banks stopped making loans to each other out of fear that loans would not be repaid. That marked the arrival of the global credit crunch.

The frantic moves by central banks radiating globally from the Fed outwards has clearly shown that not only was there a concern in these central banks to keep the payments systems working, they were quite prepared to supply the freshly printed money with which to do so.

CDS - Aka The Credit Default Swap:

Credit default swaps (CDS) are intended to cover losses to banks and bondholders if and when companies that have issued debt are unable to pay it back. The global growth of the notional value of such contracts grew by 81 per cent last year to reach a value of $US 62,200 Billion, that's $US 62.2 TRILLION! Eight years ago in 2000 when Credit Default Swaps first emerged, their total notional value was $US 900 Billion.

As a comparison, the total volume of US home mortgages outstanding in 2007 was about $US 12 TRILLION while the total of life insurance in the US was around $US 20 TRILLION. The CDS market is nearly twice as large as the total of both, and grew by 81 percent last year alone.

A Short Background Briefing:

If there are now $US 62 TRILLION "worth" of CDSs out there as a form of insurance, it is clear that US and other commercial banks see a gigantic debt smash up ahead. Why else would they have bought insurance?

The CDS - Made In The USA:

US CDSs have doubled every year since 2000. In the first six months of 2007, they grew 75 percent to a value that now eclipses the value of United States equities markets! All told, according to the Bank for International Settlements (BIS), there are now about $US 593 TRILLION of "derivatives" in existence. These range from currency swaps to interest rate swaps (by far the biggest sector), to exotica which have numbers/letters and equations on them. As a global comparison, normal financial capital such as stocks, bonds, mortgages, etc. currently represent 15 times the gross domestic product (GDP) of all countries. This global gearing between debts and GDPs is well past all former historic heights.

Historically in all past and similar instances where the world of "finance" has grotesquely diverged from the everyday world of businesses making things, that financial world has

collapsed in a total debacle.

US Financial Monsters Coming Out Of The Mist:

The commercial bankers around the West's financial system can see the heavy mist they are trying to hide is thinning out. They are not liking it one little bit. All their off balance sheet manoeuvres from Special Investment Vehicles (SIVs) to all the rest are now tearing huge holes in their balance sheets. Their losses have been enormous over the past year and they have had to yell for help from their central banks. The financial distress of the US commercial banks can be officially seen in earnings restatements by US banks. The FDIC has used these restatements to revise the US banking industry's net income for the fourth quarter of last year from $US 5.8 Billion to only $US 646 million - the lowest since the end of 1990! Look carefully at this last number and then add the fact that US banks set aside a record $US 37.1 Billion to cover losses on their real estate loans and other credits during the first quarter. This is a sign of the growing economic pain being caused by the global credit crisis, regulators said on May 29. How's that for understatement? Bank earnings of $US 646 million versus $US 37.1 Billion in write-offs!

How To Be A Very Happy Rabbit:

Behind all scams lies a simple principle, a principle kept out of sight from unsuspecting participants. In the case of "derivatives", the essential scam is a version of the two-play option game. This game is very simple. All it takes is a logical/mathematical mind. Go anywhere were options trade and sell a "put". The buyer willingly pays you money for that. Then, one goes and buys a "call" which is the right to buy the same thing that the earlier option is trading in. To do this takes very little money in real terms because one already has the money in hand from the put one sold. Add a bit more money and buy the call. The mechanism goes like this, and please note that the numbers are only for the purpose of demonstration. Sell one put for $10 and buy one call for about $10. Pay the broker two (minimal) fees for what he has done. What one is doing here is simply waiting for "volatility" and note here that all costs are covered. The price has in fact already been paid. What we have here is what is called a "hedge". Now sit back and wait for all that volatility! If the underlying asset, whether a stock, bond, commodity, currency - anything at all - crashes in value inside the lifetime of the options, the "put" - the right to sell at an earlier and higher price - moves into the money while the "call" is worthless and written off. If the price soars, the "call" is in the money and the "put" worthless. Cash-out when the momentum or the trading volume or the on-balance-volume decelerates. Repeat the process as required.

The only thing which can kill this basic play is stale and/or near stationary markets. If that misfortune happens, neither option moves into the money and when time runs out, both become void and it's a loss.

ALL derivatives are just complicated "high-low" options.

Ó 2008 – The Privateer

(reproduced with permission)


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