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LONG STORY: A derivative is a legal bet (contract) that derives its value from another asset, such as the future or current value of oil, government bonds or anything else.
Ex- A derivative buys you the option (but not obligation) to buy oil in 6 months for today's price/any agreed price, hoping that oil will cost more in future. (I'll bet you it'll cost more in 6 months).
Derivative can also be used as insurance, betting that a loan will or won't default before a given date. So its a big betting system, like a Casino, but instead of betting on cards and roulette, you bet on future values and performance of practically anything that holds value. The system is not regulated what-so-ever, and you can buy a derivative on an existing derivative. Most large banks try to prevent smaller investors from gaining access to the derivative market on the basis of there being too much risk. Deriv. market has blown a galactic bubble, just like the real estate bubble or stock market bubble (that's going on right now). Since there is literally no economist in the world that knows exactly how the derivative money flows or how the system works, while derivatives are traded in microseconds by computers, we really don't know what will trigger the crash, or when it will happen, but considering the global financial crisis this system is in for tough times, that will be catastrophic for the world financial system since the 9 largest banks shown below hold a total of $228.72 trillion in Derivatives - Approximately 3 times the entire world economy. No government in world has money for this bailout. Lets take a look at what banks have the biggest Derivative Exposures and what scandals they've been lately involved in. |
One Hundred Dollars |
$100 - Most counterfeited money denomination in the world. Keeps the world moving. |
Ten Thousand Dollars |
$10,000 - Enough for a great vacation or to buy a used car. Approximately one year of work for the average human on earth. |
100 Million Dollars |
$100,000,000 - Plenty to go around for |
1 Billion Dollars |
$1,000,000,000 - This is how a billion dollars looks like. |
1 Trillion Dollars |
$1,000,000,000,000 - When they throw around the word "Trillion" like it is nothing, this is the reality of $1 trillion dollars. The square of pallets to the right is $10 billion dollars. 100x that and you have the tower of $1 trillion that is 465 feet tall (142 meters). |
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$100 Million Dollars = 1 year of work for 3500 average Americans |
It takes 3500 Americans 1 year of work to make $100 Million dollars. The 155 million Americans who worked with earnings in 2005 on average made $28,567 / year. In front of the 3500 people is the $100 Million pallet that they all have to work for 1 year to earn. Look carefully to see a stack of $1 Million and the 35 average Americans required to earn that $1 Million in 1 year. |
Bank of New York Mellon |
BNY has a derivative exposure of $1.375 Trillion dollars. |
State Street Financial |
State Street has a derivative exposure of $1.390 Trillion dollars. |
Morgan Stanley |
Morgan Stanley has a derivative exposure of $1.722 Trilion dollars. |
Wells Fargo |
Wells Fargo has a derivative exposure of $3.332 Trillion dollars. |
HSBC |
HSBC has a derivative exposure of $4.321 Trilion dollars. |
Goldman Sachs |
Goldman Sachs has a derivative exposure of $44.192 Trillion dollars. |
Bank of America |
Bank of America has a derivative exposure of $50.135 Trillion dollars. |
Citibank |
Citibank has a derivative exposure of $52.102 Trillion dollars. |
JP Morgan Chase (JPM) |
JP Morgan Chase has a derivative exposure of $70.151 Trillion dollars. |
9 Biggest Banks' Derivative Exposure - $228.72 Trillion |
Note the little man standing in front of white house. The little worm next to lastfootball field is a truck with $2 billion dollars. |
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