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The Derivatives Market: Bets, Bookies, and Fraud - Jeff Nielson

The Derivatives Market: Bets, Bookies, and Fraud - Jeff Nielson
By Jeff Nielson 2 years ago 12060 Views 11 comments

No one “understands” derivatives. How many times have readers heard that thought expressed (please round-off to the nearest thousand)? Why does no one understand derivatives? For many; the answer to that question is that they have simply been thinking too hard. For others; the answer is that they don’t “think”, at all.

Derivatives are bets. This is not a metaphor, or analogy, or generalization. Derivatives are bets. Period. That’s all they ever were. That’s all they ever can be. This can be easily illustrated by simply examining and defining some of the more well-known “derivatives”, meaning those derivatives with whom everyone is familiar with their labels.

Let’s start with the two largest and most-important forms of this gambling (and fraud): “interest rate swaps” and “credit default swaps”. What is an interest rate swap? This is a bet between a banker (i.e. the people who control interest rates) and a Chump, on which direction an interest rate will move.

Can anyone see a problem with this form of gambling/fraud? Correct. If you place bets on the direction of interest rates against the criminals who control those interest rates, you’re probably going to lose on those bets, almost all of the time. Is this what we saw in the interest rate swap “market”?

Not at first. At first the Chumps were allowed to win – on their small bets. That’s how you gets lots and lots more Chumps to get suckered into the scam, and how you get the Chumps to place larger and larger bets. But after the initial “success” of the Chumps, it was lose, lose, lose.

Case in point, self-declared “economic genius”: Larry Summers, former Treasury Secretary of the United States, and at that time, President of Harvard. No one thinks that Larry Summers knows more about economics and finance than Larry Summers. So it should be no surprise that this “genius” decided to bet against his friends the bankers in financing Harvard’s debt, via interest rate swaps.

How did he do? Summers managed to lose nearly $1 billion in financing a mere $2 billion of debt. To be more precise, not only did Harvard pay the full rate of interest on their debt, but (thanks to Summers’ gambling) the university paid an additional $900+ million in “penalties” – to avoid losing even more money on Summer’s gambling.

That’s what happens when you bet on interest rates against the people who create those interest rates. It’s obvious fraud, and it has resulted in at least one jurisdiction filing criminal charges against three of the largest fraud-factories in this scam: JPMorgan Chase & Co., Deutsche Bank, and UBS. But that’s all “old news” now.

To really understand “the derivatives market” as a whole requires understanding exactly what it is: history’s largest book-making operation (i.e. bookies). This is all that this rigged casino has ever represented: bookies taking bets. Here readers also need to understand how a bookie’s “market” operates.

Bookies take bets according to “odds”, the prevailing gambling-ratio for that particular bet, or the price it costs to place that bet. But these odds change over time. How do they change? They change based on the amount of money placed on each side of the bet. When more money is placed on one side of the bet, the price to place the bet (on one side) declines, while the price to place the bet on the other side rises.

The gambling itself moves the market. The financial crime syndicate noticed how this gambling operated, and figured out how they could create their own “book-making operation”, where all the bets were rigged, and where these banksters were not only allowed to take bets (i.e. act as bookies), they would also be allowed to place bets, in this same market. All they had to do was to make-up a bunch of euphemisms to hide this systemic crime.

Here we see fraud in its most-elementary form. ‘Legitimate’ bookies never bet in their own “market”. Even in the world of quasi-illicit gambling, it is recognized that allowing this would allow bookies to rig their own gambling. But not in the world of “banking” and “derivatives”. Here the biggest bettors in this fraudulent gambling (by many orders of magnitude) are the bookies themselves.

Goldman Sachs -- $47.7 trillion

Bank of America -- $53 trillion

Citigroup -- $56 trillion

JPMorgan -- $78.1 trillion


This is totally illegal, in so many different ways. To begin with, most of these “derivatives” (i.e. bets) were illegal, until the Clinton regime obliterated most U.S. financial regulation, and simply stopped enforcing any laws that still remained on the books. This criminality was then rubber-stamped and extended by the subsequent Bush Jr. and Obama regimes.

Secondly, and as noted, there is only one “legal” limit for the amount of gambling that these bookies should be allowed to place in their own “market”: $0. But, of course, to penalize this illegality, you need to have laws, and the derivatives fraud-market is totally lawless. How lawless? Not only are the bookies allowed to bet massively in their own casino, these bookies/gamblers/criminals are allowed to “regulate” their own casino.

When is a Crooked Casino not a “crooked casino”? When the crooks are also the cops.

Thirdly, it is massively illegal to see “concentration” to this degree in any market. Yet in the world of “banking” we see this crime syndicate with similar “concentrations” of its dirty money in virtually every nook-and-cranny of the financial world.

But we’ve still only barely begun to scratch the surface on this organized crime. This brings us to a second, and even more financially destructive form of illegal gambling: “credit default swaps”? What is a credit default swap? It is a bet placed on the odds that a particular nation (or corporation) will default on its debt.

This particular form of the bankers’ illegal gambling was outlawed for nearly 100 years (in the United States) based on anti-gambling statutes. It is now used by the banking crime syndicate to (literally) destroy the economies of entire nations.

What do we already know about book-making operations and “odds”? By massively piling your bets on one side of the ledger or the other, you move the market itself. How does this enable these financial terrorists to destroy the economies of nations? Simple.

What happens any/every time the banksters use their massive betting in the CDS market to “change the odds”, and thus move the market itself? The scam then moves onto the next tag-team partner: the Corporate media.

The Corporate media reports that the “odds” of a particular nation defaulting have suddenly soared or plunged. Does this mean anything? No, it means nothing at all other than the bets on one side have suddenly gotten extremely lop-sided. But that’s not what the Corporate media says.

What these stooges report is that the “risk” of a particular nation defaulting has suddenly soared or plunged. This is not the same thing. The “risk” that a nation will default is based upon the economic fundamentals of that nation – and not based merely upon the gigantic bets of known criminals.

However this media lie is then passed along to the next tag-team partner in this fraud/crime: the ratings agencies. These corrupt mouthpieces then “assess” this “news” from the Corporate media. And based upon the (supposed) “change in risk” – where nothing has “changed” at all except the bankers’ gambling – the credit rating agencies then assign higher or lower ratings, based upon the bankers’ original fraud in the derivatives market.

This moves interest rates. When these “official” ratings agencies change their “official” ratings, nations must pay either more interest or less interest on their debts. We saw the most obvious example of the bankers’ economic terrorism directed against Greece.


Using manipulation of the credit default swap market (and the lies of their accomplices), the banking crime syndicate drove the interest rate on Greek debt as high as 30%. To put this into perspective; in the equally bankrupt United States, the equally corrupt Federal Reserve has been too cowardly to raise the U.S. interest rate from 0% to 0.25% (despite seven years of promises)-- because it’s afraid this Ponzi-scheme economy would immediately implode.

What would happen to the United States if it had to pay 100 times more interest on its debts, like Greece? Ka-boom! And in less time than it takes to say “ka-boom.”

Having done a little bit to expose the overall fraud and criminality of these bets and the crime syndicate “bookies” themselves, these “derivatives” can now be discussed in a more familiar tone. What is a “gold derivative”? It’s a bet on the direction in which the price of gold will move.

What is a “silver derivative”? It’s a bet on the direction in which the price of silver will move. What is an “oil derivative” or “copper derivative” or “coal derivative”? Same thing. Yes, we can invent “gold derivatives” (or silver derivatives) which are different from this, just as we can devise/imagine different ways to bet on gold or silver.

The precise form of the bet is irrelevant. What is relevant is that merely through this crime syndicate placing its multi-trillion dollar bets in its own, rigged casino, these bets “influence” the corrupt markets of our ‘real’ world. Indeed, where does the word “derivative” come from? These are bets which (like all bets) are “derived” from the real world. Gamblers need something to bet on: a derivative.

Obviously one could write many books on the bankers’ assorted crimes in this “market”, and the refusal of our corrupt governments to interfere with this blatant criminality and market-rigging. However space is only available for one, further observation.

How corrupt, illegal, and utterly irredeemable is the fraudulent casino which the banksters call “the derivatives market”? When these criminals actually manage to lose on their own gambling (despite rigging these markets, themselves), they simply refuse to pay.

In the real world, any casino (legal or otherwise) which refused to pay when the “house” lost would quickly be driven out of business – one way or another. But we don’t live in the real world. Almost all of us live in the Wonderland Matrix: a magical realm where “bookies” are allowed to place bets in their own book-making operations, there are no laws, and nothing ever has to make sense.

james mcshirley 2 years ago at 10:56 AM
Great analysis Jeff- succinct, thorough, and spot on. I am going to print this and give it to anybody I meet in the future when they say they don't understand derivatives. This is all they NEED to know. BTW if you see Eric say hello for me.
Roy Perlmutter 2 years ago at 8:06 AM
Say hello to Eric for me too. Keep up the good work!
Edward Ulysses Cate 2 years ago at 11:35 AM
Very well said!!! Back in 2006, I got out of the system intact, but even on my website, I never could explain it so well. My best was simply, "The only way to win was not to play."
Beano 2 years ago at 4:53 PM
Sorry, but using YOUR money to gamble is too juicy to pass up. Hence, DERIVATIVES!
The Reality Checker 2 years ago at 6:31 PM
"When these criminals actually manage to lose on their own gambling (despite rigging these markets, themselves), they simply refuse to pay."

Maybe it's high time that people that have been on the stinky end of these derivatives scams need to start making some of the heads of these criminal enterprises "pay" in ways that would hurt much more than financially. When the government and the courts refuse to enact or enforce laws to protect the PEOPLE, vigilante justice is the logical, and correct, result. Only when the Banksters are (physically) afraid to pull this crap will it stop.
bill hopen 2 years ago at 7:35 AM
Great job Jeff, explaining the world where economic data has become economic DaDa, (as in absurdism). Markets are not markets where price is democratically discovered. We hopeless optimists keep believing that true value will rise to the top of the hierarchy, seems hopeless, there are urinals on the museum walls valued more than Rembrants
Roy Perlmutter 2 years ago at 12:22 PM
Well said
Michael Haltman 2 years ago at 7:33 AM
Should the JP Morgan exposure be trillions?
Jeff Nielson 2 years ago at 11:02 PM
Lol Michael! I just noticed this myself. Yes, JPM's derivatives crimes should be measured in "trillions" not "millions". My intent was to list them from bad to worst. ;)
Michael Haltman 2 years ago at 7:46 AM
Great article! I linked to you at LinkedIn here:

Derivatives 101: Great Financial Tool Or Sinister Financial Time Bomb?
https://www.linkedin.com/pulse/derivatives-101-great-financial-tool-sinister-time-bomb-haltman

Mike
Mike Bell 2 years ago at 10:45 AM
Found your blog. Its really nice on betting tipsI appreciate your article. Its important to get quality betting tips to earn money. So thanks for sharing all that important information.

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