Today I choose to reblog (god, we do abuse the language in these modern times) a post from Karl Denninger, He has the web site: The Market Ticker – A commentary On Capital Markets. He has also written a book: Leverage – How cheap Money Will Destroy The World. Normal I am very good at taking ideas and explaining them in simpler terms so the average individual can comprehend more easily. In this case, Karl has done that for me. The question is of course: why should you read this post? It is on a subject that directly affects you, your partner, and your children (assuming you have one or both). I will admit that it is not easy to comprehend the derivatives markets. The alphabet soup of engineered financial agreements (and I use engineered rather loosely) is more than a bowlful. Simply put, these are packaged and sold as a sort of insurance for all manner of risky investments. If you own a Greek Government bond and think the government will default, you might want to buy the “insurance” that will pay off when that government does default. All these counter party products are insane to the point that one can buy a derivative against any agreement one is not a party to. The market for all these financial transactions, of which there is no funds that will back their fulfillment, runs into a hundreds of trillions dollars of so, far more than out puny national debt at 16 trillion. Maybe you should read the post after all.
One Dollar Of Capital – A Definition And Challenge*