How Greece Could Take Down Wall Street

Published on Global, (first on Web of Dept), by Ellen Brown, February 21, 2012.

In an article titled “Still No End to ‘Too Big to Fail,’” William Greider wrote in The Nation on February 15th:

Financial market cynics have assumed all along that Dodd-Frank did not end “too big to fail” but instead created a charmed circle of protected banks labeled “systemically important” that will not be allowed to fail, no matter how badly they behave

That may be, but there is one bit of bad behavior that Uncle Sam himself does not have the funds to underwrite: the $32 trillion market in credit default swaps (CDS). Thirty-two trillion dollars is more than twice the U.S. GDP and more than twice the national debt.

CDS are a form of derivative taken out by investors as insurance against default.  According to the Comptroller of the Currency, nearly 95% of the banking industry’s total exposure to derivatives contracts is held by the nation’s five largest banks: JPMorgan Chase, Citigroup, Bank of America, HSBC, and Goldman Sachs.  The CDS market is unregulated, and there is no requirement that the “insurer” actually have the funds to pay up.  CDS are more like bets, and a massive loss at the casino could bring the house down.

It could, at least, unless the casino is rigged.  Whether a “credit event” is a “default” triggering a payout is determined by the International Swaps and Derivatives Association (ISDA), and it seems that the ISDA is owned by the world’s largest banks and hedge funds.  That means the house determines whether the house has to pay.

The Houses of Morgan, Goldman and the other Big Five are justifiably worried right now, because an “event of default” declared on European sovereign debt could jeopardize their $32 trillion derivatives scheme.  According to Rudy Avizius in an article on The Market Oracle (UK) on February 15th, that explains what happened at MF Global, and why the 50% Greek bond write-down was not declared an event of default.

If you paid only 50% of your mortgage every month, these same banks would quickly declare you in default.  But the rules are quite different when the banks are the insurers underwriting the deal.

MF Global: Canary in the Coal Mine? … //

… Players in the future may simply refuse to play.  When the house is so obviously rigged, the legitimacy of the whole CDS scheme is called into question.  As MF Global found out the hard way, there is no such thing as “risk-free speculation” protected with derivatives.  (full text).

(Ellen Brown is an attorney and president of the Public Banking Institute. In Web of Debt, her latest of eleven books, she shows how a private cartel has usurped the power to create money from the people themselves, and how we the people can get it back.  Her websites are Web of and Ellen Hodgson
Global Research Articles by Ellen Brown


Catherine Austin Fitts’ Video results on YouTube.

Proof that War Is Bad for the Economy: Top Economists Say War Is Bad for the Economy, by Washingtons Blog, February 24, 2012;

Silencing The Critics, by Dr. Paul Craig Roberts, February 20, 2012;

Switzerland: Financial Directors of the cantons take an active role, Media release of 27 January 2012, on Current Concerns, February 20, 2012 … (See FDK);

It is an open secret: Small municipalities keep better order in their budget than the large ones, on Current Concerns, February 20, 2012;

US-Zeitungen berichten: Griechisches Militär zum Putsch bereit, von Udo Ulfkotte, 24. Februar 2012: Nach Angaben amerikanischer Zeitungen gibt es Gespräche griechischer Militärs, die geschlossen für die Machtübernahme gestimmt haben sollen. Und die britische Regierung bereitet schon die Evakuierung ihrer Bürger aus Griechenland vor. Und im deutschsprachigen Raum weiß man von nichts … ;

extreme makeover, Home Edition on YouTube.

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