G-20 Debtors of the World UNITE!

World Economic Leaders to Commiserate Over the Economic End

Because bankers, brokers and high profile fund managers had been telling people to diversify and invest in mutual funds while the DOW was headed to 14,000 pushing the idea that it was a better place to put money than savings, average investors took funds from their mortgages and invested them in the market.  The same funds operated by the likes of Bear Stearns, Bank of America, JP Morgan, Citibank, Goldman Sachs, Wells Fargo among the biggest, to fail and accept bail outs to stay afloat, allowed a speculative environment to flourish in their investments.

As an investor in mutual funds why not play the spread between your new monthly mortgage payment,  from these” too big to fails” and put the difference in mutual funds, under the assumption that a continued rise in the market would net you a 12% return to pay for future college costs.   Typically, 50% of mutual fund investors believe that their mutual fund investments are federally insured.  This is freedom, the ability to take risks and reap rewards but the problems and the price  to be paid is that of the taxpayer.   Government should protect taxpayers through regulation that both unleash business but rein in the recklessness, not become a part of it!

The Obama Democrats are not regulating the out of control industry practices that have created the end of the economic world as we know it, they are trying to band-aid the problem by borrowing more money creating more debt, like building a third story on a house that is crumbling onto itself because its foundation is not on rock but on sand.  A banking foundation can only be built up by prudent regulations and sound business practices that have built this economy for the past 200 years.

Banks are allowed to take in these funds and leverage them way beyond what is reasonable, where $1 in can be relent up to 30 times and in the hundreds when considering derivatives, a game all the large institutions play, the crap table of the world is in play.  Derivatives is a similar game to what the good folks were doing leveraging  their mortgage payment with the funds they would make in mutual funds with a few differences.

Credit risk in derivatives differs from credit risk in loans due to the more uncertain nature of the potential credit exposure. With a funded loan, the amount at risk is the amount advanced to the borrower. The credit risk is unilateral; the bank faces the credit exposure of the borrower. However, in most derivatives transactions, such as swaps (which make up the bulk of bank derivatives contracts), the credit exposure is bilateral. Each party to the contract may (and, if the contract has a long enough tenor, probably will) have a current credit exposure to the other party at various points in time over the contract’s life. Moreover, because the credit exposure is a function of movements in market rates, banks do not know, and can only estimate, how much the value of the derivative contract might be at various points of time in the future.

The BIS reported the total amount of outstanding derivatives in 2008 reached an incomprehensible $1.28 quadrillion.   The notional value of all outstanding derivatives contracts has been on the rise keep in perspective how fast the rise to a quadrillion has been, in December 2006 the outstanding amount was $415 trillion in December 2006 compared to $297 trillion in December 2005, according to the Bank for International Settlements. To put this in perspective, the world GDP is $54 trillion, $1.28 quadrillion is about twenty-three times global GDP.  @#$&#*!!!

Derivatives were just one of the indulgences of investment banks to grow their capital market earnings. With world liquidity at all time highs Global markets have been a major source of investment banks’ growth up to the time of the bubble burst.  Investment banking revenues in Europe and Asia overtook those in America.

Now as the Untied States and Europe hemorrhage money they are at the G-20 summit to figure out how to borrow money they don’t have from each other.  Maybe even come up with a world currency instead of continued trading on the Green Back.  Anything but fix the cause of the problem debt and credit.

Perhaps the G-20 countries could come up with new standards for all countries for all investment types controlling debt and credit.  That would be a start to putting some pillars of rock under the foundations of financial institutions, but this may be too much to ask for!