As markets and banks continued to crash all around the world last week, American statesman and economist Lyndon H. LaRouche, Jr. mocked U.S. Treasury Secretary Hank Paulson’s bailout scheme, warning that “Paulson and all the other central bankers have been lying through their teeth about their ever-changing so-called bailout swindles. The real problem, that none of them wish to talk about, is the mass of derivatives obligations, that are in the quadrillions of dollars.”
LaRouche called the derivatives bubble the “hyperinflationary bomb, crushing the international financial system,” warning, “Until you just shut down the whole derivatives trade—wipe these gambling obligations off the books of the financial system—you are just kidding yourself.” LaRouche declared, “It is time to break the silence on derivatives. The true, hyperinflationary factor in the situation is the unregulated, insanely leveraged derivatives trade. This is what is killing us. This is the great crime of Alan Greenspan.”
Derivatives are financial instruments cooked up by former U.S. Federal Reserve chairman Greenspan to hide the bankruptcy of the system after the great stock market crash of October 1987—the greatest crash in history at the time. They are purely fictitious, bets made in a virtual market where banks and other speculators could bet on the movements of stocks, bonds, currencies, and even the indices associated with them, without actually owning any of them. Thus, the amount of derivatives soon far outstripped the levels of the underlying instruments; and, given that speculators often placed these bets with borrowed money, the derivatives pyramid soon reached the stratosphere.
According to the most recent data, released June 30, 2008 by the U.S. Office of the Comptroller of the Currency, the three largest American bank holding companies, JP Morgan Chase, Bank of America and Citicorp, had current outstanding derivatives contracts, totalling $179.4 trillion dollars. The three banks combined have total assets of just under $5.6 trillion!
As of December 31, 2007, according to the Bank for International Settlements, the total over-the-counter and exchange-traded derivatives totalled more than $675 trillion. However, these “authoritative” figures are, according to Executive Intelligence Review analyst John Hoefle, grossly understated. The true figures, Hoefle estimated, are well above a quadrillion dollars.
LaRouche concluded: “Unless and until you deal with this derivatives bubble, which cannot and should not be bailed out, you are just kidding yourself. It is time for Hank Paulson to swallow the only real medicine: bankruptcy reorganization of the entire, dollar-based financial system. And the first step in any such bankruptcy reorganization would be the cancellation of these quadrillions of dollars in pure gambling obligations. Without such action, this planet is doomed to a horrible dark age, just like the dark age of the 14th century, that followed the collapse of the Lombard banking system.”
And, here in Australia, no matter how many tens of billions Kevin Rudd and Wayne Swan loot from the taxpayer and pour into the banks, via the Future Fund, the Infrastructure Fund and other scams, the effort is still doomed, as is obvious from comparing the derivatives holdings of the Big Four to their assets (as at 2007): NAB: $565 billion in assets, $2.609 trillion in derivatives; CBA: $425 billion in assets, $1.296 trillion in derivatives; ANZ: $393 billion in assets, $1.727 trillion in derivatives; Westpac: $375 billion in assets, $1.527 trillion in derivatives.
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