IT’S THE DERIVATIVES, STUPID! Why The bailout Had to happen

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This story from Web of Debt is one of the few that made it very clear to me that if the Fed did not intervene, chaos would have shortly followed and even more large dominoes would have fallen. Sad part is that the bailout is only a bandaid on a gaping wound as you will see explained in "It's the derivatives stup!" (not my title) - SUICIDEkings

WHY FANNIE, FREDDIE AND AIG ALL HAD TO BE BAILED OUT

Until recently, most people had never even heard of derivatives; but in terms of money traded, these investments represent the biggest financial market in the world. Derivatives are financial instruments that have no intrinsic value but derive their value from something else. Basically, they are just bets. You can "hedge your bet" that something you own will go up by placing a side bet that it will go down. "Hedge funds" hedge bets in the derivatives market. Bets can be placed on anything, from the price of tea in China to the movements of specific markets.

"The point everyone misses," wrote economist Robert Chapman a decade ago, "is that buying derivatives is not investing. It is gambling, insurance and high stakes bookmaking. Derivatives create nothing."1 They not only create nothing, but they serve to enrich non-producers at the expense of the people who do create real goods and services. In congressional hearings in the early 1990s, derivatives trading was challenged as being an illegal form of gambling. But the practice was legitimized by Fed Chairman Alan Greenspan, who not only lent legal and regulatory support to the trade but actively promoted derivatives as a way to improve "risk management."

Partly, this was to boost the flagging profits of the banks; and at the larger banks and dealers, it worked. But the cost was an increase in risk to the financial system as a whole Since then, derivative trades have grown exponentially, until now they are larger than the entire global economy. The Bank for International Settlements recently reported that total derivatives trades exceeded one quadrillion dollars – that's 1,000 trillion dollars.3 How is that figure even possible? PLEASE READ MORE!