Post Democracy – Derivatives For Dummies

April 27, 2014

Global Financialisation and QE in USA and UK

“…money created through QE was used to buy government bonds from the financial markets (pension funds and insurance companies). The newly created money therefore went directly into the financial markets, boosting bond and stock markets nearly to their highest level in history. The Bank of England itself estimates that QE boosted bond and share prices by around 20% (Source). In theory, this should make people feel wealthier so that they spend more. However, 40% of the stock market is owned by the wealthiest 5% of the population, so while most families saw no benefit from Quantitative Easing, the richest 5% of households would have each been up to £128,000 better off (according to Strategic Quantitative Easing, p28, by the New Economics Foundation).

Very little of the money created through QE boosted the real (non-financial) economy. The Bank of England estimates that the £375 billion of QE led to 1.5-2% growth in GDP. In other words, through QE it takes £375 billion of new money just to create £23-28bn billion of extra spending in the real economy. It’s incredibly ineffective, because it relies on boosting the wealth of the already-wealthy and hoping that they increase their spending. In other words, it relies on a ‘trickle down’ theory of wealth.

In the USA we’ve had QE1, QE2 and QE3 with $1.7 trillion alone spent on QE1

Note above the effect of QE to boost the bond and stock markets. “40% of the stock market is owned by the wealthiest 5% of the population”. Actually the real figures could be closer to 60% of the stock market is owned by 1% of the population.

How did this come about?

Well the global financial system came close to collapsing in 2008. Apart from Lehman’s most of the leading players were bailed out by QE.

Some took the view this was a good thing as the global financial system due to deregulation was infected with a corrupt takeover managed by a global banking system grown “too big to fail”.

Without regulation of the global banking system, global banks decided to use the opportunity to ‘regulate’ themselves:

Rigging of Libor Rates

“The “London Interbank Offered Rate,” or Libor, was intended to be a daily snapshot of the interest rates at which banks would lend money to each other. The rate is tied to an estimated $300 trillion in securities and financial products worldwide.

Banks fixed the rate to reap profits, hide their own weaknesses, FDIC says

It was set each day by a poll of the world’s 16 largest banks, administered by the British Banker’s Association. Rate-setters at each institution were supposed to provide a neutral, independent assessment based only on market forces. Instead, the FDIC alleges the 16 financial giants who set the engaged in “fraudulent and collusive conduct” to fix the Libor to their own advantage for a period of about four years between 2007 to 2011.”

Note above “The rate is tied to an estimated $300 trillion in securities and financial products worldwide.”

Some may raise  eyebrow at the figure of “$300 trillion in securities and financial products”. Some may argue these financial products are a good thing providing stability and reliability to world financial markets.

A farmer might want finance to invest in his farm based on collateral around his crop of next year that’s just been planted. So he gets investment using collateral derived on the projected sale price of the crop the following year. The investment derives from projected calculations. The investment firm is happy, the farmer gets his money.

Everybody profits unless the crops are always ruined by bad weather or schenanigans.

That “$300 trillion in securities and financial products” is a scary figure involving casino bets across the world’s financial system requiring payouts in certain circumstances that must be avoided at all costs otherwise the global financial system is in danger of collapse.

Right now the casino world of shadow banking has become a global casino industry involving 100’s of thousands of employees earning fat fees betting on paper products. Individuals and companies such as those that reside in the Irish IFSC (Irish Financial Services Center) operating Ireland as a global tax haven, just as their colleagues work the monopoly game in London and Wall St.

Global financialisation of the derivatives market has become the dominant player of the global economy and it threatens to extinguish real markets and real economies with a false economy similar to that operated under the demised USSR. This is capitalism threatened by the socialisation of the financial sector.

Global financialisation is decoupling from the real world of the real economy of science/medicine/health/education/manufacturing/enterprise/new products/food production or new invention contributing a fair deal for all who occupy earth.

Democracy itself is being overwhelmed. New global economy based on financialisation of paper products aided by high frequency trading algorithms is now pulling all levers ruining democracy and the economies of formerly free nations hoovering up all to the 1%.

How the financial market is rigged by the large banks and institutional investors.

Plenty other youtube videos on the same topic you should be familiar with. The algorithms are rigged. See here:

Part 11

How deregulation came about and the global financial casino was born.

‘A Short History of Financial
Deregulation in the United States’

Matthew Sherman

You might like to study how the scary dependency of world financial markets came about to that figure of $300 – $350 trillion shadow banking derivative trading, start here:

The deregulation beast that led to 2008 financial meltdown has been revived with QE and is busy further looting and pillaging the global economy.

Instead of proposed revival of the world economy, next meltdown could end in worse than what was experienced in 2008. The omens are not good.

Let’s look at the antics of the world of global financialisation in regard to Ireland’s economy

Unfortunately rich people dont tend to spend their money in the real economy, they tend to invest in stocks and shares. Especially when they see stocks and share values rising and it does not mattter if QE is the artificial cause of this.

Note government propaganda extolling a turnaround in Ireland’s economic affairs is false unless you consider sitting in the back seat and allowing the driver to take you where they will, of benefit to you. Instead of chasing ambulances, you will find many politicians chasing job announcements, if they can be found.

Hedge Funds and their global reach and power are increasing their grip on the global economy. What are they up to in the case of Ireland?

Awash from funds from QE they’ve been on a spending spree in Ireland. They’ve bought left, right and center from NAMA and purchased large amounts of commercial and private property creating the artificial illusion of the return of a mini boom in Ireland’s property sector.

These hedge funds have been active in many states in the USA cornering the property market and making it impossible for local property buyers to compete with their prices. Its believed they hope to make a profit by turning the population of these states into lucrative rent  controlled serfs.

Without access to the FOI(Freedom of Information) facts on the identity of cash buyers in the property sector in Ireland, it’s impossible to know how much investment of this kind is taking place. But certain large commercial property deals give evidence and proof of such activity.

Some effort has been made to argue returning emigrants have pushed up property prices in depressed areas, but the evidence to support this, is not there unless you consider one offs.

An aggressively managed portfolio of investments that uses advanced investment strategies such as leveraged, long, short and derivative positions in both domestic and international markets with the goal of generating high returns (either in an absolute sense or over a specified market benchmark).”

Lets say Hedge Funds are simply grouped portfolios of stocks and shares, orca whales in a sea of derivatives. Do they benefit from QE as well? Yes, they do.

Banks like companies trade in the real economy as well and for the most part they are private companies that for large investment purposes banks for Hedge funds represent opportunities.

Here’s the deal, its a modern version of Monopoly. For the creative out there its time to build a modern version of the game of Monopoly based on the rules of the stock exchange, QE, the FED…

Consider this scenario. A large reservoir of cash has been poured into the banks and resides on their balance sheets.

Its too dodgy to lend that cash into the real economy as people are stricken with negative equity, austerity with no champagne. And there’s more of this to come.

The champagne from the Fed gets poured from above onto glasses piled high in a pyramid and Hedge funds are among the first recipients to have  glasses filled.

The question for Hedge funds is what to do with their money? Well, simple really, they look around and see QE being soaked up by banks and financial institutions inflating  value  by between 20%-40%, so its time to get on the bandwagon and invest in rising share prices to benefit even more, from the upswing.

Lets follow the money and look at how Ireland is faring under new dominion of global financialisation…

You might think Ireland with its debt/gdp profile is a basket case even if you don’t take into account the amount of leveraged debt circa €120 trillion owed by its economy public and private. However, in this new post democratic financialised global economy, the old rules of trade based on manufactured goods has been replaced by the exchange of financial paper daffodils(my neologism).

So why does David Tepper(see below) look at Ireland’s banks as investment opportunities? Its no brainer maths really. With QE the value of eg BOI shares are undervalued by 20% as long as they don’t fail or the Irish economy does not go under. QE and troika bailout has been poured into BOI underpinning a resolve not to let it fail. The troika have extended Ireland a loan facility of €67.5 bn, so banks are safe for the moment.

Note all QE injections are applied across share prices, bond prices, stocks irrespective for the most part of the underlying real value of those stocks and shares underpinned by the real economy.

It matters little the underlying economy in Ireland is weak, the retail sector is dying, austerity is drying up the remainder of debt free assets in Ireland

It matters little our debt to GNP approaches 125% and we owe approx €180 trillion or that our local economy is dying under the crippling weight of debt; or that NAMA and government keep property prices highly inflated beyond the reach of local consumers.

These facts simply do not matter anymore in this new era of global financialisation. A decoupling has taken place between the real economy and the new globalised economy based on financialisation.

A Short History of Financial

Deregulation in the United States

Matthew Sherman

The above is worth a look examines how deregulation led to financial meltdown in 2008.

QE and global financialisation has consumed the Irish economy and swallowed it live and whole.

Hedge funds have swept in as vultures and consumed large stakeholdings in the property sector and in the Irish banks looting a stricken economy with stakeholder funds provided to them by QE and the world of shadow banking.

Enter David Tepper….. “You look at the world and you make an investment…So, that’s what it is:

How can this guy sweep in and grab a one third stake in an Irish ‘pillar bank’ in a couple of months that Irish people have bailed out paying for it with the looting of their public service?

Welcome to the global casino

By investing in an Irish bank the future of the bank will be secured? All members of the casino have had their chips inflated in value by between 20-40% to help them play at the tables. Stocks and shares rising due to QE investors and hedge funds on the domino train look for a good punt from their rigged vantage point.


An unregulated financial sector beginning in 1970 instead of being detoxified and disarmed of their financial weapons of mass destruction aided by the false principle of banks too big to fail, has been allowed by QE to blossom like a Frankenstein on the world’s stage.

This country has been looted and pillaged by the nefarious dealings of a corrupt global financial system aided by corrupt and incompetent governments feathering their own nests. We are now owned by global hedge funds and rents are rising…

We enter interesting times and the game is rigged by those who pull the levers and strings.

Governments need to impose austerity not on their populations but on those who rig the game.





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