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Derivatives: The Bet That Could Bring Down Banks
00:03:47
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| Financial Armageddon approaches. | |
| U.S. banks, this is one I read earlier, have $247 trillion of exposure to derivatives. | |
| See, the average person honestly don't know what a derivative is. | |
| So what is a derivative? | |
| Derivative. | |
| Can you read that? | |
| When you buy a stock, you're buying an ownership interest in a company. | |
| You're buying something real. | |
| When you buy a bond, you're buying the debt of a company. | |
| Derivatives are not based on anything real. | |
| They're just based on a derivative is essentially a bet that something is either going to happen or not going to happen in the future. | |
| And either you win and you make money or you lose and you lose money. | |
| Some people compare them to insurance contracts and they can be used that way. | |
| But I compared them to, particularly what the big Wall Street banks are doing, to a form of legalized gambling. | |
| I was going to ask if it had anything to do with Las Vegas. | |
| It sounded like you're betting on something to happen or not happen. | |
| Yeah, and so these big banks, they didn't learn their lesson the last time around with the last crisis. | |
| Instead, they've become even more reckless. | |
| They're gambling, they're doing all kinds of craziness all over the place. | |
| And so, but these big banks are so critical to our system because since the last crisis, remember, too big to fail, they told us they were going to fix that problem. | |
| Well, the problem of too big to fail has gotten bigger than ever. | |
| The too big to fail banks have collectively gotten 40% larger since last time around. | |
| Meanwhile, 1,400 smaller banks have totally gone out of existence. | |
| So the problem of too big to fail is now bigger than ever. | |
| So if they're too big to fail, that means the government has to bail them out? | |
| Well, that's what they're counting on. | |
| And so they're being super reckless. | |
| If they win, they win big. | |
| If they lose, well, they figure the government will come in and pick up the pieces. | |
| And so I want to give you a few figures really quick that can give you an idea of just how incredibly reckless these biggest banks in America. | |
| For example, if you look at Citigroup, Citigroup, they've got total assets of about $1.8 trillion, but they've got exposure to these derivatives contracts in excess of $53 trillion. | |
| My good lord. | |
| J.P. Morgan Chase, they're the biggest bank in America by assets. | |
| They've got about $2.4 trillion of assets. | |
| But in terms of exposure to derivatives, they've got more than $51 trillion of exposure. | |
| And these are the latest numbers. | |
| I pulled them out of an official U.S. government report just a couple weeks ago. | |
| Goldman Sachs, they've got less than a trillion dollars of total assets, but they've also got more than $51 trillion of exposure to derivatives. | |
| Bank of America, assets of about $2.1 trillion, exposure to derivatives of $45 trillion. | |
| So that just gives you some ideas of how these banks are living on the edge. | |
| And meanwhile, the next financial crisis is coming. | |
| What happened in the last one? | |
| We started to see too big to fail banks go down. | |
| They got into trouble. | |
| They needed government bailout. | |
| That created panic. | |
| It created a credit crunch. | |
| All of a sudden, people couldn't get money. | |
| People couldn't, the banks didn't want to lend it to each other or anyone else. | |
| And so it created a credit crunch and it created an economic slowdown because our whole system is based on debt and credit. | |
| And so coming up, what we're going into, and we're going to look at some more charts and things that are going on. | |
| People, you know, if you have a business or you work somewhere, you're going to notice people are coming in and they don't have as much money to spend. | |
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63% Living Paycheck to Paycheck
00:00:40
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| And fewer people are coming in. | |
| And so businesses will start to shut down. | |
| Businesses will start to lay off workers. | |
| We'll start to see unemployment skyrocket. | |
| So people are going to be hurting, just like last time around. | |
| But just like last time around, most people are individually and as families are living on the edge as well. | |
| In fact, right before I came down, you know, on the show before, I've said 62% of all Americans are living paycheck to paycheck. | |
| Just today on the drudge report, just came out, on the drudge report, now it's up to 63%. | |
| It's even worse. | |
| 63% of all Americans are living paycheck to paycheck. | |
| So if that paycheck goes away, they start hurting really, really fast. | |