Scope. As of December 2015, there were $553 trillion in derivatives (Snyder 12.29.15, based on Bank for International Settlements data).
Risk. Billionaire Warren Buffet said that derivatives “‘will almost certainly multiply in variety and number until some event makes their toxicity clear. Central banks and governments have so far found no effective way to control, or even monitor, the risks posed by these contracts’” (Snyder, 12.29.15). For those reasons, he called derivatives “‘financial weapons of mass destruction’” (Snyder, 12.29.15).
Exposure of largest US banks to derivatives (Snyder, 12.29.15):
Size of largest US banks. “At this point, the four largest banks in the U.S. are approximately 40 percent larger than they were back in 2008. The five largest banks account for 42 percent of all loans in this country, and the six largest banks account for approximately 67 percent of all assets in our financial system” (Snyder, 12.29.15). When one or more of these banks go bankrupt, it will have catastrophic consequences for the GTS.
Bail-ins. Federal law gives priority status to payment of derivatives rather than to the protection of depositors. If financial elites start having problems paying for their bad bets, their first priority by law is to pay off those who won the bets. The deposits of millions of ordinary people like you and me, legally defined as unsecured loans, and will simply be lost.
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