There's an important article over at Zero Hedge that was shared by V.T., and I have to pass it along, because it highlights a problem that during the last few years has become lost in the shuffle: derivatives. These, as the article points out, are at the heart of the problem. Here's the story:

A Bank With $49 Trillion In Derivatives Exposure Is Melting Down Before Our Eyes

What's worth paying attention to here is the following:

Deutsche Bank is the most important bank in all of Europe, it has 49 trillion dollars in exposure to derivatives, and most of the largest “too big to fail banks” in the United States have very deep financial connections to the bank.  In other words, the global financial system simply cannot afford for Deutsche Bank to fail, and right now it is literally melting down right in front of our eyes.  For years I have been warning that this day would come, and even though it has been hit by scandal after scandal, somehow Deutsche Bank was able to survive until now.  But after what we have witnessed in recent days, many now believe that the end is near for Deutsche Bank.  On July 7th, they really shook up investors all over the globe when they laid off 18,000 employees and announced that they would be completely exiting their global equities trading business

It takes a lot to rattle Wall Street.

But Deutsche Bank managed to. The beleaguered German giant announced on July 7 that it is laying off 18,000 employees—roughly one-fifth of its global workforce—and pursuing a vast restructuring plan that most notably includes shutting down its global equities trading business.

So that's the first thing to note: Deutschebank's derivatives book is intimately tied to those of other major banks. And to drive the point home, the article includes a helpful diagram:

ZBut the important fact to remember is that Deutsche Bank traded these derivatives with other financial firms. So, is this going to be another Lehman Brothers situation whereby one bank’s problems becomes other banks’ problems?

Pay close attention to this.

If the situation gets out of hand, the Federal Reserve and other central banks will have no choice but to cut interest rates even if it’s not the best thing for the world economies.

In particular, some of the largest “too big to fail banks” in the United States are “heavily interconnected financially” to Deutsche Bank.  The following comes from Wall Street On Parade

We know that Deutsche Bank’s derivative tentacles extend into most of the major Wall Street banks. According to a 2016 reportfrom the International Monetary Fund (IMF), Deutsche Bank is heavily interconnected financially to JPMorgan Chase, Citigroup, Goldman Sachs, Morgan Stanley and Bank of America as well as other mega banks in Europe. The IMF concluded that Deutsche Bank posed a greater threat to global financial stability than any other bank as a result of these interconnections – and that was when its market capitalization was tens of billions of dollars larger than it is today.

Until these mega banks are broken up, until the Fed is replaced by a competent and serious regulator of  bank holding companies, and until derivatives are restricted to those that trade on a transparent exchange, the next epic financial crash is just one counterparty blowup away. (Italicized emphasis added)

You'll note in this diagram the connection to BNP Paribas, the French banking giant. Recall that I blogged a few days ago about how BNP Paribas wanted to step into the "equities" (and we're stretching that term here, which I'll explain in a moment) trading that Deutschbank was exiting. In other words, the derivatives ball in this three card monte game is simply being shifted from one node in the diagram, to another. The source of all of this financial woe is something that dropped right out of the discussion after the 2008 bailouts: derivatives. Just exactly what are these, and why are they so important. To a certain extent, I detailed this problem in my book Babylon's Banksters, but to put this phenomenon very simplistically, derivatives are tranches or bundles of securities which are then marketed and sold as bundles between major banks. These bundles include mortgages, stocks, bonds, and something called "credit defaults," which is a security against a borrower defaulting on a loan. Think counterparty. Now here's the game: as these bundles are bought and sold, they can be entered as assets on a bank's balance sheet. They can then be bundled with other bundles, and bought and sold, and those can be entered on a balance sheet as assets, as these bundles are re-bundled, we get more and more derivatives of the original bundle. In other words, it's a balloon full of a lot of hot air. The difficulty is that these bundles contain so many securities (many of them derivatives) of different types, that few people have focused on the actual contents of these instruments. That's called a material omission, folks, and it's such a gigantic one it's literally stunning and shocking to understand that few banks, if any, ever fully scrutinized each bundle it was buying and selling. As the article points out, this has had the following effect:

A derivatives book of $49 trillion notional puts Deutsche Bank in the same league as the bank holding companies of U.S. juggernauts JPMorgan Chase, Citigroup and Goldman Sachs, which logged in at $48 trillion, $47 trillion and $42 trillion, respectively, at the end of December 2018 according to the Office of the Comptroller of the Currency (OCC).

In other words, using these figures, that's $186,000,000,000,000 in derivatives, just among JP Morgan Chase, Citigroup, Deutschebank, and Goldman Sachs alone, or, to put a different point on it, that's about 20% of $1,000,000,000,000,000, a quadrillion dollars. Factor in all the other banks in that diagram above, and you're approaching that 14 to 17 quadrillion dollar figure for the amount of derivatives the banks ballooned prior to 2008. That's several times the gross domestic product of the entire planet. And again, most of that is in derivatives, those bundles and bundles of bundles, whose actual contents are not well known.  And remember something else very significant: most of the trading in these bundles is being conducted by algorithms and computers, not humans. Indeed, computers were used to create the bundles, and then to rate them.

So kuddos to Zero Hedge for mentioning the problem again, and doing so in the context of busting up these too-big to fail too-big-to-jail banks. It doesn't take much imagination to see why that may be necessary, because only by untying each bundle and seeing what's inside them can and tracking the trades can we see who committed what and when. Only by untying those bundles and taking a peek inside each and every one of them, will we be able to fix the problem, and find the perpetrators. And if the fraud is as bad as I suspect it is (and consider the fact of the numbers: how can it not be fraud if the notional book-value of derivatives is in the quadrillions of dollars and several times larger than the GDP of the planet!?!?) then it's time to give these people a cell next to Mr. Epstein.  This wasn't really equity capitalism at all. It was finance capitalism, or as I like to call it, crony crapitalism of the worst sort.

See you on the flip side...




  1. Unfortunately the booms & busts are controlled; jus as is the weather. 1929 – 2007/8; both controlled demolitions, financial 9/11’s. The key word is control. Normally, “they” combine many ops w/in the BIG op. So, the implosion will include bail-ins where they take the depositors money, legally. Congress has, once again, already prepped another Jekyll Island road, for a quick & easy legalized theft. Just waiting for the other ops to align w/the stars.

    Are they’re other players who will not follow that script?

  2. I think we are forgetting one thing here… Earth operating in a Closed System or an Open System??? I DO believe it was C.A. Fitts who made me think about this!! If we do not have all the pieces to the puzzle, or we are not even aware that there are some “pieces” missing… the heck can we understand what is REALLY going on around us???!!! 😉

    According to info given to L.M. Howe, Earth is ALREADY on Galaxy Trade Routes, but The Public is quite unaware of the Big Picture since we have been kept “in the dark” since WW II about the “leaps” that our civilization has taken. The Sheeple have been paying for who knows what all along!!! But….so far, we have gotten precious few of the advantages!!

    “You Are Free” has recently given quite an analogy comparing the times we are living through to the times just before the French Revolution!! It’s a bit much to wrap my mind around, but history DOES seem to repeat itself!!

    1. In reference to L.M. Howe’s comment, if Earth is already on a galactic trade route, then indeed how would we Terran peasants know about it?

      If I was a Japanese peasant from 1641 to 1853, then how would I know that the Tokugawa Shogunate was trading with the outside world? After all, only the Dutch were allowed access into Japan, and then only through the small island of Dejima (Deshima) in Nagasaki Bay.

  3. The Two Trillion Dollar Meltdown by Charles R. R. Morris (2009) is a memorable book on the Great Recession. It tells a sweeping ‘history’ rather than some narrow focus. Highly recommended.

    Morris writes, p.146:
    “Consider: Financial markets built an investment paradigm that applied high leverage to long-term illiquid instruments. Then compounded the danger by funding those instruments in the short-term debt markets. Then doubled the bet again by building the base portfolios from unusually risky securities, like subprime mortgages and leveraged loans. Then, finally, embraced a class of credit derivatives that ensured the swift propagation of any local collapse through the whole system. If a band of brainy terrorists had been hired to destroy Western finance, they could hardly have designed a more efficient assault.”

    A wonderful summing-up. And nothing – absolutely nothing – has been done to fundamentally change this state of affairs. The entire Western finance system could implode at any time from cascading shocks. Just try to identify the faint voice yelling, “Pull it!”

    1. It sounds as if the financial markets have been designed to fail. Great excuse to introduce a world wide control over the markets. What do you think the trigger will be? Bond sell off?

      1. As I mentioned in an earlier comment, DB has been carefully positioned to be ‘stable’ (with various definitions of stable) with their enormous time-bomb of derivatives holdings. If anything contracts the economy, DB’s holdings of derivatives will move into net-outflow territory, and they are ‘done’. The rest of the economy follows, as per Morris’ excellent summary.

        The PTB need a ‘directionless’ implosion – i.e., one that cannot be traced back to them. In the 2007 implosion, they were careless or vain. They allowed Lehman to crash, when they could have propped it up just like they did AIG. Various fingers pointed back to them and said “Why didn’t you just rescue Lehman? You can print infinite money.” Oops…

        So this time, my guess on the implosion technique they will use is to close the Strait of Hormuz and ‘shock’ the oil market. All the rest will follow. The PTB’s fingers will ‘look’ clean, as it will just be the #*^% Iranians being barbarians. The ground has been prepared for years. The American public “knows” that the Iranians are the bad-guys, thanks to MSM conditioning. Either the Iranian leadership will be provoked beyond bearing (this avenue probably started with the British seizing the tanker off Gibralter) and ultimately respond*, or there will be a convenient ‘false flag’ by the usual suspects. This method is great for the PTB, because they can time the crash to the day…
        * Like the Japanese were goaded to, and responded with Pearl Harbor…

  4. A modest proposal these banksters swindlers should be slowly broiled like the Templars. They deserve to die that way more than the Templars did.

  5. Let’s also not forget, at least here in the U.S. “mark to market” is a relic of history, so when you break it all down, no one knows what ANYTHING is worth (or worth-less).

    1. Spot on. It is precisely this fraud which has allowed the banks (all of them) to keep their doors open for business since Sep08. This was the commercial banks’ version of the government’s FASAB 56. Nobody knows what any bank’s balance sheet truly looks like any more, and the asset sides of their balance sheets are re-hypothecated to infinity. For ever share of common stock you believe you, your mutual fund or pension fund own, there are probably a hundred others who also believe that they own that same share. For our own good, and that of our heirs and successors, we all need to stop feeding the beast, avoid all counter-party risk and get out of the system.

  6. Ahem… Boy that’s some tic-tac-toe sky over Frankfurt. Just sayin’.

    Was the photo chosen on purpose, or do people not notice this anymore?

  7. Dear Dr. Farrell,

    Thank you for blogging about this subject. I’m not going to say where or whom I work for as a means to live but the layoffs of 18,000 and a total exit of global equity exposure really shocked us. Perhaps this is a move to invest completely in its own country by its largest bank, regardless of the derivative problem. There is something about this which cries Domestic manufacturing support. If there’s a “Buy America” movement then there’s a “Buy German” movement as well.

    Commerzbank is something to look at as Frankfurt has always been the money center for Germany and not Berlin.

    Canada has already announced it will most likely reduce interest rates twice by the end of the year. That’s a good sign. It’s a country with massive land mass and about 40 million people coast to coast and a GDP of 1.8 to 2.0 Trillion approximately.
    Let’s all Think and I’ll add more when I can.

    1. Hi thethinker101 – your post suggests that you might be in banking. If so, do you think the DB crisis could be part of an ECB & Fed plan to initiate a monetary crisis? I know the Fed is not lowering rates if they think it might help trump….

      1. In terms of derivatives – there are two sides to every trade. As long as DB holds both sides of the trade (derivative), then they should make money on the fees. Like a sports book…

        1. I think that they are doing it because they are trying to manipulate market signals to stimulate activity. It is another example of the cause and effect of artificially manipulating the market. Obviously the current western debt driven banking system is flawed to say the least. Im not smart enough to figure a way out of this broken model at this point w/out some sort of crash and burn. Most of the industrial nations in the world are unfortunately bound to this at this point due to the central banking cartel.

          Arguably, Russia is the obvious benefactor from the coming market trauma. Russia has maintained a traditional model. They understand that it is not consumption that drives an economy, it is production. It is the store of resources, savings and investing that gives you the pool of resources to draw from so that you can invest in future technologies, growth and expansion.

          This is both one of the scariest economic events in history, while simultaneously providing an enormous amount to opportunity for those that are prepared to buy the dip. Sadly, a hyper minority have positioned themselves to bare such an economic bounce. Most people’s investments are tied to the manipulated markets and the fiat currencies that prop them up. Few hold cash, gems, land, crypto’s and PM’s. It’s a simple balancing of assets that seems to go over most peoples heads.

          …that’s just my $.02

  8. I wonder if some of these tranches or bundles, or other slices of the derivative pie(s), could be exchanged as physical instruments? Perhaps a bond certificate? One that could be redeemed by whichever person or entity is in physical possession of it?

    Sounds familiar…

    1. Wow. That’s very suggestive. Tarot with the modern world printed over the traditional designs.

      Fortunately it’s Mid-2019 and we can all discuss what each Tarot card means and if it came true or not.

      Who would comment first?

        1. or 9/11 with that magazine cover

          For me this is a hard one to grasp. Clearly there are many examples of various events of global impact that have shown up in a variety of avenues in the media of their time. We have to continue to point out everything we find out of place. We are playing Chess in the dark fellow Gizars and must pay attention to every thing we hear and feel.

          Mr. Jay Dyer,

          with regard to the above description I gave, I understand it is found in the old Hindu traditions of something phonetically slept ” Saam-bah-eye-yahh-sahh” Could you confirm if this is correct?

          Thank You Kindly,

  9. When you own the government, the courts, the judges, the police, CIA, FBI, NSA, all the way down to the county level in most nations on Earth, does anyone expect anything to happen to any of these fraudsters. Short of a good old lynching party, I doubt anyone will suffer any inconvenience.
    Absolute corruption is the new morality. They have their Sampson option, if they go down, so does the entire planet. Maybe that was the plan all along.

  10. How devils do:

    Two opposite mirrors show endless derivatives. Two opposite banks can, by derivatives, be harvested, by third party.

    Two opposite political parties can, by derivatives of verbalized nonsense, be controlled by third party, secretly.

    Two opposite scam artists can bestow one another by illusion of authority, like play actors on the throne, selling snake oil.

    To avoid exposure of scam, culture must be destroyed, and that is done by revolutionaries, promoting “-isms” of every kind.

    1. Those gullible, taken in by scam, usually parade around town, wearing the monkey tail suffix “-ist”.

      Being invited to snake oil tea, at the palace, does make a bureaucrat’s heart explode in happiness.

      Servitude of kowtowing in apron, gives such pleasure, kissing the pope’s toe.

  11. How likely is a real monetary reform in the short term? Yes, maybe there will be a whiff of perfume here and a touch of lipstick there as Lagarde leaves the IMF to wreak havoc in the ECB.
    Is the world’s power structure able or willing to tackle the debt-based monetary system, or is the inertia from their extended power base just too strong? As Catherine has said, most people, in a crunch, will just want their cheque, whoever signs it.
    In a bit of recent H.O. speculation, Clif High has said that the “bad paper” could be secured by the public roll-out of over-unity energy devices, with their huge yield that would dwarf the present world GDP.
    And what’s more, the introduction of these devices would automatically signal the beginning of the end of scarcity-based economics, although the persons currently controlling the latter will do their utmost to jump onto the new bandwagon.

    1. Is this the best guess as to who is trickling out all these monstrosity leaks? And why? Is there some benevolent dictator slowly ratcheting down control and dialing back and exposing the monsters? If so, it’d sure be nice to see more rollbacks instead of just exposures of all the so far kinda slow genocides we’re all wading through.

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