The Bigger and Riskier Monster

MONEY AND MARKETS
by Martin D. Weiss, Ph.D. 11-30-09

Martin here with an urgent reminder that, despite what you may be hearing from Washington, risk is still a four-letter word.

And despite solemn vows to the contrary, the U.S. government is promoting risk with new-found enthusiasm and gall.

Again!

Yes, Fed Chairman Bernanke says he wants to avoid the possible risk of a future speculative bubble.

And yes, Treasury Secretary Geithner says he wants to reform financial regulation to avoid a future debt disaster.

But even while they give lip service to protecting you, they stand by passively as derivatives grow explosively.

Derivatives are debts and bets of all shapes and sizes, especially on interest rates, bonds, mortgage-backed securities, and other fixed instruments.

They were at the epicenter of the financial earthquake that shook the world last year. They triggered the demise of Bear Stearns, Lehman Brothers, AIG, and many others. And they’re still causing a series of aftershocks around the world, as in Dubai late last week.

So you’d think the authorities would have taken steps to reduce their threat to the U.S. banking system.

Not quite! Despite a brief reduction in derivatives outstanding in last year’s third quarter, U.S. commercial banks now hold a grand total of $203.5 trillion in derivatives, a new all-time high.

What’s worse, there has been no change whatsoever in the stranger-than-fiction facts behind that number...FULL STORY