‘Congress all bribed, has zero confidence in eyes of American people’ – World Bank whistleblower

‘Congress all bribed, has zero confidence in eyes of American people’ – World Bank whistleblower

Hello Everyone :),

Enjoy this current interview with my friend Karen Hudes, World Bank Whistle blower and former Attorney.  Is the “Financial Meltdown” about to commence now, or has the collapse already begun.  One thing is for sure, when physical Gold can’t be delivered as in permanent Gold backwardation we are in the Federal Reserve End Game…  Who controls the Federal Reserve System?

Ed Reidhead


The US government shutdown – a temporary ailment or a symptom of a grave disease? Are the Republicans right in their move to block Obamacare spending? Who gains from the shutdown turmoil? Do the politicians care about their citizens? Our guest comes from the very heart of the banking system: Karen Hudes was World Bank lawyer when she blew the whistle on major corruption cases in the system and was fired as a result.


Sophie Shevardnadze: Our guest today is whistleblower Karen Hudes, former senior counsel at the World Bank. Karen, it’s great to have you on a show today.

Karen Hudes: Thanks for having me. Sophie, I’m glad to be with you.

SS: So, the government shutdown. Is the move on the part of the Republicans justified? Is fighting off Obamacare worth all this mess?

KH: I think there is something more going on behind the scenes. A lot more actually.

SS: What do you mean?

KH: Well, there is a terrible currency problem. We’re on the verge of the currency war. The Federal Reserve is printing dollars like there is no tomorrow. And if they keep going the rest of the world is not going to accept them. As it is the BRICS countries – Brazil, Russia, India, China and South Africa – have decided that they are going to finance the trade among these countries with assets and pay for the difference in gold. And this is a right move for them…

SS: But how is that connected with a shutdown though?

KH: The US Congress has been fighting with the presidency because the presidency has been in total contempt and the highest legal officer of the United States Government has also been in contempt of Congress in fighting this international corruption that is ruining the dollar as an international reserve currency.

SS: You know, economists have been predicting the dollar will fall ever since the crisis in 2008. But the Government has managed to keep it afloat.

KH: Well, not for a long. If you look at what’s going in the gold and other precious metals markets, silver as well, we’re headed to something called “permanent gold backwardation”, that means there is a loss in confidencein the fiat currencies that are issued by those private banks. They like to consider themselves as ‘public banks’ but they really owned by private entities. And these currencies are about to crash because they are valueless, that’s what always happens to paper currencies that aren’t backed by assets.

SS: Like you’ve mentioned – “gold backwardation”, gold is often chanted as perfectly safe investment and alternative to the dollar, even. But how come the price of gold is following?

KH: Because of a market manipulation but that can only continue for so long because the Central Banks are running out of gold and the rests of the world are lining up to buy them. If you want to buy gold today, you have to pay today a premium. What they are offering in the future is called ‘a naked short’, they don’t have the gold to back those offers, that’s illegal what they are doing.

SS: I will get back to gold in a bit. But for now I would like to focus on Obamacare. In your opinion, is Obamacare really that crucial for the US economy?

KH: What you have is something that’s very good for medical insurance because most of the other countries that offer medical coverage do this through a single issuer. And that’s it not what we have here. What we have here is a bill that was drafted by the medical insurance companies. It’s not good for this economy. It never was.

SS: Why do you say it’s not good?

KH: Because what’s happening is the workers that worked full-time are being put deliberately on part-time basis, so that the companies can avoid giving the medical insurance coverage under the provisions of the law.

SS: You know this Obamacare thing.. I’ve heard it many times being compared to Socialism, Communism sometimes even. Do you trace the resemblance?

KH: That’s just because the mainstream media, when they report about what’s going on, are doing it by telling lies and anything that’s good for the powers that be. The mainstream media is completely owned and controlled by the same companies, private companies that own the Federal Reserve System. Most of the American citizens are clueless about the corruption that’s rifling their economy.

SS: But just to make sure are you saying that everything about Obamacare is bad? Or are there good things about it?

KH: No, of course, there are good things about it. But the problem is that the people that wanted to get up decent courage were not given the tools, they were not given the equipment, they were not given the press coverage – the honest press coverage that society needs to enact just legislation. The Congress people are all bribed by these corrupt forces and the American citizens have Zero confidence in their Congress.

SS: So, at this point you side with the Republicans for blocking the medicare.

KH: I’m not siding with Democrats or Republicans because both of those parties have been co-opted by these terrible corrupt forces I’m talking about.

SS: What we have right now is Americans being forced to get health insurance. How does it go with their love of liberties and freedom of choice?

KH: It’s not so much a question of being forced, you have to look at those parts of the society that have been thrown under the bus. The uneducated children who are not given superior education like we used to have.We are society that is giving short shrift to the people that need us. I’m not saying that we ignore the health needs of our country. I’m saying that we ignore the mainstream media because they are not telling us the truth.

SS: You know, I also heard Obama supporters argue that the American Capitalism is on the verge of death in its present form, the way it is existingnow, and the social injections, meaning the medical care and Obamacare, are needed as the only way to reform it or save it. Do you agree or disagree with that?

KH: The problem is not with the American citizens, they are a wonderful group, their values are good. It’s just that they are not given the tools that they need to have a just society. They are not given the basic information, about what is really going on and who is benefiting, from the economies that they are being told… they have been told that they have no money, they have taken an entire city, Detroit, and declared it bankrupt. When what’s actually happening is their tax dollars are not even staying in the society, their tax dollars are going by treaty to the United Kingdom, and then they are being transferred to the Vatican, to the bank of the Vatican. This is not a society that is going to be sustainable on any basis, for any reason.

SS: Do you feel like American economy is peaking up because we hear President Obama saying shutdown hurts American economy but at the very sensitive moment world has just started to catch up. Do you feel it’s catching up really?

KH: Those numbers about the employment are completely fabricated because they are not counting those people who have given up ever finding a job as unemployed. That’s ridiculous! The real rate is just about double what they reported as being.

SS: So the American debt looks like a doomed patient. Is there any other possibility for it than just grow into eternity forever? I mean raising debt ceiling once or twice a year, what’s the problem?

KH: The problem is actually when you talk about debt that our currency is financed by debt, our currency is issued by the Federal Reserve instead of the Treasury which is unconstitutional. When the Federal Reserve System was instituted in 1913 most of the Congress was on break, they sneaked that legislation through. So the debt is there simply for those bankers to put in interest on it and have it grow and compound every year. The debt is a fabrication, it’s probably should be repudiated. But it can be repudiated until you’ll have looked that all ofthe implications.

SS: Do you think it’s going to go on and on forever?

KH: No, what I think it’s going to happen is that at the upcoming Bretton Woods meeting on October 9th the countries of the world, the foreign ministers of the world are going to sit down and have a rational basis for currency rather than this fiat currency which is absolutely… what can I say, it makes no sense to anyone but the bankers that are issuing it.

SS: So, when you look at the conflict of the debt, it’s much more than just borrowing money – it makes you controllable. For example, in the case of US – who controls it, you mean the big corporations, or countries like China and Japan, who control large chunks of the debt?

KH: Well, that’s a very good question and, fortunately, some mathematicians at the Swiss Federal Institute of Technology have given us a very precise answer. They did a study of who owns and controls the companies on the capital markets – 43 000 companies. They found out that there is «a secret super-entity», they call it, that owns 60% of the earnings every year and 40% of the assets. They did this by putting the same people on the boards of these companies. So, they have ten times the economic power than there are entitled to. And they thoughtthat none would catch them at it. This is a huge conglomerate that has been rigging the labour’s prices, it has been rigging all of the commodity’s prices, and it has been trading in the securities markets with insider information. It has got to be stopped. It also bought up the media and has been lying to people deliberately. This is going to stop.

SS: So just to answer my question – the government is controlled by the conglomerates or the corporations rather than countries that are up and coming economically, right? Why haven’t these corporations or conglomerates, as you call it, been caught? Why is nothing changing?

KH: That’s the whole point about it. They’d like to think they are in control but they are not, they are not above the law. And we, citizens, know exactly what they are up to, we’ve been working on this problem, all of the governors of the States have been working on this terrible corruption, so have the Attorneys-General, so have the Sheriffs, and it’s not going to continue. The American people are taking back their government and they are stopping this terrible corruption.

SS: As of today, the United States is a financial heart of the world. Whether it collapses or keeps on going, it’s obviously wrong – this much power is concentrated in one place. Asia is a rising monster right now; could it be stealing this financial role from the US? Do you think China, for example, could steal its financial role from the US? Or are they also controlled by that same financial elite you’re mentioning?

KH: Well, I can tell you that the Jesuits have a very strong strangle hold on China as well but I can also tell you that the transition of economic strengths from the western countries to the east is going to happen, but it’s going to happen in a smooth way. It’s not going to be a transition through a currency war like that terrible corrupt group is trying to manipulate everyone into. We’re going to have a peaceful power transition this time around; we’re not going to have the World War III. They try to pull it off in Syria, they are now thinking they can pull it off in Iran, it’s not happening. The citizens of the world see what they are doing and we’re not letting them get away with it this time.

SS:Foreign governments keep buying US Treasury bonds despite obvious problems US economy is facing. What’s making them do that, in your opinion?

KH: I think the biggest market for the Federal Reserve notes is the US Treasury and there is a God of dollars right now. Yes, there is also a small market, unfortunately, the market is weakening as the dollar weakens because of all of this, what they call quantitative easing, where every month so many additional dollars are printed with absolutely no backing.

SS: Should we be buying gold?

KH: Well, yes and no, I think gold is probably wise purchase right now but more as insurance than investment because there is actually a great deal of gold, there is even more gold than people know about. For example, the amount of gold in the deposit in the Bank of Hawaii is 170 000 tonnes, this is more than the World Gold Council says as available for all the gold on the Earth. People don’t know how much gold there is, there is a lot of gold.

SS: Are you buying gold?

KH: I did actually, yes. But not because it’s an investment but because I’m not 100% certain that we’re going to get to act together before all of the paper fiat currency falls apart. So I see it as an insurance but because of the amount of gold that’s actually around in the world in deposit all over the world, I’m not so sure it’s a great investment.

SS: So you think the return to the gold standard is a realistic thing? It could be a possibility?

KH: Well, actually, that’s not such a good thing. The currency ought to be backed by value, but there is no reason why it should be restricted to precious metals, it could be any of the commodities that are valuable. The important thing is that, yes, the currency should be backed by assets rather than by debt as we now have.

SS: But if a financial collapse happens , let’s say, will gold be of any use? I mean, there is shortage of food, look at the world today, the biggest problem we’re facing is a clean drinking water. What gold is going to do about that?

KH: First of all, I think that we’re going to manage together, act together, I’m not expecting a collapse. Very accurate game-theory model is showing that we’re going to manage to make a transition in a very smooth way, maybe there’ll be a few fits at start. I think most of the countries in the world are in favour of working together and not to have a collapse. The only thing that you’re saying is that some of these crooks haven’t figured out, they haven’t seen the writing on the wall, they haven’t seen that we understand that there is a way to work together and avoid these problems, which are definitely avoidable.

SS: So, Karen, you were a senior counsel at the World Bank. Tell me something, honest banking is this an oxymoron?

KH: No, we have examples all over the place in the United States, the state of North Dakota has its own state bank and many of the other states are looking at that – at the moment 22 other states are looking at it, and we’re urging the other 28 states to look at it. There was a bank in Amsterdam but I think went on for 300 years with no problem. We know how to do banking, it should be like infrastructure to support the economy, it shouldn’t be for the benefit of elites that think they are above the law as we currently have. If you look at the Bank for International Settlements (BIS), that institution was established when the war reparations were being exacted from Germany after the World War I. That when it was started in 1930 and I believe its 60 central banks, that are members of the BIS, those are the corporates, those are the ones that really needs to go out of business.

SS: You first blew the whistle over corruption in the World Bank. Tell us more about your revelations?

KH: Well, that’s actually what happened. I was working in the Philippines and there was a bank. This was at the end of the East Asia financial crisis in the end of the 1990s. The second largest bank in the Philippines, the Philippine National Bank, there was a loan to strenghten the banking sector and what happened was a man who own Philippine airlines, Lucio Tan, ended up buying more than 10% of the shares of the Philippine National Bank without informing the security authorities in the Philippines, that was against the law. And then I told the person who was in charge of the World Bank Lending Programme they should tell the government of the Philippines that the conditions of the loan were not going to be met. And instead I was reassigned and I didn’t accept that, so I went to the meeting where it was decided whether or not to disperse the loan and I said that the board was not being informed that the conditions were not met. And then what happened was the loan wasn’t dispersed but the people who had their money on deposit in that bank withdrew their money and the Philippine Deposit Insurance Corp. had to withdraw, had to back up the bank, for five hundred million dollars, and then we didn’t disperse our loan for two hundred million and the Japanese didn’t disperse their loan for two hundred million. So, that was nine hundred million dollars worth of a pure loan performance and when the evaluation department in the world bank said that the World Bank had performed satisfactorily, I corrected that report and my correction was never given to the board. That was a cover-up. You can’t have a cover-up in a bank – that shows that money is going the wrong way. I’ve been working together with other whistleblowers at the World Bank because we know that the board has to be informed about what’s actually going on. Other whistleblowers have reported double accounting, we reported this to the UK Parliament, I reported it to the European Parliament in 2011 and the European Parliament wrote the letter to the World Bank. I had a very detailed chronology, and the World Bank never responded. Then I’ve been reporting this to the US Congress and when the US Congress was asked to give a capital increase to the World Bank, they had asked for a government accountability office audit which never took place. I was reporting this to the International Organisation of Supreme Audit institutions and then I asked the board to require KPMG to do an auditof the World Bank Internal Controls. KPMG did not follow the auditing standards, I reported this to the public company accounting oversight board, I reported this to the ICC. But since the ICC couldn’t be bothered to sort out the insider trading for the Federal Reserve System, they certainly weren’t going to straighten out the bonds in the World Bank. So I borrowed world bank bond and I sued under the securities laws, and I also went to each and every Attorney-General in the States, and I told the States that they were responsible for making sure that there was accurate financial information going to the bond holders in their States, and I also went to the International Organisation of the Securities Commissioners. So, the World Bank has got to be brought into compliance and there has to be transparency in the capital markets, and the insider training of the Federal Reserve System is going to be history in short order.

SS: Do you feel safe after all these leaks, I mean you were fired?

KH: You know I have been working with some very wonderful whistleblowers; in particular, I’d like to mention Mark Novitsky who has been reporting about insider trading and inaccurate financial reporting for Teletech, which is a company that had been spying on American citizens. So, when whistleblowers work together, and compare notes and share information you get a very accurate picture. In addition, I’d like to mention Larry Harrison, who has been my PR guy. So when you have people who you’re working with it’s not so easy to shut the whistleblowers down, we just gain in strength. We ‘re going from strength to strength.

SS: Do you feel like you are being heard? Is anything changing?

KH: Well, that’s what I like to ask your audience.

SS: Do you feel like anything changing in the system by whistleblowing on it?

KH: Yes, I absolutely do. I think the number of people they are hearing my message and that are looking into this information, and everyday they are sending me e-mails. They are going out and they are getting their neighbours to find out what’s really going on. I don’t think this mainstream media is going to have too big of an audience at the rate we’re going.

SS: There are liberty movements that are actually picking up now, the likes of Bitcoin, for example. Can they ever grow into a solid rival to the conventional system?

KH: I think they’re going to be a force to be reckoned with, yes. It’s a matter of fact. There are other similar kinds of payment systems that are now gaining currency. Yes, I think we’re going to have a world where there’s a lot of choice and the legal tender is not going to be used to put people into debt and to imprison them.

SS: Are you using a Bitcoin as of now?

KH: That’s a good question. I’m trying to learn how. There is a conference that is taking place and I’m going to try to get myself sorted out on that.

SS: Karen, thank you very much for your time. That’s all for today. Our guest was a former insider at the World Bank, ex-senior counsel Karen Hudes. Thanks for watching and we will see next time here in SophieCo.


GoldSeek Live Webinar – Sept 9, 2013 [Dr Jim Willie & Rudi Fronk]

Hello to Everyone including all the new Friends and Subscribers,

Every time someone new follows my blog I get inspired…  Look at these interesting times we are in right now folks! I feel like now is the time for me to stand in my Integrity! I have a Vision! I have a vision that I am creating Integrity, Authenticity, Honor and Freedom for myself and everyone!  Will you stand for your life?  or will you live as a debt slave with debt based money paying interest to who?
I stand for public Banking and I stand for asset based money, whether that’s Gold, Silver, Bitcoin or Real Estate. I will continue to stand for integrity in commerce and human equality and dignity. Who will stand with me!
Enjoy my sincere and honest friend Jim Willie (~27 min), I really appreciate his amazing ability to communicate  complex Geo-political and fundamental Financial operations of the USFed and member World Central Banks.  Congratulations to Goldseek.com and their crew for creating this event.

Ed Reidhead

IMF members: World economy still needs ‘decisive’ action…

IMF members: World economy still needs ‘decisive’ action…

Hello Everyone!

I find this article very interesting…  it looks as though the future of World financial matters is in the balance…  Which way will it go?


IMF members: World economy still needs ‘decisive’ action

Published: April 20, 2013

— Finance ministers from around the world emphasized Saturday that much work remains to reach full recovery, especially in advanced economies.

In a joint statement following meetings Saturday in Washington of the International Monetary Fund’s policy-making committee, the finance ministers said that countries “need to act decisively to nurture a sustainable recovery and restore the resilience of the global economy.”

IMF economists this week underlined the need for the eurozone to bring banks back to full health, especially in harder-hit countries, and to rapidly move toward a full banking union with common oversight. Without a properly functioning banking sector, the smaller businesses that can deliver jobs and economic growth will continue to be starved for investment.

“Financial sector repair and reform remain a priority,” the finance ministers said. “Advanced economies need to balance supporting domestic demand with reforms to tackle structural weaknesses that weigh on growth, while implementing credible fiscal plans.”

The IMF this week pared back its 2013 global growth forecast by 0.2 percentage points to 3.3 percent. Most of that growth is coming from emerging and developing markets, while the eurozone economy is expected to contract this year.

After the meeting, Singaporean Finance Minister Tharman Shanmugaratnam, who chairs the IMF’s policy-setting committee, said that “around the table . . . there was a very strong view that we had to place greater emphasis on structural reforms to create jobs, as well as to boost productivity.”

Such reforms to improve growth vary among economies but often include streamlining labor markets, reducing barriers to starting new businesses and removing market-distorting subsidies.

The closing statement from finance ministers said that “accommodative monetary policy is still needed to help bolster growth but . . . eventual exit from monetary expansion will need to be carefully managed and clearly communicated.”

The rate-setting US Federal Reserve has kept interest rates near zero for more than four years, and additionally is pumping $85 billion into bond markets every month to further stimulate investment, in an unprecedentedly loose monetary policy. Central banks in the eurozone and Japan have taken smaller but similar steps toward highly accommodative monetary policy.

With central banks sailing into uncharted waters, worries have arisen that the new monetary policies could stoke inflation or inflate dangerous bubbles in prices of stocks, real estate or other assets. At the same time, with less than strong growth in those regions, there are concerns that the same economies could wither if central banks stop showering them with cash.

IMF chief Christine Lagarde said that the Washington-based crisis lender will study the “consequences of unconventional monetary policy . .. and what will be the good exit, as opposed to the more unpleasant exit for all members.”

The Coming Derivatives Panic That Will Destroy Global Financial Markets

The Coming Derivatives Panic That Will Destroy Global Financial Markets

Here is an interesting post I found from my friends blog at:  http://chasvoice.blogspot.com/  Ed


Source:  http://theeconomiccollapseblog.com/archives/the-coming-derivatives-panic-that-will-destroy-global-financial-markets

When financial markets in the United States crash, so does the U.S. economy.  Just remember what happened back in 2008.  The financial markets crashed, the credit markets froze up, and suddenly the economy went into cardiac arrest.  Well, there are very few things that could cause the financial markets to crash harder or farther than a derivatives panic.  Sadly, most Americans don’t even understand what derivatives are.  Unlike stocks and bonds, a derivative is not an investment in anything real.  Rather, a derivative is a legal bet on the future value or performance of something else.  Just like you can go to Las Vegas and bet on who will win the football games this weekend, bankers on Wall Street make trillions of dollars of bets about how interest rates will perform in the future and about what credit instruments are likely to default.  Wall Street has been transformed into a gigantic casino where people are betting on just about anything that you can imagine.  This works fine as long as there are not any wild swings in the economy and risk is managed with strict discipline, but as we have seen, there have been times when derivatives have caused massive problems in recent years.  For example, do you know why the largest insurance company in the world, AIG, crashed back in 2008 and required a government bailout?  It was because of derivatives.  Bad derivatives trades also caused the failure of MF Global, and the 6 billion dollar loss that JPMorgan Chase recently suffered because of derivatives made headlines all over the globe.  But all of those incidents were just warm up acts for the coming derivatives panic that will destroy global financial markets.  The largest casino in the history of the world is going to go “bust” and the economic fallout from the financial crash that will happen as a result will be absolutely horrific.

There is a reason why Warren Buffett once referred to derivatives as “financial weapons of mass destruction”.  Nobody really knows the total value of all the derivatives that are floating around out there, but estimates place the notional value of the global derivatives market anywhere from 600 trillion dollars all the way up to 1.5 quadrillion dollars.

Keep in mind that global GDP is somewhere around 70 trillion dollars for an entire year.  So we are talking about an amount of money that is absolutely mind blowing.

So who is buying and selling all of these derivatives?

Well, would it surprise you to learn that it is mostly the biggest banks?

According to the federal government, four very large U.S. banks “represent 93% of the total banking industry notional amounts and 81% of industry net current credit exposure.”

These four banks have an overwhelming share of the derivatives market in the United States.  You might not be very fond of “the too big to fail banks“, but keep in mind that if a derivatives crisis were to cause them to crash and burn it would almost certainly cause the entire U.S. economy to crash and burn.  Just remember what we saw back in 2008.  What is coming is going to be even worse.

It would have been really nice if we had not allowed these banks to get so large and if we had not allowed them to make trillions of dollars of reckless bets.  But we stood aside and let it happen.  Now these banks are so important to our economic system that their destruction would also destroy the U.S. economy.  It is kind of like when cancer becomes so advanced that killing the cancer would also kill the patient.  That is essentially the situation that we are facing with these banks.

It would be hard to overstate the recklessness of these banks.  The numbers that you are about to see are absolutely jaw-dropping.  According to the Comptroller of the Currency, four of the largest U.S. banks are walking a tightrope of risk, leverage and debt when it comes to derivatives.  Just check out how exposed they are…

JPMorgan Chase

Total Assets: $1,812,837,000,000 (just over 1.8 trillion dollars)

Total Exposure To Derivatives: $69,238,349,000,000 (more than 69 trillion dollars)


Total Assets: $1,347,841,000,000 (a bit more than 1.3 trillion dollars)

Total Exposure To Derivatives: $52,150,970,000,000 (more than 52 trillion dollars)

Bank Of America

Total Assets: $1,445,093,000,000 (a bit more than 1.4 trillion dollars)

Total Exposure To Derivatives: $44,405,372,000,000 (more than 44 trillion dollars)

Goldman Sachs

Total Assets: $114,693,000,000 (a bit more than 114 billion dollars – yes, you read that correctly)

Total Exposure To Derivatives: $41,580,395,000,000 (more than 41 trillion dollars)

That means that the total exposure that Goldman Sachs has to derivatives contracts is more than 362 times greater than their total assets.

To get a better idea of the massive amounts of money that we are talking about, just check out this excellent infographic.

How in the world could we let this happen?

And what is our financial system going to look like when this pyramid of risk comes falling down?

Our politicians put in a few new rules for derivatives, but as usual they only made things even worse.

According to Nasdaq.com, beginning next year new regulations will require derivatives traders to put up trillions of dollars to satisfy new margin requirements.

Swaps that will be allowed to remain outside clearinghouses when new rules take effect in 2013 will require traders to post $1.7 trillion to $10.2 trillion in margin, according to a report by an industry group.

The analysis from the International Swaps and Derivatives Association, using data sent in anonymously by banks, says the trillions of dollars in cash or securities will be needed in the form of so-called “initial margin.” Margin is the collateral that traders need to put up to back their positions, and initial margin is money backing trades on day one, as opposed to variation margin posted over the life of a trade as it fluctuates in value.

So where in the world will all of this money come from?

Total U.S. GDP was just a shade over 15 trillion dollars last year.

Could these rules cause a sudden mass exodus that would destabilize the marketplace?

Let’s hope not.

But things are definitely changing.  According to Reuters, some of the big banks are actually urging their clients to avoid new U.S. rules by funneling trades through the overseas divisions of their banks…

Wall Street banks are looking to help offshore clients sidestep new U.S. rules designed to safeguard the world’s $640 trillion over-the-counter derivatives market, taking advantage of an exemption that risks undermining U.S. regulators’ efforts.

U.S. banks such as Morgan Stanley (MS.N) and Goldman Sachs (GS.N) have been explaining to their foreign customers that they can for now avoid the new rules, due to take effect next month, by routing trades via the banks’ overseas units, according to industry sources and presentation materials obtained by Reuters.

Unfortunately, no matter how banks respond to the new rules, it isn’t going to prevent the coming derivatives panic.  At some point the music is going to stop and some big financial players are going to be completely and totally exposed.

When that happens, it might not be just the big banks that lose money.  Just take a look at what happened with MF Global.

MF Global has confessed that it “diverted money” from customer accounts that were supposed to be segregated.  A lot of customers may never get back any of the money that they invested with those crooks.  The following comes from a Huffington Post article about the MF Global debacle, and it might just be a preview of what other investors will go through in the future when a derivatives crash destroys the firms that they had their money parked with…

Last week when customers asked for excess cash from their accounts, MF Global stalled. According to a commodity fund manager I spoke with, MF Global’s first stall tactic was to claim it lost wire transfer instructions. Then instead of sending an overnight check, it sent the money snail mail, including checks for hundreds of thousands of dollars. The checks bounced. After the checks bounced, the amounts were still debited from customer accounts and no one at MF Global could or would reverse the check entries. The manager has had to intervene to get MF Global to correct this.

How would you respond if your investment account suddenly went to “zero” because the firm you were investing with “diverted” customer funds for company use and now you have no way of recovering your money?

Keep an eye on the large Wall Street banks.  In a previous article, I quoted a New York Times article entitled “A Secretive Banking Elite Rules Trading in Derivatives” which described how these banks dominate the trading of derivatives…

On the third Wednesday of every month, the nine members of an elite Wall Street society gather in Midtown Manhattan.

The men share a common goal: to protect the interests of big banks in the vast market for derivatives, one of the most profitable — and controversial — fields in finance. They also share a common secret: The details of their meetings, even their identities, have been strictly confidential.

According to the article, the following large banks are represented at these meetings: JPMorgan Chase, Goldman Sachs, Morgan Stanley, Bank of America and Citigroup.

When the casino finally goes “bust”, you will know who to blame.

Without a doubt, a derivatives panic is coming.

It will cause the financial markets to crash.

Several of the “too big to fail” banks will likely crash and burn and require bailouts.

As a result of all this, credit markets will become paralyzed by fear and freeze up.

Once again, we will see the U.S. economy go into cardiac arrest, only this time it will not be so easy to fix.

Do you agree with this analysis, or do you find it overly pessimistic?  Please feel free to post a comment with your thoughts below…

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