As we all know the US & its coalition of the willing invaded Iraq on the pretext to find the weapons of mass destruction in 2003, but never found any. They knew Iraq had had them as the US allegedly sold the weapons to the Iraqis(be interesting to see what Wikileaks comes up with on this).
Many believed the real reason for the invasion was to gain the oil (in 2004 an official connected to the oil talks with Iraq told me that there was at that point in time an estimated US$37 Trillion worth of oil untouched in Iraq).
Another reason has since surfaced in the supposed asking by Saddaam at the time of all payments for Iraqi oil be made in Euros which at the time would of allegedly collapsed the US financial system.
But there are bigger weapons of mass destruction out there & all put in place by the US.
That is the name Warren Buffett gave to the derivatives market. Derivatives trading can be quite fun & have dabbled in it with options trading. But most of the derivatives are not traded on the markets & that is where the issues arise.
An estimated 90% of the market in derivatives is done behind closed doors in particular with those like CDO's in which mortgages are on sold.
Don't know what CDO's are or how it works? Basically when a bank or finance company gives you a mortgage you create the currency as it did not exist before you signed the mortgage. So you have just expanded the currency in the world. But the bank or company does it even better, it packages that mortgage with others, some good & some bad & on sells them to another bank or financial group.
The Essays of Warren Buffett: Lessons for Corporate America, Second Edition
The entity that gave you the mortgage then collects the interest & payments for the mortgage charges fees on it & the rest goes to the group that bought the CDO.
The problems start when the mortgagees can no longer pay the interest or principle on property. The property then goes into a mortgagee sale or foreclosure in the US. Further problems then come to light as has happened in the US when a legal challenge found the bank who first issued the mortgage then tries to foreclose cannot as they no longer own the mortgage.
This is definitely an issue when the mortgage is a sub prime mortgage as those takng it out where never likely to be able to pay. The next round of a high number of subprime loans are about to hit early in 2011. In fact a lot more than in 2008 & getting bigger as the year moves towards June.
The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition)
So what has all this got to do with weapons of mass destruction?
The financial crisis of 2008 was mainly due to the derivatives market dropping from an estimated US$ 750 Trillion to US$600 Trillion. Whilst the rest of the worlds economy has stumbled from one crisis to another this market has bounced back on course to allgedly have reached its expected 2010 level of a quadrillion with comments it may have doubled during the year to 2 quadrillion which keeps it on target to reach a quintillion by 2020(this is a market that started in 1990 at US$10 Trillion). This market was only allowed to trade on the markets until December 2000 when it was allowed to carryout the 'over the counter' or behind closed door deals.
So What?
All About Derivatives Second Edition (All About Series)
It is through these markets certain items such as oil are manipulated up & others such as silver are manipulated down.
Even a small percentage of collapse involves huge sums of currency. The ways to overcome the fallout of any hiccup in this market generally one way or the other bring about as one commentator stated 'social destablization'.
What?
In other words crime goes up & to areas not normally targeted as happened in New Zealand over the weekend when a pet shop was held up. Somewhere you would not expect to have a lot of currency on hand on a Saturday morning.
Derivatives Demystified: A Step-by-Step Guide to Forwards, Futures, Swaps and Options (The Wiley Finance Series)
You also get protests or riots over school fees, rise in pensions, other austerity measures & more union unrest. Sound familiar?
So if a much bigger amount of sub prime loans are about to come due with the attached CDO's & it hits the derivatives market what then?
More businesses out of business. Greater unemployment therefore greater stress on food & shelter for families resulting in greater unrest & crime. As you delve more into this topic you start to realize why survivalist groups have sprung up in the US once people realized what was going on.
The world has become so reliant on the debt based economy that any slight tremor(like a Sovereign debt crisi in Europe spreading next to the UK then US) could send the house of cards falling down.
http://www.foxhoundsecurity.co.nz
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