Barnhardt: There’s No Way In Hell We’re Making It To November, 2012

From Ann Barnhardt:


Here is a piece from that hopefully will make you all understand, once and for all, that this ain’t the 1930’s, and that there is absolutely no way in hell that this Republic is going to make it to November 2012.


Summary: The five largest banks in the U.S. (JP Morgan Chase, Citibank, Bank of America, Goldman Sachs and HSBC) are carrying $238 TRILLION dollars in derivative exposure. JP Morgan alone is carrying $78 TRILLION in derivative exposure BY ITSELF.

Okay, what the hell is derivative exposure? What this is referring to are over-the-counter non-exchange traded forward delivery (or “futures”) contracts of various kinds. I am a futures broker, but I only execute futures contracts on the futures exchanges, namely the Chicago Mercantile Exchange and the New York Mercantile Exchange. About ten years ago a new “novelty” emerged in the futures business – the so-called “over-the-counter” contracts. There was a kid in the office I worked in who got wind of this and had all kinds of stars in his eyes about making a killing off of these “OTC” contracts because the brokers’ commissions were not a flat fee but a percent of the contract value. Here’s the problem with OTC contracts: there is no exchange standing between the buyer and seller as a guarantor.

In my business, when a customer executes a trade on a futures or options contract, it makes no difference who the other guy is on the other side of the trade, be it executed electronically or in the pit. None of us have to worry for a second about the counterparty on our executions because the EXCHANGE ITSELF stands between ALL transactions as the ultimate guarantor. The exchange then enforces the financial requirement rules with the Clearing Houses, the Clearing Houses enforce the financial requirement rules with the brokers, and the brokers enforce the financial requirement rules with the customers. That is the chain of financial responsibility. So, even if a customer bugs out and fails to financially perform on a contract, the contract WILL BE MADE GOOD by extracting the money from the broker, then the Clearing House and finally the Exchange. This massive enforcement buffering is what gives the system integrity.

OTC contracts have no exchange. They are a flipping free-for-all. If someone bugs out on a contract, the poop hits the fan. The counterparty has their pants around their ankles and the broker is caught in the middle. That’s why when that kid in my office years ago got all starry-eyed, I thought to myself, “I wouldn’t do that OTC crap if you put a gun to my head – no matter what the commissions were. It would be Russian Roulette. Eventually someone would default and it would financially destroy the broker instantly, and perhaps the counterparty as well.”

Let’s take my business – cattle futures. One contract is 40,000 pounds of live cattle. The spot contract settled at $119.725 per hundred pounds today. So, 40,000 pounds X $1.19725 (shift the decimal) = $47,890 total value of the contract. Since this is an exchange traded instrument, the customer doesn’t really don’t have to worry about default and can go ahead and book that $47,890 today, and it will be offset at a later time, and the net of the entry and exit will be the P&L. The contract isn’t going to default, so the derivative exposure is limited.

Okay. These banks are carrying these OTC futures contracts with NO exchange to guarantee anything. And they are carrying these contracts largely WITH EACH OTHER. So JP Morgan might be the long and Goldman Sachs, or some insolvent bank in Europe is the short on the other side. If these banks default, which is now a mathematical certainty because they are not only insolvent, but insolvent multiple times over and there isn’t enough money in the world to bail them out, there is going to be a cascading default on all of these OTC contracts.

Now look at the value and exposure of these OTC derivatives again: the top 5 banks in the US alone have exposure of $238 TRILLION dollars.

The total GDP of the United States is $14.5 Trillion.

The total GDP of China is $6 Trillion.

The total land mass on earth is 36.8 billion acres. If every acre of land on earth was “sold” for $6467 per acre, that would total $238 Trillion.

JP Morgan BY ITSELF has derivative exposure equal to over FIVE TIMES the value of the entire US GDP.

And no, there will not be a 1:1 offsetting in a collapse, because the collapse will be asymmetrical, and the bankrupt party will first pursue FULL payment on its “longs” (think of these as accounts receivables) while its “shorts” (accounts payable) will only pay out 20 cents on the dollar OR LESS. In other words, these entities will tear each other apart in a mad dogfight and this dogfight will take the entire world down with it.



AND THE MASSIVELY CORRUPT AND INCOMPETENT SECURITIES REGULATORS, BOTH GOVERNMENTAL AND PRIVATE, SAT BY AND WATCHED THIS HAPPEN. That is what happens when you let a group of criminals run a bureaucracy of affirmative action hires to “audit” the financial industry. Scroll down and read my post titled “There Must Be A Reckoning.”

It’s over. There is no coming back from this. The only thing that can happen is a total and complete collapse of EVERYTHING we now know, and humanity starts from scratch. And if you think that this collapse is going to play out without one hell of a big hot war, you are sadly, sadly mistaken.

Here [video clip at top – WRSA] is an intellectually honest trader who was interviewed this morning by the BBC. As much as you may not want to believe it, what this guy says is correct.

This iteration of human civilization is approaching an end.

19 responses to “Barnhardt: There’s No Way In Hell We’re Making It To November, 2012

  1. Pingback: Barnhardt: There’s No Way In Hell We’re Making It To November, 2012 « Interned In Northfield

  2. All that remains is will a spark ignite the circus before everyone comes to their senses. And the band plays on.

  3. I didn’t do it and I ain’t paying for it, period.

  4. We are paying for it right now, with much more to come.

  5. Senator Blutarsky

    Derivatives were outlawed from 1907 until 2000……… was illegal up until 2000 with the passage of the Commodity Futures Modernization Act of 2000. Prior to this, in the early 1900s “bucket shops” lined the streets, allowing people to make bets on whether stocks would go up or down. This speculation contributed to the stock market crash of 1907 and the later Great Depression, and laws were put into place to ban the bucket shops.

    Most suckers cheered – it was called a “free market” proposal…………Ann, as usual, fails to provide the context – she is such a ranting, useless tool……..

    In 2000, however, a little publicized piece of legislation was passed that removed derivatives and credit default swaps from federal oversight. The Act also pre-empted states from enforcing existing bucket shop laws against Wall Street.

    By 2008, credit default swaps had grown to be an over $50-trillion market. Traders and investment bankers began to make billions of dollars as the United States enjoyed the largest financial services economy ever. Many profited immensely from selling mortgage securities and credit default swaps that no one thought would need to be paid off.

    “The credit default swaps was the key of what went wrong and what’s created these enormous losses,” Harvey Goldschmid, a Columbia University law professor and a former commissioner and general counsel of the Securities and Exchange Commission, told CBS News.

    • because you should ALWAYS take to heart what Law Professors from Ivy League schools say.
      After all, they’re academics.

      • Senator Blutarsky

        Mayor – do you wish to discuss the effects of CDS and unregulated derivatives, or the academic credibility of the quote I used ?

        A Barnhart toolie wants to nibble at symptoms, and neglect causes.

        Please share with us mundanes YOUR analysis of the context of CDS etc- Thanks

  6. Senator, the lady Ann is a Catholic, and having been brought up as one, I can tell you from experience that they get used as tools all the time, usually by the people goading them on to righteous indignation. Your assessment was correct about the derivatives, and I value clarity as you do. She’ll wind up on some Joan de’Arc gig, and I hope she comes out alive. Meantime, I hope a few more women take notice, and get with it. My own wife is deaf to this stuff, and my kids think I’m deranged and a radical. One of my sons sees it like I do, but he’s hoping for a reprieve. I sure hope they all don’t expect me to carry them through the upcoming festivities. It’s a come-as-you-are, drag your own stuff affair.

  7. Yes and the financial institutions that commited this fraud did so with the complete and total faith that they would be “too big to fail” and that Daddy would bail them out. Its a complex fraud but it is fraud none the less. Those clamoring for more regulation should note that. No amount of regulation is going to prevent people from conducting these types of schemes if they understand that the taxpayer will ultimately hold the bill for their fraud and they can avoid jail by committing a crime so large it cannot be made whole. If we arrested and prosecuted all those that commmitted this fraud we would have to flush out every drug related inmate currently sitting in US prisions. This was “they cant arrest us ALL” writ large. The only regulation I want to see is the range to the target. Lets try to keep it under 100 yards so we can see them shit themselves.

  8. Any U.S. government political hack who stands up and volunteers us serfs to bail out these financial pirates needs to be immediately and strongly rebuked.

    • Bail out? Hell, the serfs themselves will volunteer, when it’s clear no monetary bailout will suffice. They’ll gladly enlist to go and fight the ________s (fill in bogeyman/foreign/domestic economic scapegoat du jour.) The serfs are always a sucker for a good war. Gets them out of their dead-end lives.

  9. We are nearing the end of America’s Indian Summer. I pray that I’ll be safely dead before the carnage begins.

  10. We can hope for reprieves, extensions to rhetorical Indian Summers, but consider; the longer the collapse is put off the better the enemy’s hand is militarily. No I’m not talking about all the patriots who got screened out for blasting at ‘mooslims’ I’m talking about the thugs they’ll be deploying against us. Same kind of thugs that attack little Downs Syndrome afflicted dudes because their colomostry (however you spell that) bag looks ‘suspicious’. Who rape women in jail cells and leave them stark naked with in the middle of winter with open windows and nothing to cover them. Who bust children for having lemonade stands, or Amish for selling raw milk. Who bust Americans over bs gun regs, then ship those guns to drug cartels for dope.

    Those thugs won’t have the refurbished/worn out equipment that constitutes the Cold War era US Military-they’ll have the latest in drones, arms, heavy weapons, air support.

    Can we win? I’ll give that a qualified yes. For now.

    We know who the enemy is. Treat them accordingly.

  11. I for one want no more reprieves, extensions, or Indian Summers.

    I want to raise the black flag, spit on my hands and get to work.

    I want to be part of it. All of it. It will be the biggest historical event in the history of man.

    God forgive me.

  12. “Rebellion has come to America” –

    Take it for what it is — the lefty kids protesting Wall Street may be your bedfellows in the struggle before too long.

  13. The young marxists are not bedfellows- But they can serve a purpose as “useful idiots”.