An excerpt from Urban Survival:
I've explained for subscribers, but it bears repeating: The danger in all these bank failures is not just the potential for depositors to lose their shirts and savings. If that were the case, the Feds would likely be upset, but not nearly as worried about 'systemic integrity'.
The real problem that crops up is the whole notion of cascading bank failures.' The way this scenario paints out is very simple. Picture all the banks in the world as being players sitting in a gigantic circle, each bank having a pile of receivables from their bank on the right and owing a bunch of payables to the bank of their left.
These inter-bank obligation instruments, have tow kinds of values. One in a 'notional value' and the other is an 'actual value'. They are derivatives and other piles of paper debt that have previously been taken at face value. But, all that is now changing.
The problem THE WHOLE WORLD has is that if the orderly transfer of dough from the players to the right - to the player in the middle - to the player on the left (in a manner of speaking) seizes up, there will be NO MORE FINANCIAL WORLD as we know it today. Pure and simple.
All it takes is just one bank to renounce its 'turn' and suddenly the whole global economic system can lock up. In other words, there is no way for the floating craps game that is the global derivatives and debt market to act in an adaptive manner because the underlying instruments are so horribly complex. You might have a pile of this kind of pseudo-bond (let's say a collection of mortgages) that was paying 'x' interest, and you decide to swap ownership of thatr for something that will pay you a spread and that in turn is based on some other piece of paper or variable rate on some exchange somewhere.
You should be getting the picture that everything is stitched together in a manner that makes it impossible to move positions about. You can just 'move' the whole world financial system around to accommodate the needs of a few players because underlying the global financial systems is a global pile of 'lawyer-drafted contracts' which would make your head spin. There is no way all that 'paper asset' and 'paper debt' legal work to be rewritten every couple of weeks (and becoming more regular lately, and becoming the norm this fall) fast enough to keep global economic collapse at bay.
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