ALERT - Deutche Bank Corp is teetering. If it falls so does global economy-
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comments and news from net, Posted in Economy-(Global)
Jim Rickards points out the skunk in the woodpile: derivatives. Derivatives are securities based on - "derived" from - the value of an underlying asset. A stock option is a derivative, for example, because its value is derived from the underlying stock. They're used to hedge investments or to speculate. When enough of these bets go wrong, the entire financial system can collapse.
The outstanding global derivatives market is over $700 trillion - 10 times global GDP. And amazingly, one bank, Deutsche Bank, owns about $75 trillion of those derivatives. That's roughly 13% of all outstanding global derivatives. And Deutsche Bank is in trouble...
With its tentacles extended throughout the world like a global grapevine, Deutsche Bank presents "systemic risk." In fact, the IMF declared last month that Deutsche Bank poses the greatest risk to global financial stability.
Consider that Lehman Bros. was leveraged 31-to-1 before its 2008 collapse. Deutsche Bank is now leveraged over 40-to-1.
TheStreet's Chris Vermeulen warns the next time "could be exponentially larger than Lehman's."
Jim Rickards sees that black swan through his binoculars: "Deutsche Bank is in trouble. They're not quite at the stage where they need to be bailed out yet. But they might be getting uncomfortably close."
Derivatives expert Idan Levitov goes so far to call Deutsche Bank a "ticking time bomb":
[One] institution that is... a ticking time bomb due to its extreme derivatives exposure is Deutsche Bank. As one of several very large global and systemically important multinational banks, Deutsche Bank's balance sheet has more of what Warren Buffett decried as 'financial weapons of mass destruction' than any other bank on the planet.
Meanwhile, the global bond bubble now is a staggering $100 trillion. And over $500 trillion in derivatives trade is based upon bond yields. If that bond bubble bursts...
Today the global derivatives market is much larger than it was in 2008. And with Jim Rickards' "complexity multiplier," could it be that the risk is not just higher... but exponentially higher?
"Globalization... creates interlocking fragility," says author and statistician Nassim Nicholas Taleb, "while reducing volatility and giving the appearance of stability. In other words, it creates devastating Black Swans. We have never lived before under the threat of a global collapse."
Now we do. And thanks to derivatives, the threat looms larger than ever.
Regards,
Brian Maher
Managing editor, The Daily Reckoning
Editor's note: Britain's exit from the European Union could trigger a $500 trillion derivatives meltdown, by some estimates. Jim Rickards has warned that the aftereffects of Brexit are still playing out... and that the story is far from over. New data in the past two weeks have confirmed his view. Click here now to see Jim's urgent update.