Market Watch: That’s just a snippet from the warning Pope Francis, long a vocal critic of unchecked global capitalism, sounded on Thursday via a statement released by the Vatican.
“The market of CDS, in the wake of the economic crisis of 2007, was imposing enough to represent almost the equivalent of the GDP of the entire world,” the document explained. “The spread of such a kind of contract without proper limits has encouraged the growth of a finance of chance, and of gambling on the failure of others, which is unacceptable from the ethical point of view.”
The proliferation of unregulated derivatives — complex products that derive their value from an underlying asset or group of assets — is to blame for nearly blowing up the global financial system a decade ago.
The pope apparently believes the powers-that-be haven’t learned their lesson. more…
Opinion: I once agreed with Barack Obama, although the topic escapes me. I now agree with Pope Francis but I am stunned that: 1 – he is knowledgeable on the topic of derivatives and 2 – he considers it his duty to speak out on the subject.
“What is demanded is an initiative … for the renewal of humanity… towards that abundance of values which alone permits the human person to discover himself or herself, and to construct a society that is a hospitable and inclusive dwelling place with room for the weakest, and where wealth is used for the benefit of all—places where it is beautiful for human beings to live and easy for them to have hope.”
He, Francis, is supposed to be about saving souls. Making initiatives for the world to be a beautiful place to live is not why Jesus died on the cross. Furthermore, unless you trust in Jesus as your Savior, you will never have lasting peace.
Francis’ call for regulations on these investment products, in view of the fact that there are more than 1.2 quadrillion of them in existence, is a bit late. They, derivatives, are so out of control that even an attempt to unwind them could cause a financial crisis.
The largest bank in Europe, Deutsche Bank, has over $45 trillion of derivatives and the bank has had financial troubles for years.
A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset (like a security) or set of assets (like an index). Common underlying instruments include bonds, commodities, currencies, interest rates, market indexes and stocks.
Typically they are a play on stocks, bonds or real estate. They usually involve a time frame so that if certain movement were to take place within a specific period of time, there would be a gain, and if not, a loss. Most investors that own these investments either 1 – don’t know they own a derivative or 2 – do know but don’t understand the risk.
In our post from March 22, 2018 I used this picture …
… to remind those who will be on earth at that time (1 Thess. 4:16-18) that when the Black Horse of Revelation 6:5-6 makes his appearance on the world stage bringing hyperinflation, even buying bread will be difficult to afford.
And it may be that a collapse in the $1,200,000,000,000.000 derivative market could be the catalyst.