Derivatives explained

Source:
http://billsandiego.blogspot.com/2008/10/derivatives-explained.html

Derivatives Explained

Suppose your neighbor’s house is worth $500K, and he has a $400K mortgage held by a bank. He doesn’t owe you any money, and you are no more than nodding acquaintances. I sell you a piece of paper for $5000 that says I will pay you the value of your next door neighbor’s house if he defaults on his mortgage. Congratulations, you just bought a derivative.

Why do you care if he defaults? You don’t.
What do you lose if he defaults? Nothing.
What do you gain by him not defaulting? Nothing.
So who gains by this silly ass derivative? Aha, we both do.

I gain $5000 by selling it to you, and all it cost me was a few dollars to have a lawyer draw it up and create some legalese. You gain because you now have a “secured debt obligation.” It is “secured” because it is tied to the value of your neighbor’s house, which you do not own and upon which you do not now and will never have any real financial claim.

The face value of your “secured debt obligation” is $500K, so you can show it to a banker and borrow cash using this piece of paper as collateral. The bank now has what it considers to be a “secured loan” for however much it loaned to you.

So we now have the $400K mortgage, the $500K derivative, and a bank loan all secured by this one $500K house. Something more than two times the value of the house is riding on the homeowner paying the mortgage.

And I’ve only sold one derivative against it. There is no limit on the number of derivatives I can sell against that house. That’s why the derivatives market is estimated to be in excess of fifty trillion dollars. And all of it is play money.

Derivatives are financial instruments created for the sole purpose of making money selling the instruments to people who are stupid enough or crooked enough to buy them.

So your neighbor defaulting on his mortgage is not the real problem in today’s crisis. Forget all this talk about how the government can pay off his mortgage and everything will be fine, because his mortgage is not the problem. The problem is your derivative and the loan that you obtained based on it. I have to pay you that $500K (along with all the others I sold), and I can’t do it. Since the derivative is now worthless, your loan has become an “unsecured loan” and your bank is freaking out about that. It can’t afford to have all this “unsecured debt” on its books and, as a result of that imbalance, the bank must obey bank laws and stop lending.

Your neighbor triggered the problem, but your derivative and your bank loan actually caused the problem. Nobody looked at your finances until your neighbor defaulted; that was the trigger. Then they looked at your books and mine (in this little blog drama) as a result of his default and saw that those finances were rotten and corrupt to the core, and the grits hit the fan.
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DeadMouseGirl's comment:
What happens when the $500K you promised me and a slew of other folks doesn't get paid? (because there's no real money in this!)
Well, if you're lucky, you get a BAILOUT (American taxpayer cash) from the government, since the economy is so entrenched in this kind of monopoly money, and we're ALL reliant on the economic machine.

So you, the shady derivatives seller:
1. Make $500K from me
2. Get out of paying what you owe
3. Got me to pay you AGAIN with may tax dollars through government hand-outs!

N.Y. health care workers ordered to take flu and H1N1 flu shots or lose jobs!

Source: Newsday
http://www.newsday.com/long-island/mandatory-flu-vaccination-splits-workers-1.1481242?print=true

Mandatory flu vaccination splits workers
September 27, 2009 by DELTHIA RICKS

Despite a planned rally in Albany Tuesday to protest a state regulation requiring health care workers be vaccinated against influenza — both seasonal and swine flu — New York’s top public health official predicts dissenters will ultimately extinguish their anger and roll up their sleeves.
The regulation, which was approved in August, comes with a stinging addendum: Get vaccinated or get fired.

But some nurses and many other health care providers say the regulation violates their personal freedom and leaves them vulnerable to vaccine injury. And they cite deaths associated with the last federal government swine-flu vaccination program in 1976.

Refusing to be immunized against H1N1 because of the vaccine debacle in 1976 “is like saying a plane crashed 33 years ago so I’ll never fly again,” said Dr. Richard Daines, New York State health commissioner.

New York is the only state in the nation to require that health care workers be vaccinated, though other states are considering such measures. Health workers, including doctors, must be immunized by Nov. 30. Opponents say it’s simply unnecessary.
Several registered nurses said they will neither contract nor transmit the flu because they’re constantly washing their hands.

While dozens of demonstrators are expected at the rally from throughout the state, many are from Stony Brook University Medical Center. A meeting was held last week for hospital staff on the importance of vaccination for health care workers; a special session was held for employees in the Neonatal Intensive Care Unit, because many nurses there had expressed concern about the vaccination plan.

“We cannot force employees to be vaccinated; however we do not have an infinite number of non-patient care positions available to reassign those who simply refuse the vaccine,” said hospital spokeswoman Lauren Sheprow.

Darcy Wells, spokeswoman for the Public Employees Federation, which represents 9,000 health care workers statewide, including 3,000 at Stony Brook, said the union disapproves of mandatory vaccination, but is urging members to comply with the regulation.

The opponents also say it’s wrong that all five swine flu vaccine makers contracting with the federal government have been indemnified against lawsuits if someone gets sick or dies.
Daines said the vaccination directive stemmed from particular concern about institutional outbreaks — in hospitals, nursing homes and hospice centers. In a typical year, only 40 percent to 50 percent of health care workers take advantage of voluntary flu vaccination programs, and the state has about 150 institutional outbreaks of influenza. But with seasonal and H1N1 in circulation in the fall, institutional outbreaks could worsen.

“Anyone who is concerned about the safety of the vaccine should read about the death of a previously healthy nurse in California who died of H1N1,” Daines said.

He referred to a 51-year-old nurse in Carmichael, Calif., who died in July after she was exposed to swine flu on the job.

Reed and Kristi Tramposch, both registered nurses in the neonatal intensive care unit at Stony Brook University Medical Center, say as parents of a child with an autism spectrum disorder, they oppose vaccination because of possible links to the neurodevelopmental condition.

“There are a lot of toxic substances that go into vaccines,” Kristi Tramposch said. “I would like to see a lot of people get it [the swine flu vaccine] before I consider it.”

Daines expressed dismay that neonatal intensive care nurses would consider shunning flu shots for personal or philosophical reasons. More than simply protecting themselves from infection, he added, health care providers are also protecting patients from the flu.

Like other protesters, the Tramposches said the newly approved H1N1 vaccine is no different from the swine flu immunization of 1976, which was linked to the nerve-damaging disorder Guillain Barre syndrome, and even death.

But Dr. Bruce Farber, chief of infectious diseases at North Shore University Hospital in Manhasset, said while he questions the state’s move to make flu shots mandatory now, he said no relationship exists between the vaccine of 33 years ago and the current vaccine.

“I took the swine flu vaccine in 1976,” said Farber, “and I plan to take the H1N1 flu vaccine now.”


Read the the State Health Department 's August 13 regulations here.

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