. October 17, 2005 SouthAmerica: Fortune magazine issue dated March 7, 1994 had an excellent article: "The Risk that Won't Go Away,â by Carol J. Loomis about the global financial derivatives market and how some deep crisis at a major dealer that would cause it to default on its contracts and be the instigator of a chain reaction bringing down other institutions and sending paroxysms of fear through a financial market that lives on the expectation of prompt payments. *** On Sunday October 16, 2005 The New York Times published an article by Gretchen Morgensen: âIf Refco Isnât Scary, What Is? Quoting from her article: ââ¦It seems incomprehensible that a financial domino this big can topple without making a sound. Refco after all, was one of the largest players in commodities, derivatives and United States Treasury markets, operating in 14 countries and serving more than 200,000 clients. Financial market tremors or not, there is plenty to be afraid of in the Refco mess.â *** SouthAmerica: I would like to see as soon as possible on Fortune Magazine an article by Carol J. Loomis giving an update on her article about derivatives published on Fortuneâs March 7, 1994 issue. The question is can the financial blow out at Refco, combined with the losses caused by Hurricane Katrina and Rita start a chain reaction that will wreck havoc on the financial system and the world economy? And things can be compounded by another major terrorist attack in US soil. How close are we from a financial derivatives market meltdown? Or has Refco started the chain reaction? *** I posted the following information on Brazzil Magazineâs message board in May 2003, and on âPBSâ message board on September 2004. SouthAmerica: Quoting from my article published in November 2002: âThe Big American Lieâ - The Brazilian government should learn with the US how to paint a rosy picture when the economy is falling apart, how to live in a world of illusion. Here is some further information which I am quoting from the article "The Risk that Won't Go Away,â in Fortune magazine dated March 7, 1994: Financial derivatives are tightening their grip on the world economy. And nobody knows how to control them. Like alligators in a swamp, financial derivatives lurk in the global economy. Deriving their value from the worth of some underlying asset, like currencies or equities, these potentially lucrative contracts are measured in trillions of dollars. But they also lie in convoluted layers in a tightly wound market of global interconnections. And that gives them the capacity to bring on a worldwide financial quake. â...The lead actors, small in number, are derivative dealers: the big commercial banks, the major securities firms, plus an occasional outlander from insurance. For these players, derivatives have become an imposing source of profits, earned largely on the fastest-growing, most controversial instruments of all: customized, over-the-counter contracts written between a dealer and another party. â...Counting everything, including both derivatives traded on the futures and options exchanges and over-the-counter (OTC) derivatives, the notional value of derivative contracts outstanding is today an estimated $16 trillion. That leaves the GDP of the US, at around $6.4 trillion, in the dust. ...Most chillingly, derivatives hold the possibility of systemic riskâthe danger that these contracts might directly or indirectly cause some localized or particularized trouble in the financial markets to spread uncontrollably. â...An imaginable scenario is some deep crisis at a major dealer that would cause it to default on its contracts and be the instigator of a chain reaction bringing down other institutions and sending paroxysms of fear through a financial market that lives on the expectation of prompt payments. Inevitably, that would put deposit-insurance funds, and the taxpayers behind them, at risk." That Fortune magazine article also mentioned that the derivatives market was growing at a 40 percent rate per year. That means that on the conservative side, the value of contracts in the derivatives market must have grown by over 300 percent since March 1994, and the estimated value for them at the year end 2002 should be over $ 50 trillion dollars. I don't understand why, after such a sharp stock market decline since January 2000, compounded by the economic losses of 9/11, the collapse of the telecom, and airline industries, and massive corporate fraud on corporate America, how come all this did not result in major losses for the banks, insurance companies, hedge funds, and other financial institutions, creating havoc in this derivatives market. Massive losses in this derivatives market can sink the entire US economy. *********** SouthAmerica: One of the triggers of the stock market collapse of 1929 was margin call on stock purchased on credit. (In 1929 people could buy a lot of stock on credit with a small amount of cash.) Margin calls it was a major problem in the stock market crash of 1929. Today, the equivalent to margin calls in 1929 is: "Derivatives." The Derivatives market today is estimated to be over 125 trillion US dollars. Lately the news media have mentioned about the treat of the derivatives market getting bust. And based on the latest estimates the current value of the derivatives in force is around 125 trillion dollars. (Estimate from May 2003) Remember trillions and not billions. If this market goes bust the entire financial system around the world will be in big trouble. This time around, "Derivatives" will be the trigger to a massive stock market collapse. Any way, today we are away overdue for a new stock market crash, and worldwide depression. Are we approaching: The Big Meltdown? ***** Washington Post, March 6, 2003 Warren Buffett: "derivatives are financial weapons of mass destruction" â¦In the words of Warren Buffett: âDerivatives represent a ticking âNuclear Time Bombâ that could wreck havoc on the financial system and the economy.â ***** Additional quote from Warren Buffett âTrade Deficit at All-Time High of $665.9Bâ Associated Press Wednesday March 16, 2005 â¦Investor Warren Buffett warned in this year's letter to shareholders of Berkshire Hathaway Inc. that the United States could become a "sharecropper's society" by the continued transfer of U.S. assets into foreign hands. He estimated the country's debt to foreigners could surge to $11 trillion by 2015. â¦But Buffett warned in his letter to shareholders that the growing indebtedness would require annual payments to foreigners to service the debt of around $550 billion by 2015, a transfer of resources that would mean less investment and lower living standards in the United States. .