The US Financial System.....Derivative Financial Effects Adam Smith's hand ....a simple example Suppose there is a 100 condominium complex.... Three years ago ....one sold for $100,000 Two years ago.... one sold for $200,000 Today.... one sold for $50,000 Thus the valuation of the complex went from 100x$100,000 to 100x$200,000 to 100x$50,000 Money changed hands three times.... The third condiminium was levered at 0% down....and the owner walked....what happened.... Prior to the third owner buying....there were other fake security valuations involved....involving real money.... There were three betting levels....the bets themselves became valuations.....dependent on the condominium valuations.... The first level contained the idea that condominium prices would not drop below $100,000....100x$100,000 The second tier betting....bet that the first bet valuations would not drop below $75,000....100x$75,000 The third tier betting ....bet that the second tier valuations would not drop below $50,000....100x$50,000 Therefore there were 4 levels of assets.... 1 the condominiums 100x$100,000 2 first tier bets 100x$100,000 3 second tier bets 100x$75,000 4) third tier bets 100x$50,000 Thus the total valuation of the 100 unit condominium the second year was 100x$325,000....of which $100,000 was due to the actual underlying asset valuation..... Also in the second year...the betting companies paid the employees bonuses from the mark to market value of the bets and the inflated value of the condominiums.... Thus at the end of the day, the condominiums dropped to 100x$30,000.....and the total valuation of the previous bets dropped to less than 0.... Thus the combined valuation went from 100x$325,000 to 100x$30,000..... ....................................................................................... This is basically what is happening with regards to the derivative securities story in the US.... .................................................................................... What has to happen ? Assets need to reflect a total valuation that truly relates to the hard asset itself....and not the derivative portion....which is the way the US used to operate.... So much for insurance.... There will not be a human being on earth that will not understand what the word derivative means....in the not so distant future....