I was much happier and blissfull before you told me this!
I'm glad I bought some gold today.
I'd better get some bullets on the way home (value and protection). I have some MRE's at home that have a 5+ shelve life, and are likely to be the best investment I have, because the value won't go down for 5 years, and they are tangible (unless the gov confiscates them).
The $215-$230 TRILL figure in the article is for commercial banks. It's $304 TRILL when bank holding companies are included. The $1.7 TRILL Morgan Stanley figure is grossly under-reported as well as that doesn't included their BHC portion. MS is carrying much of their risk via SIPC rather than those other banks who have ensured that their assets were shifted to FDIC covered banks. And by doing that JPM, BoA, GS, and Citi have head of the line privileges vs. depositors in the event of an FDIC bank or FDIC failure. In the first half of 2011 MS increased their derivs by approx $14 TRILL. It is believed this was done to better rig the interest rate market and force rates down for months. 2011 was a banner year for otc derivs with the top 5 banks increasing their totals by >$100 TRILL (+18% in first half of 2011) and by doing so are laughing at the Dodd-Frank bill. Just like in the case of the MFGlobal bankruptcy, the big boys will be paid off first after a derivatives blow up. All of this stuff was well planned out when the Commodities Futures and Modernization Act of 2000 was enacted.
It may only be "paper" bets. But that paper seemed to be quite important in the LTCM, Enron, AIG, Bear Stearns, Lehman, and MFGlobal failures. It "only" took a few TRILL of otc mortgage backed securities (derivatives) and about $30 TRILL in credit default swap failures to cause the financial system to lock up in 2008. It's been estimated that from $10 TRILL to $17 TRILL in slush money was needed to pay out all the winners from 2008. But, there are still $30 TRILL in credit default swaps out there as well as 20X to 30X that in otc interest rate swaps. Quite a bit of dynamite. Under no condition can the big 5 banks or govt allow the interest rate contracts to ever reach pay out status (ie higher rates or bankrupt TBTF banks). When Lehman's derivatives were settled after the Sept 2008 failure, they received 9 cents on the dollar. A far cry from the 97-99% that most derivative models suggest is the expected payout (ie risk of only 1-3%). There of course was no model suggesting Lehman would settle at about 1/10th of expected. Lehman was a relatively small entity compared to one of the five bohemoth US banks carrying >$50 TRILL in derivs. There are probably a similar number of Euro banks with that same exposure. Both groups of banks are linked.
The other $400 TRILL in world derivatives are listed through the London banks. And some portion of that could also be liabilities of the big 5 US banks. $708 TRILL total listed. But that number doesn't include the 40% "haircut" the deriv's market was given in 2008 when the accounting method was changed to a model of "marked to maturity." If that number is utilized then otc derivs are 10X the world economy. That haircut got the published number well away from $1 QUAD. Approx 80% of otc deriv's are interest rate contracts. That means 80% of what these big banks are doing with derivs is to skew the interest rate curve. Being able to "predict" the rate curve and issue your own type of debt-money (ie otc derivs) is far superior and more influential than having control of M0, M1, and M2. The otc derivative's scheme hoisted upon the American people is the ultimate con of all time as it's 5,000 times larger than Madoff's losses, and multiples of the fractional reserve banking game. If only we had invested the same amount of time in tracking down the otc derivative's crooks as we have with Madoff.
RR thanks for the link to the derivatives primer: put it right in the econ file for our home education and sent the link to our oldest in college.
Do your best to avoid circular arguments, as it will help you reason better, because better reasoning is often a result of avoiding circular arguments.
derryb
Posts: 36,212 ✭✭✭✭✭
Comments
I'm glad I bought some gold today.
I'd better get some bullets on the way home (value and protection).
I have some MRE's at home that have a 5+ shelve life, and are likely to be the best investment I have, because the value won't go down for 5 years, and they are tangible (unless the gov confiscates them).
myCCset
Knowledge is the enemy of fear
under-reported as well as that doesn't included their BHC portion. MS is carrying much of their risk via SIPC rather than those other banks who have ensured that their assets were
shifted to FDIC covered banks. And by doing that JPM, BoA, GS, and Citi have head of the line privileges vs. depositors in the event of an FDIC bank or FDIC failure. In the first
half of 2011 MS increased their derivs by approx $14 TRILL. It is believed this was done to better rig the interest rate market and force rates down for months. 2011 was a banner
year for otc derivs with the top 5 banks increasing their totals by >$100 TRILL (+18% in first half of 2011) and by doing so are laughing at the Dodd-Frank bill. Just like in the case
of the MFGlobal bankruptcy, the big boys will be paid off first after a derivatives blow up. All of this stuff was well planned out when the Commodities Futures and Modernization Act
of 2000 was enacted.
It may only be "paper" bets. But that paper seemed to be quite important in the LTCM, Enron, AIG, Bear Stearns, Lehman, and MFGlobal failures. It "only" took a few TRILL of otc
mortgage backed securities (derivatives) and about $30 TRILL in credit default swap failures to cause the financial system to lock up in 2008. It's been estimated that from $10 TRILL to
$17 TRILL in slush money was needed to pay out all the winners from 2008. But, there are still $30 TRILL in credit default swaps out there as well as 20X to 30X that in otc interest rate
swaps. Quite a bit of dynamite. Under no condition can the big 5 banks or govt allow the interest rate contracts to ever reach pay out status (ie higher rates or bankrupt TBTF banks).
When Lehman's derivatives were settled after the Sept 2008 failure, they received 9 cents on the dollar. A far cry from the 97-99% that most derivative models suggest is the expected
payout (ie risk of only 1-3%). There of course was no model suggesting Lehman would settle at about 1/10th of expected. Lehman was a relatively small entity compared to one of the
five bohemoth US banks carrying >$50 TRILL in derivs. There are probably a similar number of Euro banks with that same exposure. Both groups of banks are linked.
The other $400 TRILL in world derivatives are listed through the London banks. And some portion of that could also be liabilities of the big 5 US banks. $708 TRILL total listed.
But that number doesn't include the 40% "haircut" the deriv's market was given in 2008 when the accounting method was changed to a model of "marked to maturity." If that number is
utilized then otc derivs are 10X the world economy. That haircut got the published number well away from $1 QUAD. Approx 80% of otc deriv's are interest rate contracts. That means
80% of what these big banks are doing with derivs is to skew the interest rate curve. Being able to "predict" the rate curve and issue your own type of debt-money (ie otc derivs) is far
superior and more influential than having control of M0, M1, and M2. The otc derivative's scheme hoisted upon the American people is the ultimate con of all time as it's 5,000 times
larger than Madoff's losses, and multiples of the fractional reserve banking game. If only we had invested the same amount of time in tracking down the otc derivative's crooks as we
have with Madoff.
Primer on derivatives from Rob Kirby