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The $55 Billion OTC Derivative Revenue Question
Recently the general public had the unpleasant experience of seeing
what the real face of Warren Buffett looks like when it comes to
derivative reform: a man ready to maim and kill to prevent even a minor
loss when it involves controlling what he previously called "weapons of
financial mass destruction." Sigh - yet another another hypocrite
unmasked. However the battle over derivatives is just beginning. As the
attached presentation from erdesk.com
indicates, the big banks are not about to let a $55 billion annual
revenue stream go away without a massive fight. And despite what Blanche
Lincoln thinks, with Financial Reform suddenly stalling hopelessly in
yet another indication that Chris Dodd's many years of robbing the middle
class blind need to end yesterday, derivatives are not going anywhere in a
hurry: with $11 billion in IR, $22 billion in FX, $10 billion in
Credit, $10.5 billion in commodities and $1.5 billion in mortgages,
most of it split between Goldman, DB, CS, MS and JPM, for anyone to
think that the firms who run the world will cede such a core part
of their business to the exchanges is naivete defined. We recommend the attached
simplified overview to anyone who has a passing interest in not
only the fascinating $600+ trillion world of OTC derivatives but of
ongoing (futile) attempts to reform it.
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With some 1.6 quadrillion +++ in derivatives we are so scr*wed.
Resistance is futile.
SSDD...And the wheels on the bus go round and round, round and round, round and round.
And they are training the next generation of banksters at Goldmans summer camp...
http://www.fugly.com/media/IMAGES/Strange/suckling_pig.jpg
I am shocked, Shocked that Buffet is really as crooked as a coat hanger.
truly, for he is the oracle of Omaha, can't be!
I'm shocked, just shocked, that underneath that doting little grandfather image resides a monster that would eat your grandchildren for lunch.
Oh come on, how do you think these people got so rich? By, brown bagging their lunches? By saving their change in a pickle jar? By clipping coupons and shopping at the penny saver?
...tax them... all of them... derivatives... start with GS's...
Buffet isn't crooked. He just wants to grandfather existing contracts to not apply the more stringent collateral requirements. Simply put, he'll need to come up with a lot more money to back his side if that law passes. Other than that, I think he's all for it.
As Tyler said "another hypocrite unmasked"
the best words describe him.
Other than that?
He made a wrong bet on FWMD, overlooking the law might change during the lifetime of these contracts. But now he wants to avoid the hit by lobbying.
Oh Lord, give me chastity, but do not give it yet.
Who gives a Monkey rats ass fuck? I am buying a 17 " Mac book pro Quad 4 i7 on credit. Life is good. Wake me up when life becomes bad. Im tired of Greece , CDS and GS. I got some spending to do. Fuck all them Wall Street Hoes, As long as their interests dont conflict with mine.
There was an old lady who swallowed a fly.
I dunno why she swallowed that fly,
Perhaps she'll die.
There was an old lady who swallowed a spider,
That wiggled and wiggled and tickled inside her.
She swallowed the spider to catch the fly.
But I dunno why she swallowed that fly -
Perhaps she'll die.
There was an old lady who swallowed a bird;
How absurd, to swallow a bird!
She swallowed the bird to catch the spider
That wiggled and wiggled and tickled inside her.
She swallowed the spider to catch the fly.
But I dunno why she swallowed that fly -
Perhaps she'll die
There was an old lady who swallowed a cat.
Imagine that, she swallowed a cat.
She swallowed the cat to catch the bird ...
She swallowed the bird to catch the spider
That wiggled and wiggled and tickled inside her.
She swallowed the spider to catch the fly.
But I dunno why she swallowed that fly
Perhaps she'll die
There was an old lady who swallowed a dog.
What a hog! To swallow a dog!
She swallowed the dog to catch the cat...
She swallowed the cat to catch the bird ...
She swallowed the bird to catch the spider
That wiggled and wiggled and tickled inside her.
She swallowed the spider to catch the fly.
But I dunno why she swallowed that fly
Perhaps she'll die.
There was an old lady who swallowed a goat.
Just opened her throat and swallowed a goat!
She swallowed the goat to catch the dog ...
She swallowed the dog to catch the cat.
She swallowed the cat to catch the bird ...
She swallowed the bird to catch the spider
That wiggled and wiggled and tickled inside her.
She swallowed the spider to catch the fly.
But I dunno why she swallowed that fly
Perhaps she'll die.
There was an old lady who swallowed a cow.
I don't know how she swallowed a cow!
She swallowed the cow to catch the goat...
She swallowed the goat to catch the dog...
She swallowed the dog to catch the cat...
She swallowed the cat to catch the bird ...
She swallowed the bird to catch the spider
That wiggled and wiggled and tickled inside her.
She swallowed the spider to catch the fly.
But I dunno why she swallowed that fly
Perhaps she'll die.
There was an old lady who swallowed a horse -
She's dead, of course.
Did she bequeath a will? That's all that matters when people eat horses and goats and don't worship BMI.
Heh. I had that song on a 45 when I was a tyke way back in the 60's.
Not exactly on topic but I have a question on the derivitives and the Goldman Hearings today. During the hearing Blankfein testified that Goldman was not counting on the US Taxpayer to bail out AIG. His statement was that GS had purchased alternative insurance coverage that would have paid off for them if AIG had defaulted. They had not asked the Treasury for the 100% payment and Treasury had not discussed it with them. Treasury decided on their own to make good on all the coverage. No one asked him the $13 Bln question. Who the heck wrote the coverage? It would be interesting to know what company was large enough and eager to overwrite the AIG coverage. He sure said it with a straight face, good enough to seem believeable.
Doesn't sound like they had insurance to me if you read this. As a matter of fact, we can see why AIG got bailed out and why GS got paid in full. From what I read, their insurance company was the FASB relaxation and mark to myth that soon reared its ugly head.
Firm's response to criticism of AIG paymentsGoldman Sachs has maintained that its net exposure to AIG was 'not material', and that the firm was protected by hedges (in the form of CDSs with other counterparties) and USD 7.5B of collateral.[87] The firm stated the cost of these hedges to be over USD 100M.[88] According to Goldman, both the collateral and CDSs would have protected the bank from incurring an economic loss in the event of an AIG bankruptcy (however, because AIG was bailed out and not allowed to fail, these hedges did not pay out.)[89] CFO David Viniar stated that profits related to AIG in Q1 2009 "rounded to zero", and profits in December were not significant. He went on to say that he was "mystified" by the interest the government and investors have shown in the bank's trading relationship with AIG.[90]
However, there is considerable speculation that Goldman's hedges against their AIG exposure would not have paid out if AIG was allowed to fail. According to a report by the United States Office of the Inspector General of TARP, if AIG had collapsed, it would have made it difficult for Goldman to liquidate its trading positions with AIG, even at discounts, and it also would have put pressure on other counterparties that "might have made it difficult for Goldman Sachs to collect on the credit protection it had purchased against an AIG default."[91] Finally, the report said, an AIG default would have forced Goldman Sachs to bear the risk of declines in the value of billions of dollars in collateralized debt obligations.
Goldman argues that CDSs are marked to market (i.e. valued at their current market price) and their positions netted between counterparties daily. Thus, as the cost of insuring AIG's obligations against default rose substantially in the lead-up to its bailout, the sellers of the CDS contracts had to post more collateral to Goldman Sachs. Thus, the firm claims its hedges were effective and the firm would have been protected against an AIG bankruptcy and the risk of knock-on defaults, had AIG been allowed to fail.[88] However, in practice, the collateral would not protect fully against losses both because protection sellers would not be required to post collateral that covered the complete loss during a bankruptcy and because the value of the collateral would be highly uncertain following the repercussions of an AIG bankruptcy. As with the bankruptcy of Lehman Brothers, wider and longer-term systemic and economic turmoil brought on by an AIG default would probably have affected the firm and all other market participants.
Thanks for the help. I had read several articles aoong the same line where GS claimed that they were Hedged in some way. That just has seemed a little sketchy to me as to how they would be able to hedge for a 13Bil payoff that was already insured, and without it costing a whole lot of money.
And that is what really struck me about the statement today. It was near the end of the session when he made the statement that they had bought insurance against the AIG default possibility. First, It seems odd to have bought insurance on your insurer. But second, I'm sure the words were that they had bought insurance, and it was used in the same way as credit insurance was used. I sure would have like to hear a follow on question on that. Particularly after he stated, first that they really had made nothing net out of it, and also that they really did not need to collect from the Treasury so that questions along that line were pointless. they had other insurance.
I also wondered who wrote that policy. It would be interesting to know.
Since it was GS doing the buying you can be sure it was not some rinky dink offshore hedge fund that would do anything for a fee. There would have been few operations that GS would consider still standing after an AIG default and the ramifications. I suppose puts on S&P 600 (maybe only a day or so away in March, without the bailout bill) would have been pretty cheap back in December or January, but that is not the way i understood the comment.
I could have seen the water supplies cut off as no one would have shipped the chemicals on credit. It was pretty close to the big one.
I thought he meant they bought CDS on AIG itself. From who? Who knows. But, that would qualify as a backup plan, seeing that if AIG can't pay GS, that means the swap on AIG gets paid out. Otherwise, the only guy I knew offering second protection during this time to muni bond buyers was Buffett. Arguably, he could have been involved and perhaps that even triggered his sweet pref deal with GS after that fact. Wouldn't that be something...
According to the CFO, the approximately $12.5 billion had three parts:
Approximately $5 billion collateralized 100% by Treasuries and Agencies. The CFO shrugged this off, since they could have easily liquidated in the market; one is tempted to see this as Treasury bailing itself out, since I'm not sure what the reaction would have been to Goldman taking a $5 billion US sovereign dump on the market.
Approximately $2.5 billion of accumulated collateral demands not filled by AIG; this is the portion on which protection was bought as a hedge. As a dealer in the market itself, I'm not sure how much of this they could have bought from other desks. Fortunately, any prime broker with pension funds as clients has access to a large amount of credit protection, since this is where most of the protection in the market ultimately comes from.
Approximately $5 billion in obligations from a Maiden Lane portfolio (MDL III, I believe). These were CDO contracts that were put by the government into an SIV with the Fed holding the senior piece and AIG holding the equity (first-loss) piece. In this case, the Treasury provided money to buy assets out of the SIV. In essence, this portion of the deal was the Treasury bailing out the Fed.
Noooo, not the "billionaire next door"! Even that dorky mornin' chic on CNBC who interview's him all the time is going glam. And she even attacked Syr Univ student "activists" who were protesting JPM's Dimon as a commencement speaker. Lord knows if i were graduating this year a "welcome to my world of your poverty and my wealth" speech wouldn't be worth saying boo about! "Ludicrous speed, Captain. LUDICROUS SPEED!"
Volcanoes be damned. Economic bullshit be damned. This one is here, now. Real. Happening. Out of control. These fuckers are thinking about setting the ocean on fire to save the land. There are some parallels to think about. It, like the economy, is a fuckup caused by greed, and there is no way out that is not expensive to life itself.
Ah well, it just sucks.
http://www.nytimes.com/2010/04/28/us/28spill.html
Love what you've done with the place!
Now give me those slippers!
;-)
+10
God save the Queen.
...only the cast golden image.
Now they feed the derivatives through Hollywood. Hyperinflation be damned! Good luck. Where is that damned fuse....
As noted in the presentation, the market clears through "ICE Trust":
ICE Trust is a limited purpose trust company that serves as a central clearing facility for credit default swaps (CDS). Membership in ICE Trust is open to institutions that meet objective financial and eligibility standards. As a New York Trust Company and a member of the Federal Reserve System, ICE Trust is subject to direct regulation and supervision by the Federal Reserve and the New York State Banking Department. Subject to compliance with certain conditions, ICE Trust operates under an exemption from the Securities and Exchange Commission (SEC) and the U.S. Treasury Department.
ICE Trust utilizes a proprietary risk assessment methodology designed specifically for the CDS market to determine initial and variation margin requirements, guaranty fund requirements and official daily settlement prices. The risk management methodology was reviewed and validated by an independent risk management consultant as part of ICE Trust's regulatory review process.
Where do I start? These derivatives should be traded on an exchange open to the public with real price discovery and subject to SEC and US Treasury oversight. The Federal Reserve is owned by the big banks. Proposals to move oversight to the Federal Reserve which is owned by the big NY banks will do nothing. Big Banks = Federal Reserve.
Off balance sheet leverage without appropriate margin requirements has created a system where those with access to the printing press can use leverage to make assets worth whatever they want, without actually laying out the capital to move the asset prices. I don't think most people understand the dynamics at work, but if you had unlimited leverage, you could make all assets worth infinity or all assets worth zero by shorting them with unlimited leverage. Insiders are informed of market direction changes and lever up. A 500 P/E multiple, sure why not it could be any price they want if the system is not legitimate.
Totaly agree with you, mate. The main reason why all this shit has happend to us is that FED is owned by banks. No link between em = No way of pumping up leverage. At least, the probability of such schemes is low enough to be competetive at the market by using your brain but infinity leverage.
Another interesting data point to this piece of legislation:
http://www.muckety.com/Jackie-Clegg-Dodd/7912.muckety
On the Board at CME and married to the Chairman of the Senate Banking Committee. Interesting. It's probably just an incredible coincidence.
This thing has nothing to do with transparency. It has to do with collateral. And given that everyone besides the favored in this country have a cash constraint of some sort, the printing press-backed banks will win. Why shouldn't they? They wrote the legislation. And now they'll help Obama triangulate an opposition by rabbel rousing the Republicans and declaring anyone who opposed them as not wanting "reform". Hopefully killing the interest rate swap will finally kill the US Treasury market.
I do not see the Presentation Attached. Has this been removed. I would like to see it, please.