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And if you believe those graphs that show housing markets have stabilized, I have some houses in Florida and California to sell you. How many can I mark you down for?
Have to say, here in Aus we have a Govt sanctioned 4 bank cartel that
originates 90% of residential mortgages (fractional reserve of course), where
the mortagee usually provides 10% deposit (the reserve) and the bank
advances its digital 90% balance. Recently our Central Bank increased
the cash rate by 25 basis points, and now the cartel is adding up to an
additional 20 points on top of that (45 points), based on the claim that
their funding costs have increased. They are not even fooling our
politicians and MSM parrots anymore.
Thanks Withdrawn Sanction, appreciate your elucidation on the FED.
You, the people, must continue throwing cream-puffs at City Hall until
you drown the bastards.
Great post. I agree that BB is fighting to keep the TBTFs from failing. I think he is fighting the same fight as in 2008 - fighting to keep the global financial system from total collapse. The reason the entire global financial system is at risk of collapse, rather than just those banks that made bad mistakes, is the hideously complex and widespread web of derivative financial instruments that exists today. If the big players at the core of the derivatives biz go belly up, there is one hell of a worldwide mess. In that scenario, I wonder what happens to the little guy. The owner of a $3MM office property, who refi'd in 2007, whose lender at that time refused to offer fixed rate debt, but sold him on an interest rate swap that fixed his borrowing cost. His lender then went out and hedged that with one of the big boys, pocketing a really nice fee up front. Even smaller banks were pushing their loan officers really hard to sell rate swaps to borrowers, because they were enormously profitable up front. So if the whole system collapses, what happens to the guy with the $2.4MM SWAP on his $3MM (now $2MM) office property....??
He is sacrificing the US Dollar, middle class, savings, and possibly even the Republic just to aid his Wall Street masters.
his wall street masters? nah, he works for the people.
i'm just wondering about all that derivative exposure; don't the big banks have that exposure with each other? so basically if one goes down, they all go down? not sayin that's a bad thing, just sayin.
I am amazed at how someone quotes a notional amount and predicts armageddon. That $188 Trillion tied to interest rates is not the real exposure.
1. An interest rate swap involves no exchange of principal (notional), and the cash flow (if done via ISDA documentation) is the net of two interest rate coupons - usually one fixed and one floating. I can opt to receive a fixed rate (coupon) on a notional amount, and pay a floating (usually a spread against LIBOR in the underlying currency) - or vice versa. My payment or receipt is the net of what I am required to pay, and what I am required to receive.
2. If I am an IB and I put on an interest rate swap as part of a deal with a client, chances are that I have hedged it away with an equal and opposite swap - locking in a spread or fees. In reality, the total exposure is zero for me. However, anyone adding up the notional will now have twice as much due to the fact that they are adding the notional of two swaps (which cancel each other out).
3. Let's say that as a matter of course of business, I have many swaps with the same counterparty, put on for various unique business reasons. These swaps could result in a NET notional exposure of zero, with all the coupon payments in both directions (fixed and floating) netting out, or leaving a very small net payment. Yet, anyone adding up the notional would come to the conclusion that there is a huge exposure.
I'm not saying that there isn't risk in the system - but it cannot be measured by quoting the sum of all notional without regard to the sign or direction of the swap. Nothing can be concluded or extrapolated by saying that the sum of all the notional of all the interest rate swaps is 188 trillion. I know a company that borrows in the market and lends to businesses to underwrite trade. They borrow using fixed rates in a variety of currencies, but always swap to a floating rate USD - and their loans are made in floating rate USD as well. Adding up the notional on the swaps would show an amount in the billions - yet the swaps are part of a conversion to remove interest rate risk and guarantee a spread on their business. This leaves mgmt as being credit risk managers instead of interest rate managers - a far different risk.
The answer is not that we don’t have good, smart people trying to solve our problems. Obama’s staff is stocked with capable, bright people including Secretary of the Treasury Tim Geithner,...
You lost me right there
Bigger problem in hiding. Ben continues to conceal.
Collapse of all monetary systems world wide.
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So, I guess the question is, since this is the course the Fed intends to take, how much is this going to cost? How much needs to be "printed" to fill the black hole of these derivatives? At what point do we say "NO MORE!". Wasn't that about a trillion dollars ago? Will it take a complete transfer of all the assets of the U. S. plus a wheelbarrow full of IOUs to get this taken care of? And who benefits? We get to go back to business as usual and run up another "asset" class to oblivion? We now know the problem -- what's the solution?
irs are the hydrogen bomb of the derivatives world...those things will blow up....not sure when but that moment will be the teleological moment of the financial hubris of the financial elite.
I have to agree. I never thought they were doing any of this for the economy. The cheaper programs like the housing subsidy and cash for clunkers actually had some effect for a little while. If they wanted to address the economy, they would have done similar things. But all they have been doing is printing and looting for the banks. That is why it will never stop no matter how much inflation shows up. There is no way to make the banks solvent.
I'm with this. monetizing or laundering..
thanks honestann, now I know I can trust them
Yup... just not rationally or justifiably.
You want a new housing boom? That is utterly trivial to create. All the FederalReserve and government of the USSA need do is --- zip, zero, nada, nothing.
Specifically, if the FederalReserve removed itself from the lending business (to banks and the USSA), and the government of the USSA closed down FannyMae and FreddieMac, prices of homes would drop 50% or more in just a few months... at which point.
The low prices would cause the housing market to boom.
The predators-that-be have destroyed, and continue to destroy the housing market.
Sure, at the cost of making everyone who is current on their mortgage payments underwater instantaneously. This might also piss off anyone who owns their home outright. Not that I care, but I would have to default on my mortgage if such an event were to occur. Why is "punish savers" always the only viable strategy?
That is the risk everyone takes when they make a purchase. Why should people who are and were responsible be punished to support people who were irresponsible and/or misguided? Explain that to me.
Also understand that mortgages are debts collateralized by the home. Thus homeowners who were mislead and scammed by the banks can ethically and legally stop paying their mortgage payments, and hand back the keys when the bank decides to take control of the collateral... exactly how it works in commercial real-estate, by the way.
Therefore, those folks who are "underwater" have a way out without loosing very much, since down payments were irresponsibly held absurdly low by the banks the past several years. In the scenario I outlined, they can rent for a year or three, then buy a home at 1/3 the price and be far, far ahead of where they are now.
And the ever-increasing millions of folks who cannot afford their own home, or who are responsible and refuse to buy at these insane prices, or who are responsible and refuse to buy before they have saved the nominal 20% down payment... they too can finally get a home at a fair price.
So, the solution I give is the best solution for nearly everyone... not to mention the natural and ethical solution.
Could it be that China plans to introduce a gold backed currency, which would then replace the dollar as the global reserve currency?
Let's hope so.
We all should switch to demanding gold as payment, and buying and selling with gold.
I have already done so with 96% of items I need to buy. The other 4% I have not found suppliers willing to exchange their products for gold. BTW, that 96% is up from 28% four years ago.
I am just a financial ingenu from down-under. Can someone tell me
that the FED is not just a Warburg created private banking cartel?
Yes, Warburg was on hand to help draft the 1913 Act, as were reps of National City (Rockefeller), and the House of Morgan (not to mention some bit players from the Senate Banking Committee). Its creation was done in secret because the American public had twice rebuffed the creation of central bank.
The construct these anti-Americans devised made the District Banks the locus of power initially and these FR Banks were owned by the commercial banks in the respective districts (it was a form of mock federalism designed to overcome resistance of those who opposed centralized banking power married to centralized political power). Member banks were required to purchase shares in their respective district bank. The Bd of Governors (where the locus of power rests today) is a quasi-govt entity. Quasi in that it does not have to suffer annual appropriations (like the Dept of Commerce of Defense Dept does), report in detail on its operations, or otherwise submit to meaningful public scrutiny.
Tick, tock...Big Ben.
http://www.zeitgeistmovie.com/ These may give you some insight. Note they are in reverse order of play. The bits on the Fed are at the end of the 3rd one and throughout the second one.
Sure they can. Just not honestly.
You are correct. The fees are really what have been pulled forward. Two or three trillon on roughly sixty trillion of derivatives. But none of us can know for certain, can we? Correct that one party theoretically loses fees on a side of the trade but the losing side on the fees had to be paid off too or they would have given up the goose.
Don't forget what a lot of the derivatives funded, it was the final acceleration of the rise of the East, the lovely mandraking game played out over forty years. Oh and love the circus of calling China the enemy. What is almost humorous is that unlike the 1890's or the 1970's tens of millions now know the Wizard Behind the Curtain. Also would be hillarious if not so deadly is the Chinese/Russians not playing hoops like they said they would but that is more insurance to force the West into payments for all the friends of the circle but cannot be met.
Hopefully, TPTB realize all of this and attempt a shot at global democracy instead of the God's and Clods society. If not, that physical hedging is going to come in awful handy.
Excellent Post: Built on FactA disingenuous bearded cue ball like Bernank-ster always has his hands in his pockets playing TBTF pocket pool one way or another...
Timmay Can't Play TBTF Pocket PoolEven when Timmay was at FRBNY...
"... Bernanke is doing one thing and one thing only: trying to shore up the overleveraged, derivative-riddled balance sheets of the Too Big to Fails. He is sacrificing the US Dollar, middle class, savings, and possibly even the Republic just to aid his Wall Street masters."
Bullseye! 100 and 1 % correct. Just wanted to add that Hank Paulson and Tim Geithner have exactly the same motives, even though unlike the "independent" Fed Hank and Timmy suppsoed to be Public Servants.
Shut down all the banks involved with the sub prime and derivatives market. Bankruptcy is their solution.
Prop up the banks that are left behind. Jail all Goldman Sachs, JP Morgan, and Bank of America execs. If we did this two years ago I virtually garuntee we would not need QE2.
brilliant well written. fantastic investigation.
It has absolutely nothing to do with the housing market, liquidity or interest rates. It has to do with stabilizing the bond market and the dollar. The Chinese have telegraphed their intention not to buy Treasuries. The Fed has become the only buyer.
So you should be able to take the amount and timeframe of the derivitives (edit: specific to interest rates) and figure out how long and how much devaluation Bennie needs to keep his buddies in the game. (ie. 8 years at 0% with another 40% devaluation in the dollar)
Let the banks fail; no more derivatives problem.
That would solve other problems as well. Overpopulation being the main one.
I agree with the premise that QE is chiefly about shoring up insolvent bank balance sheets.
But the discussion re: derivatives is just awful. I'm certainly not the world's greatest expert, but seriously... at least figure out how a swap works before you comment on OTC derivatives and how they create some kind of waking hellscape.
It's an interesting subject.
Maybe. But higher interest rates also bankrupt the US government and collapse the economy faster, even without derivatives. I see all these complicated explanations for QE like BB is trying to explode inflation in China faster than the US, or the US wants to devalue faster to increase export competitiveness. To me the simplest answer is the most probable. Namely that the US wants/needs to spend more than its income and has no choice but to print.
I totally forgot about the derivatives, this is a big problem that will come to the forefront very very soon.
Please? Something's gotta get the party started!
They have a saying in Texas, "You dance with the one who brung ya." For you sophisticates, "follow the money" or, as I tell my husband every now and then, "If you a peek at the curtains, show me who's daddy."
By the way, once again, every intervention is on behalf of big banks but made to look like it is for regular people, homeowners.
Regular people, and banks would be better off if they took the money they are printing and hired people to do useful stuff...or if you treat people like banks, simple hand the money to people for doing nothing...shoot, we are suffering the weakness of the dollar anyway, at least we should get something from it.
Of course, the actions are alwayes justified by a pack of lies about helping J6P.
To all you liberterians out there, the derivatives market is a completely free, unregulated by govt market. Only govt involvement was when we bailed AIG out in 2008...if govt had stayed out, would have been horrible global crash and seizing up. If govt protected bank deposits, things would have gotten back going after practically every debt in world and most people's wealth wiped out....not that wouldn't have better than what we have now...but still major pain due to out of control, manipulated, corrupt market that would have allowed bankers that crashed their companies still to exit with fortunes while everyone else wiped out.
Here we go, bashing libertarians for not being regulatory enough. Last time I looked, the SEC wasn't doing jack shit about many excesses and outright fradulent activities. Brooksley Born warned us all about the derivatives market and nothing was ever done to rein it in, so spare me that free market strawman nonsense, okay? Part of libertarian philosophy deals with keeping markets around to trade in, not greedily blowing everything up and leaving nothing but smoking craters all over the place. Ethics are completely absent in our system.
There's ALWAYS a huge, free market in fraud -- feel 'free' to participate -- just don't mistake this for Libertarian philosophy!
So all the built in backstops are part of the free market? I imagine the Federal Reserve is a creation of the free market and not the state as well then? It's incredibly unlikely this would happen without backstops and guarantees, and even if they did they would go under and lose money. Due to the statist system men like Jamie Dimon live in opulence while the common man is robbed. Man so glad we have the state watching out for us.
Oh pahlease. This absurd derivatives market only exists because of centralized, fractional-reserve banking, which libertarians rightly hate with a passion. Which is to say, it's not a free market regulated by the protection of life, liberty, and property; it's a free-for-all "regulated" by the global banking cartel that control all, never mind that it's totally out of control.
What a fucking dumb-ass.
Heh. That's the same argument that the Communists use. They claim it's a great system, but it just hasn't been tried.
Which I suppose one might apply to Socialism, Fascism, whatever. Theoretical observations are great in theory, but they suck in practice.
Bullshit. You either police yourselves and create a sustainable system or you don't. Ideology doesn't matter.
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