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Fitch: Financial Companies Hold 99.7% Of All Derivative Contracts
- Bank of America
- Bank of America
- Black Swan
- Citigroup
- Comptroller of the Currency
- Fail
- Federal Reserve
- Financial Accounting Standards Board
- Fitch
- GAAP
- Goldman Sachs
- goldman sachs
- Gross Domestic Product
- JPMorgan Chase
- Lehman
- Morgan Stanley
- Net Notional
- notional value
- Office of the Comptroller of the Currency
- Risk Management
- Too Big To Fail
- Transparency
Fitch has released a comprehensive study on derivatives held by various corporations and has come out with some disturbing results: as Zero Hedge's recent disclosure of data from the Office of the Comptroller of the Currency confirmed, the bulk of the derivative risk is concentrated not merely in the "financial company" category (99.7%) but in a subset of just five companies, which account for an "overwhelming majority" of derivative assets and liabilities.
The companies in question (Total Notional Derivatives: Assets & Liabilities, $ in Trillions)
- JP Morgan:$81.7;
- Bank of America:$80.0;
- Citigroup:$31.5;
- Morgan Stanley:$39.3, and of course
- Goldman Sachs: $47.8 (this is an OCC estimate: Goldman has not disclosed notional amounts in their derivative book, only # of contracts);
If you want a preview of what the Basel III definition of "Too Big To Fail" will look like, the above five companies is a great place to start.
For those unfamiliar with the concept of derivatives, here is a good blurb provided in the Fitch report:
Companies use derivatives to manage risks related to interest rates, foreign currency exchange rates, equities, and commodity prices, as well as more obscure risks such as weather and longevity. According to the Bank of International Settlements, the notional amount of the global over-the-counter derivatives market was nearly $600 trillion at the end of December 2008. Furthermore, gross market value (the sum of gross derivative assets and gross derivative liabilities) stood at $33.9 trillion.
While improved disclosures and transparency are a good start to helping gauge the risks posed by these instruments, it is important for analysts and investors to take a fresh look at risk management practices, including the use of derivatives within that context.
The need for better disclosure on derivatives has been obvious since the implementation of Statement of Financial Accounting Standards (SFAS) 133, “Accounting for Derivative Instruments and Hedging Activities” (now Financial Accounting Standards Board [FASB] Accounting Standards Codification [ASC] 815). However, comprehensive derivatives disclosure did not become a U.S. GAAP requirement for most companies until March 2009 with the implementation of SFAS 161 (now ASC 815-10-50), “Disclosures about Derivative Instruments and Hedging Activities.”
For a more quantifiable overview of derivatives, we recommend the most recent quarterly report from the BIS, especially the data starting on page 28.
The key findings presented by the Fitch report are as follows:
- Not surprisingly, an overwhelming majority (approximately 80%) of the derivative assets and liabilities carried on the balance sheets of the companies reviewed were primarily concentrated in five financial services firms: JPMorgan Chase & Co. (JPMorgan); Bank of America Corp. (Bank of America); Goldman Sachs Group Inc. (Goldman Sachs); Citigroup, Inc. (Citigroup); and Morgan Stanley (Morgan Stanley).
- Fifty-eight percent of the companies reviewed disclosed the presence of credit riskrelated contingent features in their derivative positions. These contingent features generally require a company to post additional collateral or settle any outstanding derivative liability in the event of a downgrade of the company’s credit rating.
- The use of credit derivatives was limited to financial institutions, with 17 of these reporting such exposure.
- Proprietary derivatives trading by utilities and energy companies appear to be very limited, but most of the companies reviewed in both industries report the use of derivatives for hedging commodity risks.
- Generally, non-financial companies appear to use derivatives only for hedging specific risks.
Derivative valuation is often model-based, making changes in significant valuation assumptions particularly important. Analysis would be enhanced if issuers provided additional disclosure on the sensitivity of their derivative valuations to major assumptions.
And some charts that indicate why the Big 5 as listed above will never be allowed to go under, as the unwind of the $300 trillion in derivatives that are intertwined within their balance sheets would be end of what was previously known as free and efficient markets. 
And while the gross notional value is a useful metric, in terms of actual capital it risk, it is necessary to apply a netting to the gross. Conveniently, Fitch has done the calculation. No surprise: of the Big 5, almost all (except Morgan Stanley) have a net notional exposure of over $100 billion! How about them VaR apples.
The other notable conclusion is that while virtually all non-financial companies had participated in derivative designated as a hedging exposure, it was energy companies (83%) but mostly financials (97%) that used derivatives merely as a method to speculate on underlying assets. Yet a net notional speculative exposure of almost half a trillion is staggering: this represents roughly 5% of the US GDP, the bulk of it focused on interest rate exposure. As we have speculated, in the event of a interest-rate black swan event, the fall out from the implosion of this over $500 billion in speculative derivative exposure would be enough to make the Lehman fiasco seems like a walk in the park.
It is this potential risk that these BHCs' regulator, the Federal Reserve, should be trying to mitigate, not to enhance its risk regulatory powers even more, having proven that all it does it promote increasing speculation until such time that the house of cards inevitably comes tumbles down.
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Good post again, Tyler. Too bad nothing will change. The outrageous size of derivatives held should cause the wind down of these TBTF banks. Instead they will be protected by the printing press.
BOOM
Apocalypse Now-
And now you know the meaning of too big to fail. This is a brilliant suicide bomb that these five banks in league with the FED are wired with and have their finger on the trigger in the event that anyone tries to arrest control from them. It is the same strategy as Saudi Arabia booby trapping their oil infrastructure in the event that anyone tries to arrest control from them. This is corruption, this is where all roads lead to because of the need for DOUBLE ENTRY ACCOUNTING! ;) The other side of those entries include precious metals manipulation, interest rate manipulation, and a myriad of asset securitization schemes. This is where I would shine the light in addition to high frequency trading.
That would be a most noble assignment of Project Mayhem, to start.
Apocalypse Now-
Agreed, START HERE: http://www.occ.treas.gov/ftp/release/2009-72a.pdf
This is the most information we have on the derivative balances of each bank and their derivative classifications for all those that asked.
Thats true... The Derivatives Market is the root off all evil. Does anyone realy know what is happening to the money supply and liquidity in case of a derivatives contraction? And how that process works in detail?
I just remember on thing Hayek said, and was cited in a Credit Suisse Paper:
„There can be no doubt that besides the regular types of the circulating medium, such as coin, bank notes and bank deposits, which are generally recognized to be money or currency, and the quantity of which is regulated by some central authority or can at least be imagined to be so regulated, there exist still other forms of media of exchange which occasionally or permanently do the service of money.
Now while for certain practical purposes we are accustomed to distinguish these forms of media of exchange from money proper as being mere substitutes for money, it is clear that, ceteris paribus, any increase or decrease of these money substitutes will have exactly the same effects as an increase or decrease of the quantity of money proper, and should therefore, for the purposes of theoretical analysis, be counted as money.“
The total notional amount of over-the-counter (OTC) derivatives contracts outstanding was $592.0 trillion at the end of December 2008, 13.4% lower than six months earlier. The decline is the first since collection of the data began in 1998. Credit market turmoil and the multilateral netting of contracts led to a contraction of 26.9% in outstanding credit default swaps (CDS). The second half of 2008 also saw the first significant decline of OTC derivatives contracts outstanding in the interest rate market (8.6%) and in the foreign exchange market (21%)
Mmmm...talk about clamy sweaty derranged entities with thumbs over the hole in the grenade where the pin used to be.
it has already gone off. the value that's in their books is the nominal value which has no basis in reality. the real value of these derivatives can be put closer, if not to, zero.
What are the odds of an interest-rate black swan event when your debt is held by a bunch of Chinese bankers, the Federal Reserve ismanipulating markets and the president has the economic intelligence of a turnip?
Nah, nothing to worry about here.
Auditing the Fed will easily sort out this minor snafu.
Then home in time for scones and clotted cream!
Please - there'll be some respect shown for turnips round here
Digging their own graves.
You mean digging our graves
Nope, when unemployment gets over 13%, even odds the white militia types and the black power types start taking action against the Federales. Could see a repeat of Oklahoma City, or worse.
Don't leave out the Purple Posse types, or the vicious Gang Green types
Don't forget about the Van Buren Boys...Know the hand sign!
McKoys and Hatfields, cats and dogs.. oh my!
you forgot that those guys now have the finger on the trigger of the worlds largest nuclear, chemical and biological(!) weapons arsenal in the history of mankind.
if you think they would have a moral issue with using any of it, think again.
good luck.
'Too big to fail and completely fucked up financial institutions' have to become 'U.S Department of Derivative and Vodoo'. There is no escaping this asteroid strike.
The game Asteroids, yes and the targets are the shorts. The more you kill in one day the bigger your bonus
OCC’s Quarterly Report on Bank Trading and Derivatives Activities
First Quarter 2009--link below or should we say look out below........
For all who do not think ZH puts enough emphasis on the amount of info per contribution you are welcome to your own reading.
This is for all you do TD
http://www.occ.treas.gov/ftp/release/2009-72a.pdf
No wonder GS and the rest keep the robot computers squeezing shorts.
A few years ago the data today would have the dow down several hundred points and looking at reality... but now... ah who cares tis only the consumer feeling bad and they are 70% of the economy which has got nothing to do with the shoot to kill the baddie shorters game..., uh I meant stock market
Sensational but useless. What amounts are for currency protection or interest rate protection and which are related to leveraged commodity gambling? Notional amount doesn't mean squat unless it's associated with a CDS from AIG pre crash.
Which is why the net amounts are broken down. But objectively it does beg the question of who has written this $300 trillion of insurance: is it just the 5 banks playing hot potato with each other...
I won't dispute you're smarter than I am in lots of areas. But 'notional amount' is one of those big numbers that means less than meets the eye. I have no doubt that idiots are playing idiot games again, raising prices and skimming off the top. And I have no doubt that idiot regulators know about it and close their eyes out of incompetence and fear of reprisal.
But are there any better numbers available that provide better breakdowns about the harmless vs the asinine?
I doubt they're playing hot potato with each other. Some other poor goof is holding the bag. Any ideas who?
Harmless vs asinine? AIG was a beautiful example of net=gross. In an another systemic collapse you will see the same equation rear its head again - of course it will not be permitted as even $300 trillion (which is half the total outstanding OTC derivatives) is 6x the world GDP.
Harmless = you and I agree to a $100 million currency swap and pay off over the fluctuation. The notional amount = $100 million. The amount you and I settle on is a lot less. This makes trillions look a lot smaller and more innocuous providing they deal with only interest rate or currency swaps or other mundane things.
Not harmless = AIG type wagering, or index futures that bang up the price of oil, or any other sure thing GS or someone else can get a fee off of. The limits of what is on the books is only limited by the imagination of the designer of the financial product, loosely used term.
But this goes back to the original point. Where's the dog shit and where's the kibble. The stats available don't tell.
Yes and no. What we were all taught (though it seems many have already forgotten), the wild card is counterparty risk. Notional didn't mean much when LEH wents belly up.
LEH had a total balance sheet of $700 billion, yet it's failure---according to Paulson's Congressional testimony---almost brought the entire system down and had the National Guard distributing food.
LEH was a pimple on the soft underbelly of the finance industry compared to JPM, BAC and GS. Let a $2.2 trillion asset and $80 trillion notional derivative entity such as BAC go, and we go extinct.
I wonder how much of the 80 trillion came from MER?
Ever thought that AIG is being set up to fail after they have used it as a conduit to disburse TARP funds? No wonder all those big bonuses were being paid to the morons to stay on the deck of the Titanic. The derivatives will be dumped on AIG and the music will stop and they will be the one left standing. Game over. Write 'em off. Move along, nothing happening here.
if you take some time and browse the net, you'd find out that the sucker still holding the bag is AIG, because most of derivatives that took AIG down were written in 2005 and 2006,and about 80% of those derivatives are 5 yrs contracts, and most of that amount had played no role in 08 when AIG came crashing down ... just do a little web search, and you will be amazed how much things have not changed, matter a fact, they became more crazy and fucked up .. so the sucker holding the bag is the same old sucker who got played in the first round of this Armageddon poker match ..
This is such a complete gong show. NO ONE HAS ANY CLUE WHAT THIS MEANS. How does a human put $600 trillion in perspective. Its impossible. They may as well just make up a number and call it $13 gigabajillion-quintallion in derivatives. This whole game is a fucking joke. It has no where to go but down.
doesn't really matter ... the shire amount of CDS for MBS,CMBS, CDOs etc is big enough to cause worldwide meltdown if only 10% goes bust, because the outstanding amount of those kind of derivatives is 30-35 trillion dollars, and you can expect that the amount will only go up when the hedge funds realize that another major leg down is almost certain, and they load themselves up with CDS ... and with with the up-coming bloodbath in commercial real estate, and wave adjusting of Alt-A mortgages in the next year and a half i don't find 10% bust so improbable ... so declaring this article to be sensational is pretty damn stupid ... heck if even 5% goes bust it will be worse than it was in 08
I doubt boom.
A declaration of a firms decision not to pay a gambling debt will cast a black cloud over the firm for a year or so but then Happy Days will be Here Again and new wagers will be made, the casino will grow.
They wil lower the gambling age, to get more players in the game. They will have out free booze to get them drunk. They will rig the game so the house always win....wait, Goldman already did that.
BOOM -- BAILOUT--- RAISE TAXES -- - REPEAT
They wil lower the gambling age, to get more players in the game. They will have out free booze to get them drunk. They will rig the game so the house always win....wait, Goldman already did that.
BOOM -- BAILOUT--- RAISE TAXES -- - REPEAT
Doesn't someone have to be on the other side of the derivative contract? Are the financials betting against each other?
in order to make my answer short: YES
...eating their own as we speak...more black swans on the horizon too...
...eating their own as we speak...more black swans on the horizon too...
...eating their own as we speak...more black swans on the horizon too...
I hit save once - I swear I did!
If you would like to find probable counter-parties to many of these derivatives , check out the holdings of Inverse, Leveraged and Inverse-Leveraged ETFs. I looked at Proshares ETFs but I suspect others may be similar. Some ultra funds seem to have a notional value of swaps about 200% of assets. Perhaps someone with more time could add up the total exposure of the ETF industry. Also lets connect the dots with the 7-27 post “The ETF Gloves Are Off”.
Citi=US Govt./Derivatives specultors
In the words of Johnny Carson "I did NOT know that."
So the financial system in aggregate is effectively unhedged. One could easily conclude that with the limited players, contract consolidation/netting would reduce costs. This causes one to speculate -
How many contracts have net gains on BOTH sides?
Is there another bagholder ala AIG?
After all this time, one should expect a competent and honest regulator to go into these outfits to determine what is going on.
This is an excellent post. Great find, great synopsis. THIS is why I check ZH about 10 times a day.
Any thought given to foreign institutions? Barclays, RBS, UBS, CS, DB all have fairly big derivative books as well, not to mention several asian banks. Oh yeah, BNP, SG, HSBC etc in EUR. Defining it as US exposure and banks is useless and irrelevant.
Tyler,
Who would be the counter parties to these interest rate swaps? The Fed? The NET NOTIONAL HAS TO COME FROM SOMEWHERE>
Actually Tyler, notional amounts of GS derivs *are* disclosed. Go to pages 24 and 26 of http://www.ffiec.gov/nicpubweb/NICDataCache/FRY9C/FRY9C_2380443_20090331...
Correct - that is the number used by the OCC. I was referring to 10Q disclosure.
Remember when Lucent gave all that money to get clients to buy their phones? I am thinking that this is a similar scheme. All this money being kited will eventually fail. Unfortunately, no one will make any money off of the failure other than the banks that created the mess.
It will go something like this:
Goldman Sachs: Hey everyone!
Banks: Hello!
Goldman Sachs: The market is going to crash on September 11th, 2009 (while Clark is on vacation), so sell all you can now and get short.
Banks: Thank you! Cha-Ching!
Chaching! Nothing but net!
It would be interesting to see what the gross and net derivative interest rate exposures are between JPM/GS & PIMCO.
Thanks TD
i don't believe there's a diff btwn 10q and occ, tyler. the regulatory accts are most frequently the backbone of any bank's reporting to the sec, minus eps and the powerpoint stuff.
my 2c.
I am not saying there is (or isn't) as I can't compare the two. However it is odd that GS would be exempt from disclosing it... Enough with the GS exemptions already - is this along the lines of the VaR exemption recently discussed?
The VaR isn't a concept peculiar to the regulatory accounts.
Rather, there's a reserve for market volatility.
Helpful in quantum but not able to be worked back to the VaR as reported to the SEC.
if it helps, the equivalents of VaR in OCC terms is mkt risk equivalent assets (mrea). these are split into two categories : normal and attributable to specific risk (ie, business failure of counterparty of underlying security). In 3/09, GS had specific risk mrea / Tier 1 of 0.8x vs BAC+C+JPM+MS of 0.6x. And total mrea / Tier 1 of 2.2x vs 0.9x for the peer collective. Certainly shows considerably more risk. new #s out for 6/09 inside 10 days.
300 Trillion!!!, you're crazy(and soon to be broke) if you own anything but gold and silver.(+guns and canned food) Serious
And I thought 1 Trillion was a big number!?
That's right, it was.
So may Ivy-league diplomas handed out over the past 30 years resulted in..... what exactly? 5 institutions that control the fate of the nation through their "assets?"
When the first RPG goes through a glass window in Manhattan, don't act like you never saw it coming.
Has the Genie come so far out of his bottle that there is no other future for this country?
Dumbfounded.
It's not the diploma that matters, it's the breeding grounds.
"The use of credit derivatives was limited to financial institutions"
If 95% of the exposure is with and among these 5 institutions, then assuming the gains and losses are fairly evenly distributed, then 95% of the risk nets to zero. If the losses aren't evenly distributed thats another story.
Either way, the scale of the risks are ialmost impossible to assess based on the notionals alone. Better netted data are needed. DTCC probably has the best insight on where the real net exposures are housed.
Lock them in a room, encase it in concrete and lead and let them work it out. They can send out for pizza.
The DTCC is their Black Box. Duh!
???
DTCC clears the trades for the top 5. Settlement of the Lehman CDS went pretty smoothly and they were able to provide some net CDS exposures on Lehman paper and deals where Lehman was counterparty prior to settlement date that took some air out of the panic baloon that was inflating coming up to the fixing date.
I'm just saying they probably have the best data to analyse CDS counterpary data
A little more regarding DTCC Trade information Warehouse
What are central data repositories?
A central data repository collects data on contracts traded in one or more segments of the OTC derivatives markets (both CCP eligible and CCP non-eligible). Through a central data repository one can therefore obtain information on, for example, the number of outstanding contracts, the size of outstanding positions in a particular contract etc. This not only contributes to transparency, but also improves the operational efficiency of the market. A repository can also provide other services (e.g. facilitate settlement and payment instructions).
A data repository exists for CDS in the form of the Trade Information Warehouse, operated by the US Depository Trust and Clearing Corporation (DTCC).
From http://www.egovmonitor.com/node/26074
and how it works
After a trade has been agreed directly between two dealers or via a broker, it is booked in the participant’s systems and sent to the DTCC where back-end confirmation is done via its Deriv/Serv system. The trade then appears in the trade information warehouse. Files of trade details from the warehouse are sent to NYSE Euronext’s Bclear system to be processed through the clearing house. Bclear sends messages of accepted and rejected trades back to the trade information warehouse. It also sends trades to the TRS/CPS clearing system for registration and processing. End-of-day settlement files are then sent across to members. Source:
http://www.ibspublishing.com/index.cfm?section=features&action=view&id=13292
I assume the fed/treas/SEC and other regulators have access to the database.
So all the speculation generated by the partial data provided by FITCH , et al is just so much noise. The answers to the questions raised here lie in the Trade Information Warehouse.
Heres the link to DTCC http://www.dtcc.com/products/derivserv/suite/tradeinfo_warehouse.php
And one more piece from the OCC report (http://www.occ.treas.gov/ftp/release/2009-72a.pdf)
For the top 25 US Banks (98% of Credit Derivative positions at all US banks)
From table 12 (as of 3/31/09)
Total CDS bought 7.370 T CDS (Notional)
Total CDS sold 6.995 T CDS
Net 375b Notional protection bought by the US Banks. In other words US Banks have purchased 375b (net) Notional protection from counterparties outside the US banking system.
Fair Values of CDS
From table 6
CDS
Gross Positive Fair Value 1,064,780million
GrossNegative Fair Value 1,027,252million
Net Positive Fair Value 37,538 million (37.5b)
Per Graph 5b there is a bilateral netting benefit of 89% of positive value so
Adjusted gross positive FV- 117.125 b
Adjusted gross negative FV 79.597 b
So, I think the worst case CDS counterparty exposure to US banks is 117.125b as of 3/31.
Tyler, as usual excellent analysis. I see your point on interest rate swaps but could you provide more detail (if it is known) what are these specific swaps like. Similar to "risk-free" swaps that LTCM was providing? Thanks in advance.
They have 300 Trillion in assets/liabilities why are they making only 2 billion a quarter, why not -.5 Trillion? ;-)
It about time the little guys rebelled... I say we get congress to pass a law confiscating their contracts and giving each taxpayer a voucher good for $500,000 of sushi.
The distance that light travels in a vacuum in one year, approximately 9.46 trillion (9.46 × 1012) kilometers or 5.88 trillion (5.88 × 1012) miles.
Have a thi8nk about it
basically, if we brake that amount into one dollar bill and lets say the length of a one dollar bill is 20 cm, we have app, 300 trillion bills divided with 0.0002 km ... the trail of that those bills would form would equal 60 billion km or the distance between the earth and Infant Star XZ Tauri which is the largest recorded condensing gas formation in the known universe .. truly fucking mind boggling
Fantastic!
Read the info at your link again. 60 billion km is NOT the distance to Earth. 60 billion km (6x10e10 km) is less than one light-year (~1x10e13 km), and the nearest star (Alpha Centauri) is approx. 4.4ly.
This actually makes a great case for nationalizing these banks and shutting them down. Since their bets are primarily with each other, declare them all bankrupt and let's move on. They add nothing to the real economy, let some regional banks take over lending to real customers.
Seems like the smallest hit--except for the government/bankster complex.
All they have to do, however, is wave the great flag of Capitalism, and an army of fools rushes in and saves their asses.
Nationalize, take all the bonuses back, prosecute THEN move on.
So...
They circle jerked this up and now they're all holding eachother's bags?
I am so done with this.
Calculated Risk had this to say about your analysis with Rosenberg "I'm not trying to pick on or embarrass any particular publication or blogger. But it helps to know your sources." How nice.
Yeah, just read that. "The charts are great, but the analysis is sometimes inaccurate" - CR
Inacurate analysis? Say it ain't so, Joe.
I love CR whom I don't know. His charts rock.
To paraphrase what I have read here many times from the ZH crew, (and one of the reasons I keep coming back religiously)
Doubt everything. . . and always get a second opinion
You will go far.
Pardon my ig-noir-ance...but what is the universe of companies. Is it relegated to the US?
How can no international banks have any significance in this?
If the scope was only US...then your title strikes me as misleading at best.
Why Hillary and Geithner are talking like drones? What happened in the meeting today?
This is a typo:
"The companies in question (Total Notional Derivatives: Assets & Liabilities, $ in Trillions)"
Should read Billions. Confusing many. Probably to be cleaned up with AIG and more of our TARP.
Nope, no typo. That's trillions.
http://www.zerohedge.com/sites/default/files/images/Fitch%204.jpg
Oops, sorry bout that.
The real question: are these derivatives just self-canceling bets with no real effect outside the financial industry? Or are they actual credit (money). If they're money, and this house of cards collapses, the world will take a very long time to clean up a $300T mess.
The bailouts make more sense in light of this info. These institutions HAD to be saved no matter what, otherwise this many derivatives blowing up really would destroy the world's economy.
So if, as it appears, they are that dangerous, can we even get out of this mess, or are we just buying time? Trying to let the air out of the balloon slowly rather than letting it pop?
With those names, buying time until the shells can be properly moved around.
Just remember, what is the tool of the hustler?
Looks to me like they aren't doing anything to unwind, but are using feds backstop (too big to fail) and raping cashflow from any and all sources (retail, gov't, oil, cap and tax) to support the whole fucked up structure.
"These institutions HAD to be saved no matter what, otherwise this many derivatives blowing up really would destroy the world's economy."
Please explain why. I would like to know the order of dissolution of ths pain.
1. Bank goes under
2. Stockholders lose everything
3. FDIC pays for the covered deposits
4. Derivative holders on the other side lose their coverage
5. The fight for the remaining bones begins
That it? I'm not getting the world implosion thing.
Oh, well that's because you missed a couple steps. Let's insert them thus:
1b. Bankers call Congress to get their TARP funds un-refunded
3b. Uncovered deposits find a way to get into the TARP funds
4b. Massive flight of capital out of the system
6. Extended bank holiday, then massive nationalization
7. Huge LOLZ all around as wheels come off the real economy
HTH
cougar
Old wheels clearly are beyond their useful life.
If someone loses money in these bets, one has the be the loser. Does not matter if there is a counterparty that could possibly make a win out of it. It has to stay in one of those balance sheets and because illiquidity moves from one asset/balance to another, it causes problems in all that balance sheets. The Web of Derivative without any "real" underlying is the problem. But difficult to understand were the problem will realy come from in that situation...
I'm trying to understand when the losses leap to the public as opposed to staying with the private companies.
Granted, the feds have lately managed to transfer all private risk results to the public and privatized profits, but in the "old days" what would happen?
Any substantial comment on what Calculated Risk said? Do you agree with him regarding your errors? Is he dead wrong? etc...
He disagrees with statements made verbatim by Rosie. I would rather go with a David Rosenberg than some "anonymous blogger" ;) just kidding.
CR makes the best housing charts
Many of the best financial blogs are on the same page pointing out the main issues and are in the bear camp. Rather than promoting division between them (what the FED & their banks want), we should really encourage coordination between them (like for suggestions on new regulation, sending this out to your readers for review and recommendations for improvement, and strategy forums).
We really need an organized blogger common man approach to counteracting the Rockefeller CFR group and their minions. We are staring down the hole that is the culmination of their globalization agenda. Chapters, symposiums, and a magazine consolidating the best articles of the month with selected comments (for paying members), would be great if TD was leading.
Anonymous ;)
I am afraid we are looking at a strange game of musical chairs.
If there is any truth in the notion that the owners of the ( privately held ) Federal Reserve corp own HALF of the shares of the DOW, what really is a way to break up their power? OK, the US could buy back the 300 shares, and that would end their sucking off of the US citizen through the monetary system, but, even breaking up the BIG 5 toobigtofail that Tyler noted, it would seem like we were cutting up a worm. So, what really are the answers?
It seems like a start has to be for the public to understand the truth that the Fed is actually a privately held corp, but really, how can this monopoly not implode, just like a black hole with every last bit of credit that our country could garner?
these banks are essentially trading and creating fees with nothing to trade. Churning
deleted
Evoke bank regulation powers and dissolve all derivative contracts that exist between these five companies, and any other banks. Then stand back and see what you have left.
Agreed.
Remember that a lot of this crap became 'regulatory capital' and is all that is keeping European banks from imploding.
With guaranteed assets, banks do not have to hold capital against it, in fact, they can lever up out of nothing. i.e. derivatives became cheap money.
That's my coarse understanding, but a failure of these instruments would bring the European banks down as if they were made of dynamite.
I'm fine with that, as long as ours get taken down too. I'm done with this.
I wonder what part of "lever up out of nothing" passed the Ponzi smell test?
The Hell... doesn't even satisfy fundamental laws of thermodynamics. What will they propose next... destroying matter? Defying entropy? Dividing by zero?
This is all crazy as bat shit. It's unhinged. Banking and finances have become the domain of the insane.
cougar
Got a good laugh and learned a new word.
Entropy is the quantitative measure of disorder in a system.
Your solution is the best thing that could be done to reduce systematic risk.
Green shoots?
While the Census reported new home sales came at 36,000 for the month on an unadjusted basis, Foreclosure Radar reported:
Notices of Default, the initial step in the foreclosure process, rose by 11.8 percent to the second highest level on record at 45,691 filings. Year-overyear filings increased by 10.0 percent from June of 2008.
Mark is close (and things are horrendous), but they aren't quite that bad. So, please use the following quote going forward:
“National New Home Sales, on a monthly basis, don’t even add up to 80% of the total foreclosure activity in California alone in a single month.”
Right ;)
---------------------------------------------------------
"If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered."
Nice post, this is a takeover - I said it.
This is fun. Let's play some more. I'll be Grayson. You be Bernanke.
Grayson: So are you saying David Rosenberg is wrong and Calculated Risk is right, or are you saying Calculated Risk is wrong and Rosenberg is right? Because from my perch it doesn't appear that you are saying anything at all other than deflecting with humor and compliments. What say you Bernanke?
So it's all true!
Over $200 Trillion notional value derivatives outstanding
Over $200 Trillion in unfunded US government liabilities
Over $2 Trillion Federal budget deficit
Over $5 Trillion Fed balance sheet expansion
Over $13 Trillion US debt
Over $10 Trillion in Real Estate Losses
Outstanding credit market debt 350% of GDP
The game plan?
We're gonna "earn" our way out of debt once the economy comes roaring back. Roaring!
There's a race against time being played out in the US economy. The longer it takes for the economy to roar (and the more it meeows rather than roars) the DEEPER the debt service becomes, and the bigger the drag on GDP.
In very simple terms this is called the Negative Marginal Productivity of Debt. Debt begets debt and no amount of so-called GDP can overcome the exponentially increasing debt, as the negative debt production cannot produce a positive GDP relative to the expanding debt.
In even simpler terms, this is crazy as bat shit.
So...anybody competent (or just game) to speculate on what kind of interest rate Black Swans could blow up these OTC bets?
This is a zero sum issue at any given point in time. I would like to know the score bank by bank, category by category, counter party by counter party. Of course that score sheet is probably they most closely guarded secret at the Fed.
One small turd dropping from a Black Swan could push this "System" under.
SQUEEZE ME.
I get that the 50 people on this page are the only people in the country who
understand this and the extreme naivety of the few hundred million in the us who don't, are the reason that one of my gold coins isn't worth $10,000 today.
This isn't investment money. This is world f-ing power money. there is nothing on this earth which requires 300 trillion dollars to buy. I won't use greed because i'm all for that, but children please, How dangerous a game can be played before
their risk effects the pawns. Way over my head as to the implications of what this really mean.
Michael Goldsholl
Hi,
I'm an ET. I was wondering how much you wanted for the whole planet? Who do I talk to about that?
Yes, it is not investment money. It's not money at all. It has no connection to anything physical, nor to any natural phenomenon in the physical universe, nor to any subtle manifestation of the laws of physics. Not to no thing at all.
Take a US$10 bill, take a crayon, draw a bunch of zeros onto the "10" on the bill. As many as you like. As many as will fit on the paper. You can use the back, too.
Congratulations, you are now a central banker.
Just don't try to spend that money. You'll detonate the global economy and just maybe the inner solar system in the bargain.
cougar
I am printing this and mailing it to my representatives with a big nasty rant.
Handwritten.
CrazyCooter
...ask them to address the Negative Marginal Productivity of Debt for me while you're at it.
Thanks,
Chumly
Dear Folks,
this article from the NY post today just shows you how impt it is for us bloggers to write the senate and house banking committes saying what is going on. Also why it is impt to write the big new papers so they can have a clue. We need to keep pressing if we are to get some reform.
MARK DeCAMBRE
Last updated: 10:48 am
July 28, 2009
Posted: 2:59 am
July 28, 2009
Goldman Sachs' uncanny ability to make money during the recession has drawn the attention of a bipartisan group of House members who suggest the investment bank took taxpayer dollars and ratcheted up the risk in order to pay fat bonuses.
The congressional members, including Reps. Alan Grayson, (D-Fla.), Ron Paul (R-Texas), Maxine Waters (D-Calif.) and Walter B. Jones (R-NC), wrote a two-page letter yesterday asking the Federal Reserve to explain why it granted a special exemption allowing Goldman to take on more risk over the past few quarters.
"The company and its employees have taken full advantage of its new government subsidies, and the retained ability to bet big," said the letter.
Goldman sought bank-holding company status late last year because the move would offer the financial institution easier access to taxpayer funds. In exchange for that access, the firm would face more oversight from the Fed and stricter rules that would require it take less risk.
However, the Fed granted Goldman, along with Morgan Stanley, temporary exemptions that allowed them to take on the same risky bets an investment bank would have.
That risky stance helped Goldman post a second-quarter profit of $2.7 billion on revenues of $13.76 billion -- a performance that could see every Goldman employee's bonus amount to $772,858, the representatives' letter noted.
"I think we should do our best to find out as much as we can about [Goldman], especially with all the bailout money that's been spent," Paul told The Post.
Vampire squid.
Maybe we should ask Mr. Geithner?
http://www.youtube.com/watch?v=RrscKx5MEys
http://www.realclearmarkets.com/articles/2009/02/the_sec_killed_wall_str...
Do we recognize any names in this article?
CW
Thanks for the link, charles!
Where can i get hold of some jelly and fertilizer to blow a hole in Goldmans Sack.
It won't matter because GS has cloned its' staff and has a duplicate computer system with its own power supply in the cave next to the one occupied by NORAD.
I've been trying to post a comment but the math question keeps stumping me. Anyway, this time I got it right.
Does everybody accept the OCC U.S. or BIS global notional amounts based on call reports?
Does the DTTC admission that it turns over 1.88Q in annual securities trades sound like it is in sync with those numbers?
Why does the global number keep floating between 600T and 1.4Q among seemingly respectable source estimates?
Do figures lie and liars figure? (mathematically challenged minds want to know).
-Gahnus
How does a system get rid of that much leverage? It seems impossible.
I just looked up the definition of "too big to fail": Mutually assured destruction.