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The Elephant In The Room: Deutsche Bank's $75 Trillion In Derivatives Is 20 Times Greater Than German GDP

Tyler Durden's picture




 

It is perhaps supremely ironic that the last time we did an in depth analysis of Deutsche Bank's financial situation was precisely a year ago, when the largest bank in Europe (and according to some, the world), stunned its investors with a 10% equity dilution. Why the capital raise if everything was as peachy as the ECB promised it had been? It turned out, nothing was peachy, and in fact DB would proceed to undergo a massive balance sheet deleveraging campaign over the next year, in which it would quietly dispose of all the ugly stuff on its balance sheet during the relentless Fed and BOJ-inspired "dash for trash" rally in a way not to spook investors about everything else that may be beneath the Deutsche covers.

We note this because moments ago, Deutsche Bank did the same again when it announced that it would issue yet another €1.5 billion in Tier 1 capital.

The issuance will be the third step in a co-ordinated series of measures, announced on 29 April 2013, to further strengthen the Bank’s capital structure and follows a EUR 3 billion equity capital raise in April 2013 and the issuance of USD 1.5 billion CRD4 compliant Tier 2 securities in May 2013. Today’s announced transaction is the first step towards reaching the overall targeted volume of approximately EUR 5 billion of CRD4 compliant Additional Tier 1 capital which the Bank plans to issue by the end of 2015

Ok, so in retrospect nothing is peachy in Frankfurt, and for all the constant lies about improving NPLs and rising cash flows, banks - especially those which not even the ECB can bailout when push comes to shove - Deutsche is as bad as it was a year ago.

So, just like last year when we decided to take a look inside the company's financials to understand why DB was scrambling to dilute its shareholders and raise a few paltry billion in cash, so this year too, we had the pleasure of perusing the European megabank's annual report.

What we found, while hardly surprising for those who read out post from also a year ago, "At $72.8 Trillion, Presenting The Bank With The Biggest Derivative Exposure In The World (Hint: Not JPMorgan)", is just as jarring.

Because while America's largest bank by assets, and certainly ego of its CEO, that would be JPMorgan of course, had a whopping $70.4 trillion in total notional of derivative holdings (across futures, options, forwards, swaps, CDS, FX, and so on), Deutsche Bank once again put it well in the dust.

The number in question? €54,652,083,000,000 which, converted into USD at the current exchange rate, amounts to $75,718,274,913,180. Which is over $5 trillion more than JPM's total derivative holdings.

As we explained last year, the good news for Deutsche Bank's accountants and shareholders, and for Germany's spinmasters, is that through the magic of netting, this number collapses to €504.6 billion in positive market value exposure (assets), and €483.4 billion in negative market value exposure (liabilities), both of which are the single largest asset and liability line item in the firm's €1.6 trillion balance sheet mind you (and down from €2 trillion a year ago: a 20% deleveraging which according to DB "was predominantly driven by interest-rate derivatives and shifts in U.S. dollar, euro and  pound sterling yield curves during the year, foreign exchange rate movements as well as trade restructuring to  reduce mark-to-market, improved netting and increased clearing"), and subsequently collapses even further into a "tidy little package" number of just €21.2 in titak derivative "assets."

And as we further explained both last year and every other time we have the displeasure of having to explain the reality of gross vs net, this accounting gimmick works in theory, however in practice the theory falls apart the second there is discontinuity in the collateral chain as we have shown repeatedly in the past (and certainly when shadow funding conduits freeze up), and not only does the €21.2 billion number promptly cease to represent anything real, but the netted derivative exposure even promptlier become the gross number, somewhere north of $75 trillion.

The conclusion of this story has not changed one bit from last year: this epic derivative exposure is the primary reason why Germany, theatrically kicking and screaming for the past five years, has done everything in its power, even "yielding" to the ECB, to make sure there is no domino-like collapse of European banks, which would most certainly precipitate just the kind of collateral chain breakage and net-to-gross conversion that is what causes Anshu Jain, and every other bank CEO, to wake up drenched in sweat every night.

Finally, just to keep it all in perspective, below is a chart showing the GDP of both Germany and Europe compared to Deutsche Bank's total derivative exposure. If nothing else, it should make clear, once and for all, just who is truly calling the Mutually Assured Destruction shots in Europe.

As always, there is nothing to worry about: this €55 trillion in derivative exposure, should everything go really, really bad is backed by the more than equitable €522 billion in deposits, or just over 100 times less.

 

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Mon, 04/28/2014 - 15:35 | 4705048 icanhasbailout
icanhasbailout's picture

It's only one generation of totalitarian slavery worth of debt, what's the big deal?

Mon, 04/28/2014 - 15:36 | 4705049 supermaxedout
supermaxedout's picture

What could possibly go wrong. Not much besides that a lot of banks have to declare bankruptcy.  No government nor the ECB is rescuing these banks. As a result the deposits are "bailed-in". So better bring your money to a bank not doing such things like DB, JP Morgan, BOA do.

Everybody having money in BANKS LIKE DB IS AN IDIOT since when DB is falling it trigger a giant implosion of balance sheet value in other banks from one moment to the other. DB is bringing down the whole western banking system.

Mon, 04/28/2014 - 17:52 | 4705561 Mediocritas
Mediocritas's picture

In many cases the black hole created is bigger than their deposit base meaning that a bail-in doesn't fill the hole. There will be more overvalued QE to shift the hole to central banks that will then slowly evaporate it out to taxpayers via Treasury scalping over decades.

Which pushes down standards of living, suppresses the economy, pisses people off, increases border tensions and eventually starts a war.

Mon, 04/28/2014 - 15:46 | 4705099 headhunt
headhunt's picture

How many many ways do you slice and dice the same product to arrive at 55 million euros?

Isn't that called a Ponzi scheme?

Mon, 04/28/2014 - 16:04 | 4705154 zipit
zipit's picture

Positining to buy when there is blood in the streets?  Whoever can buy in the next great firesale is basically going to own everything.

Mon, 04/28/2014 - 17:37 | 4705503 Seer
Seer's picture

"Whoever can buy in the next great firesale is basically going to own everything."

And then?

When people have no stake in the game then the game really won't be the game anymore, not when TPTB require lots of people buying into the game.

Should I care if someone is sitting on a cache of condos?  I'm just not seeing a future there for me to battle for.

Mon, 04/28/2014 - 16:04 | 4705156 youngman
youngman's picture

Now you can buy stock in a Sports star.....that has to be a good thing ..right??? you buy his ETF and hope he does not beat up his girlfriend...

Mon, 04/28/2014 - 20:14 | 4705887 lotsoffun
lotsoffun's picture

oh - poor mr. sterling owner of the l.a. clippers.  (sarcasm).  wow - what a total scum.  i don't like any of it.  him, the 'girlfriend', the wife.

but most importantly - why do 'we' waste our mental energy on this?  isn't there anything better to do with 1 - the media and reporting - 2- my time?

don't watch t.v. - don't go to his arena.  don't rent his apartments.  it's really not that difficult.

and i personally don't like seeing completely moronic and aggresive idiots getting paid tens of million per year for throwing balls around.  if there is that much excess $$ available, let's start paying for education and health care and public works and transporation and positive things like public parks.

i don't like any of it.  the television, the sports, the wife, the girlfriend, the arenas. 

the glory.  the endless pursuit of being 'number one', the best.

can't we all just try to get an education and live our lives content to be ourselves, in trust, love and contact with our families and communities?

then - we wouldn't have to deal with all this crap and we might help each other advance and live more fulfilled lives.

 

 

Mon, 04/28/2014 - 16:05 | 4705159 no more banksters
no more banksters's picture

"... Merrill Lynch and Citigroup, are included in the Primary Dealers list, despite that according to the US Financial Crisis Inquiry Commission (FCIC) report, together with Goldman Sachs, are those responsible for the "creation" of 30% of the destructive financial "tools" known as CDOs during 2004-2007, which contributed significantly to the creation of the housing bubble in US. Two more banks which had significant presence in CDOs that time are Deutsche Bank and UBS, which also continue to be two of the twenty two Primary Dealers."

http://failedevolution.blogspot.gr/2013/11/an-example-of-how-banking-car...

Mon, 04/28/2014 - 16:05 | 4705164 The Abstraction...
The Abstraction of Justice's picture

Seems appropriate to link to my campaign to sue DB, for all the good that it does:

www.kingoftherepublic.com

 

Mon, 04/28/2014 - 16:10 | 4705184 Ghostdog
Ghostdog's picture

Eh', whats 75 trillion amongst Deutschebags

Mon, 04/28/2014 - 16:10 | 4705189 Duc888
Duc888's picture

 

 

 

...just send over John Kerry, he'll fix it.

Mon, 04/28/2014 - 16:19 | 4705230 Winston Churchill
Winston Churchill's picture

Neighver.

Mon, 04/28/2014 - 17:30 | 4705477 El Vaquero
El Vaquero's picture

You have to wonder how they can get him to move his lips for the voice over.  Is it peanut butter on his gums, or a carrot shoved up his ass?

 

"NOOOOOOOOOO WILBUUUUUUUR!"

Mon, 04/28/2014 - 17:39 | 4705513 Seer
Seer's picture

I was all ready to toss that out there!  I do a really good impersonation :-)

Mon, 04/28/2014 - 16:18 | 4705224 q99x2
q99x2's picture

Ach, Mami, du bist gemein.

Long live Merkel's US Department of Homeland Security.

Mon, 04/28/2014 - 16:36 | 4705266 Bernoulli
Bernoulli's picture

Isn't she called "Mutti"?

Mon, 04/28/2014 - 16:16 | 4705226 Lmo Mutton
Lmo Mutton's picture

Meh. The algos can handle well more than trillions.

Right?

Mon, 04/28/2014 - 19:27 | 4705764 MeelionDollerBogus
MeelionDollerBogus's picture

oh yah! They're geared to handle up to quadraplegillions.

Mon, 04/28/2014 - 16:37 | 4705270 giggler321
giggler321's picture

Wow, on my safari they talked about how endangered the Indian elephant was but it seems I might actually see the German, elephant go first

 

Mon, 04/28/2014 - 16:41 | 4705278 MsCreant
MsCreant's picture

They don't go to bed and wake up in "sweats" unless you mean the fleece kind (get it, bankers and fleece). That is how we got here. They are not worried at all.

 

Mon, 04/28/2014 - 17:42 | 4705520 Seer
Seer's picture

But it's kind of hard to keep up the appearance of the game when you're the only one playing.  As noted above (somewhere), it's projected that the US is going to be paying down a LOT of debt this year.  Figure lots of loans get closed out, with little opening up.  Fractional reserve nightmare... it's why "velocity of money" is such a big deal (it makes it obvious that things aren't working)

Mon, 04/28/2014 - 16:46 | 4705306 Son of Captain Nemo
Son of Captain Nemo's picture

No wonder Frau Merkel and "minions" no longer give a shit if they are fodder to a NATO/Russian ballistic missile exchange!...

This only serves as more proof that there is a Stan Fischer with his mit shoved up the ass of a"Jack Lew" in every Western government... I meant bank!

 

Mon, 04/28/2014 - 18:15 | 4705528 Seer
Seer's picture

Actually, Germany is really between a rock and a hard place.  On one side -US- is the gold storage issue, and on the other -Russia- is their needed energy issue.  This is turning out to be worse than even I'd imagined.

Mon, 04/28/2014 - 16:47 | 4705312 MWizard
MWizard's picture

That's crazy

Mon, 04/28/2014 - 16:48 | 4705315 Ivan Nokabolokov
Ivan Nokabolokov's picture

Life is a cabaret.

Mon, 04/28/2014 - 16:49 | 4705324 scaleindependent
scaleindependent's picture

The question then arises, of these 75 trillion derivatives, how many are for Russian CDS or how many of these are Russians standing as counterparty?

If the number is significant then Putin has an Ace up his sleeve.

Mon, 04/28/2014 - 20:03 | 4705873 lotsoffun
lotsoffun's picture

scale - close, but not a winner.  very few are for russia as a counterparty.  this is all a big circle jerk (i do not like how vulgar that term is, but that is the closest i could come to the truth) between the big western banks.   but many of them are against russia defaulting.  so - now - who has a BIG bet on that russia defaults and also has a BIG reason to help make that happen?

we might only get some regulation when some big banksters hang.  but, they have so much money to buy influence, and they've got the people dumbed down so stupid, i just don't see it happening anytime soon.

 

Mon, 04/28/2014 - 16:52 | 4705338 BrigstockBoy
BrigstockBoy's picture

No worries...super Mario, the snake oil salesman, has OMT at the ready to save Germany and other member countries...oh, wait. Fuck the EU!

Mon, 04/28/2014 - 16:55 | 4705349 Felix da Kat
Felix da Kat's picture

It would be naive to think the Fed has played all its aces. In fact they may have an unlimited supply of aces at the ready until Dow Jones touches 20,000 before the 2016 american inauguration.

Mon, 04/28/2014 - 17:32 | 4705487 BearOfNH
BearOfNH's picture

Election 2016, inauguration January 2017.

Mon, 04/28/2014 - 16:56 | 4705352 BlauGloriole
BlauGloriole's picture

Netting is a valid approach however requires 1) standardization of collateral agreements and 2) availability of "good" collateral. There is progress on 1). Scarcity of "good" collateral in a fragile system is the issue.

Mon, 04/28/2014 - 17:44 | 4705529 Mediocritas
Mediocritas's picture

2007/8 demonstrated clearly that this crap nets away only in the imagination. Safe to say that the official net reported is vastly understated. Gross needs to be reduced drastically or Basel III needs to be a whole lot more aggressive. Neither will happen because there's no slack in the system and the BIS knows it.

Mon, 04/28/2014 - 20:04 | 4705874 BlauGloriole
BlauGloriole's picture

Sure 2007/8 clearly demonstrated serious failings in the system. Financial players since then have and are spending significant resources to standardize and ensure symmetrical application of collateral agreements. The system is building up capital however it probably does not as yet have sufficient capital to gracefully manage counterparty gap risk even if participants books fully netted to zero. Pricing capital more appropriately for derivative businesses will meter future growth of notional size and make products appropriately more expensive. Given time the system will be more robust. As previously mentioned, the dreath of "good" collateral remains a challenge. The question is whether the system is too fragile to realistically expect sufficient time to heal.

Mon, 04/28/2014 - 20:30 | 4705948 logicalman
logicalman's picture

When all the numbers are bullshit, it doesn't matter how you analyze them.

Tue, 04/29/2014 - 01:39 | 4706672 Mediocritas
Mediocritas's picture

It's the "time" factor that's a killer. Multiple lost decades as balance sheets are repaired to conform with prudential regulation. How deep and long-lasting will the general malaise be, and can central banks & governments survive it as they are on the current course?

No secret that I'm not optimistic about where this finds us in 15 years time as the 'reforms' being implemented are not even close to what's really required, just shuffling deck chairs on a sinking Titanic.

Mon, 04/28/2014 - 16:59 | 4705372 resurger
resurger's picture

Sustainable in my view.

Mon, 04/28/2014 - 17:03 | 4705379 Comte d'herblay
Comte d'herblay's picture

Where's Joe Cassano when you need him now??

Mon, 04/28/2014 - 17:04 | 4705387 xcehn
xcehn's picture

For those that must keep some fiat in a bank, no more than 100K per bank for sure. Ominous tea leaves all around.

Michael Lewis cites Ron Morgan and Brian Levine, Goldman Partners and co-heads of Goldman's global stock markets, who said that

"Unless there are some changes, there's going to be a massive crash, a flash crash times ten."

http://www.zerohedge.com/news/2014-04-08/triple-whammy-shocker-goldman-s...

http://wallstreetonparade.com/2014/04/goldman-sachs-drops-a-bombshell-on...

Mon, 04/28/2014 - 17:36 | 4705494 Mediocritas
Mediocritas's picture

And watch out because, depending on jurisdiction, deposit protection may apply under a bank ownership "umbrella". Many banks retain their old branding after being acquired, which provides an illusion of choice.

You may have 1,000,000 split into 10 accounts of 100,000 with 10 banks, but if those banks are all owned by the same holding company and the holding company folds, then you lose 900,000 if an umbrella regulation applies (as it does in the UK).

Know your corporate hierarchy.

Mon, 04/28/2014 - 17:44 | 4705533 xcehn
Mon, 04/28/2014 - 17:18 | 4705432 1stepcloser
1stepcloser's picture

so is JPM considered its own cuntry now

 

JP Morgan Chase has a derivative exposure of $70.151 Trillion dollars. 
$70 Trillion is roughly the size of the entire world's economy. 

Mon, 04/28/2014 - 17:37 | 4705506 Mediocritas
Mediocritas's picture

+1 for cuntry

Mon, 04/28/2014 - 17:28 | 4705470 Mediocritas
Mediocritas's picture

For additional perspective, in 2012 the combined GDP of the entire world was $US 71.83 trillion..

Complex, illiquid, chained derivatives that only net away safely in a fantasy land where it's never actually tried.

Mon, 04/28/2014 - 18:18 | 4705615 Seer
Seer's picture

Hey!  So the world goes on vacation for a year, what's so bad about that? </sarc>

Mon, 04/28/2014 - 18:47 | 4705681 Mediocritas
Mediocritas's picture

My dear peons, please don't think of this as us banks taxing 100% of your annual income to fill the black hole we created on our balance sheets when we discovered all gross was net. No, no, dear peon, think of this as simply a working holiday, better yet, consider how hard your money has been working all these years, never a chance to rest, flying back and forth, isn't it time your money had...a vacation?

Mon, 04/28/2014 - 20:33 | 4705955 logicalman
logicalman's picture

Ah, Fuck It!

Mon, 04/28/2014 - 17:53 | 4705560 highwaytoserfdom
highwaytoserfdom's picture

systemic cva/dva accounting  has shot trust in the system dead as a door knob..   Krugman is not right about guns.   Broken windows and termination of fiat..        Remember Basel  III  stress test?    American people have allowed these economic hit men to inflict a Wiemar wound on morals.  The question is if the economic hit men start paying without a war..    Total mistrust of Brenton..

 

http://www.occ.gov/topics/capital-markets/financial-markets/trading/deri...

 

Mon, 04/28/2014 - 18:28 | 4705576 falak pema
falak pema's picture

So basically Deutsche, JPM and GS run the capitalist system of the world. 

If they fall it will be a much bigger fall than the twin towers of 9/11 days.

Its Capitalism in the global world which will fall. 

WMD; Saddam was and Putin is childlike in their ambitions in this game; when it comes to who is the real King of Capitalist Kong that can crash the casino and make us all regress into planet of the Apes. 

Mon, 04/28/2014 - 18:31 | 4705651 JR
JR's picture

Goldman Sachs, the KGB outfit that runs the U.S. Fed (via the NY Fed), the European Central Bank and the Bank of England – and a million other things a self-administered world reserve currency out of “thin air” can buy - does not constitute capitalism. It is fascism.

In a review of Hunter Lewis’s latest book, Crony Capitalism in America, 2008-2012, David Gordon, who covers new books in economics, politics, philosophy, and law for The Mises Review, writes:

An especially glaring example of a predatory partnership between government and business followed the financial collapse of 2008. It was widely alleged that massive government subsidies to prop up failing banks and investment houses were required lest the entire economy be destroyed. ‘So in the fall of 2008, the US supposedly stood on the edge of an abyss, with a likely shutdown of the entire financial system, and a Depression from which we might never emerge.’ (pp. 110-11)

“The allegation of imminent collapse served as an excuse for massive transfers of money to a favored few investment bankers. Lewis devotes particular attention to Goldman Sachs. ‘At the center of Wall Street stands Goldman Sachs, master of the crony influence game.’ (p. 86) Lewis devotes six pages of his book to a chart of what he terms the ‘revolving door’ between Goldman Sachs and the government. (pp. 86-91) The result of these close connections, together with the large amount of money spent by Goldman Sachs in lobbying, will occasion no surprise: ‘Government connections conferred many other benefits … in some areas of the market post-Crash, Goldman Sachs enjoyed what former employee Anthony Scaramucci called a near monopoly.’” (p. 102)

When a chosen few can create money out of nothing and allocate those fiat notes in secret to themselves to exchange for all goods and services saleable worldwide - fiat notes for which others must toil and whose value can be changed at any time by the chosen few -- that is not capitalism.

It is wealth by fiat.

Mon, 04/28/2014 - 18:53 | 4705691 falak pema
falak pema's picture

So you like CHS agree to corporate oligarchy run capitalism being "fascism" or "neo-feudalist capitalism"; when it controls levers of government; when its brief of disseminating debt morphs into that of creating money pure and simple, which has been the prerogative of State since its inception in history. The day private banks become issuers of money they have taken over the State. All semblance of "we the people" is then evacuated from the financial/monetary ---and as a consequence-- the economic thread(s) of the nation. 

In fact, what you imply is that the 20 th century of US dominance has been a total fascist scam. 

In which case you should agree with Marx's analysis that British rule under its global corporate model of 19 th century industrial rentier capitalism, aka Cecil Rhodes in Africa and East India Company in India/China, were also corpocracies that ran world economics and politics with a "fascist and colonial" mindset. 

In fact Marx was dealing with the core of the crony capital/political construct which became the hall mark of 20 th century USA, having been imported in from Europe in around 1905 onwards. 

So basically  in your view the USA ceased to be a free nation state sometime around 1865... and all capitalist entrepreneurship died right there in Jefferson's lands.

Pretty tall order to thus paint the defining moments of US history as having being concocted, since Fort Sumter days, by a crony proto-fascist mindset... even before Mussolini was born! 

 

Mon, 04/28/2014 - 19:10 | 4705734 MeelionDollerBogus
MeelionDollerBogus's picture

No matter how much you say a thing that is not capitalism, is some form of capitalism, and then say the other person also said it, doesn't make it so.
Fascism is 0% capitalism & only you are trying to pretend it is some form of capitalism. It isn't.

Mon, 04/28/2014 - 20:28 | 4705939 WhyWait
WhyWait's picture

Meelion, you and others here are saying the Capitaist System is not capitalism because it doesn't fit your free-enterprise free market model.

It's still the Capitalist System.  A direct lineal discendent of the system that started with the British East India Company, Alexander Hamilton's bank, the Civil War profiteers and the Robber Barrons.  It wasn't taken over by the KGB.  Or Queen Elizabeth or the Rothschilds, although they are certainly players.

It's collapsing. Of it's own weight.  It's been kept alive longer than many of us ever thought possible, but if no external shock intervenes it will die of massive internal failure.  Very soon.  

We need to survive it and try to build something better.  

I think we all agree we can't fix it, whatever label we want to put on it.  It's going down, with or without taking our civilization and maybe our species down with it.

There will be a struggle over how much capitalism there will be in the solution, but first we have to come together to survive it.  

Tue, 04/29/2014 - 03:26 | 4706790 MeelionDollerBogus
MeelionDollerBogus's picture

NO, none of that is true.

What we have is a government run system of non-markets, anti-markets, its sole purpose to extract value from serfs (us) from work & property (both confiscated). That's not capitalist in any way, shape or form. Contracts are broken or never permitted, laws are changed without notice and/or to just take more than before and we don't even have the lawful right to use our own choice of money. NONE Of that is capitalism. It's not just "deviated from the ideal framework" it has nothing at all in common.

Calling any of this capitalism is like pretending an elephant is actually a kitten. It's nonsense.

I see ZERO capitalism, not a shred of it. Not the private ownership of the means of production, not our own choice of money, not the right to keep our own property and/or value of our work, nothing. It's all gone. None of it's true. 0.00000% capitalism.

Mon, 04/28/2014 - 19:33 | 4705780 JR
JR's picture

Individuals formed the mutual pact called government for protection against outsiders and for protection of their property. They agreed to use a medium of exchange but they did not agree to allow a third party to create, own and control this medium of exchange, accountable to no one but themselves, and to arbitrarily set its value - so states, historically, did not create money as you suggest.

All the name games of fascism, capitalism (Marx’s term), Marxism, etc., do not hide from view the monster that’s destroying America: that third party, the private central bank that’s creating money out of air and claiming its exclusive use.

You may be interested in Clarence B. Carson’s reasoning on the use of terms such as capitalism and private property; it is clear that under the Federal Reserve System, there ultimately is no such thing as private property.

“Conservatives generally favor not only the private ownership of personal property but also of the means of production. Some refer to such a system as capitalism, though they are using Marxist terminology when they do so. Generally speaking, they believe that property justly acquired belongs to the owner by right… Conservatives favor freedom of enterprise, though they differ among themselves as to the extent to which it should prevail. They generally tend to oppose both government intervention in enterprise by regulation and control or government engaging in economic undertakings.  They tend to favor a free market, oppose the exclusion of foreigners from the American market or the granting of monopolies by government…”

“Some people think that the Federal Reserve Banks are United States Government institutions. They are private monopolies which prey upon the people of these United States for the benefit of themselves and their foreign customers; foreign and domestic speculators and swindlers; and rich and predatory money lenders.”

– The Honorable Louis McFadden, Chairman of the House Banking and Currency Committee in the 1930s

Mon, 04/28/2014 - 19:55 | 4705842 Seer
Seer's picture

Not picking on you, RJ, just wanting to jump into this thread at the next spot for input...

LABELS MEAN SHIT.

Everyone can slam this and slam that, and then the "other" side can counter.  And if something ain't working then it's the tired old "this is not true <fill in the blank>, that's why it's not working!"  If only we could turn the entire planet into that perfect ideological playground... (and there are no subversives lurking, everyone is perfectly happy and would never think to try and overthrow the status quo, even though it's the 'unadulterated" version of whatever...  And meanwhile EVERYONE promotes perpetual growth, which will, with absolute certainty, force collapse.  But most of the soldiers of ideology ignore this FUNDAMENTAL and continue with their programmed battles.  It's fucking CHILDISH!

Mon, 04/28/2014 - 20:29 | 4705944 JR
JR's picture

Monopoly, of course, is the great plague enveloping our modern world...and when the people try to free themselves and fight this disease they face the ultimate monopoly: Leviathan government, a threat financed and controlled by the Fed. There is no limit to its appetite; it will devour the earth and all its resources.

The international bankers have become the dictators of all economic and community life and it’s not workin’.

Mon, 04/28/2014 - 21:28 | 4706103 Seer
Seer's picture

But, but... all of these ills are of human nature.  Again, nowhere am I seeing the anti-govt people (which I could be labeled as) noting the problems of growth.   Govts are not the ONLY thing that pushes growth.  And I see no one presenting any system or set of guidlines that even comes close to addressing this, this that is mathematically proven to present us with collapse.  I see all this finger pointing as distracting from this more fundamental issue: all that the fingers point to is SYMPTOMS, not the PROBLEM.

Tue, 04/29/2014 - 06:05 | 4706905 tip e. canoe
tip e. canoe's picture

+++ for LABELS MEAN SHIT...
Nice comments all around today Seer.

Mon, 04/28/2014 - 19:07 | 4705729 MeelionDollerBogus
MeelionDollerBogus's picture

Wait: murder, theft, fraud & being joined to government are exclusively non-capitalist activities and that's how the biggest banks operate.

Mon, 04/28/2014 - 19:42 | 4705808 Seer
Seer's picture

It's growth that fails...  Folks here don't believe that capitalism exists in the real world: they would like it to, but even then there's no answer on the problem of growth.

Mon, 04/28/2014 - 18:28 | 4705645 BlackSwanCrash
BlackSwanCrash's picture

Deutschbank is just one bank-what about all those US banks with interest rate swap derivs in the trillions whilst their balance sheet assets are mere billions.

 

When interest rates are forced to rise out of Central bank control a financial black hole will be created that will suck all montary fiat into it in a heartbeat. Got gold?

Mon, 04/28/2014 - 18:34 | 4705659 bugs_
bugs_'s picture

Obligatory moment from "The Hunt for Red October"

Torpedo dead ahead! 

You arrogant ass.  You've killed us!

Mon, 04/28/2014 - 18:48 | 4705689 arby63
arby63's picture

I know one thing for sure: some big ass elephant keeps shitting all over my business ytd.

Mon, 04/28/2014 - 18:51 | 4705690 MeelionDollerBogus
MeelionDollerBogus's picture

OKAY Dr. Evil, we'll just fork over that kerjillion berzillion gazillion dollars!

Mon, 04/28/2014 - 18:57 | 4705706 Grouchy Marx
Grouchy Marx's picture

Monetize it: problem solved!

Mon, 04/28/2014 - 18:57 | 4705709 MrBoompi
MrBoompi's picture

Now you know why these assholes fought tooth and nail to keep their derivative schemes both unregulated and secret. It's fucking crazy.

Mon, 04/28/2014 - 19:22 | 4705761 Rising Sun
Rising Sun's picture

Print your way out of the Markel you nazi cunt!!!!!!!

Mon, 04/28/2014 - 23:45 | 4706483 litemine
litemine's picture

Currency Wars?

Wait til some super computer sorts out which mortgage these derivatives these are......She may own your House.....Thanks to The American Government and American Banks......

Maybe Germany could flog this Paper for MOAR gold from the NEW YORK FED........Haha.

Too many years living way beyond your financial ability.......new news is that with low wages and low fuel costs puts the USA  second in inexpencive manufacturing costs.....when people requested to bring jobs back home, they didn't know it would be at slave rates.   Oh....the money still is in America.....it's just very few have control of it.    Yes sir....reduced Taxes on the Rich have them Very Rich.....Rich in a poor Land.  

Rising Sun......when will you get of your High Horse and see reality?

Mon, 04/28/2014 - 19:52 | 4705830 Offthebeach
Offthebeach's picture

Just bought a .40 Smith &Wesson auto, used, DA, 2 mags, $350.

Mon, 04/28/2014 - 20:21 | 4705917 Comus
Comus's picture

"You people" obviously don't understand that 75 trillion in derivative exposure is really equal to 50 million, as it's all hedged off against each other. Such Rubes!    

Mon, 04/28/2014 - 21:04 | 4706030 TeraByte
TeraByte's picture

50M is peanuts of course, but liabilities thousand times higher in case a default. Could Deutsche survive Greece´s default. The hedging is safe only so long as no underwriter defaults. Put into this perspective also GS´s huge nominal exposure in relation to own free capital. Something, how unlikely it should be, can happen like a jumbo losing its all four engines and..................................

Mon, 04/28/2014 - 22:38 | 4706326 Kprime
Kprime's picture

yah, so that's why the .gov only chipped in 50 mil back in 2008.  They didn't really create 5 trillion in real debt in the last 5 years.  They really only created enough to buy a cup of coffee and a doughnut.  That's the real notional contribution of the taxpayers.  So see, there is no inflation.  The housing market is fully recovered. There is no spoon. The stock market is real. Most Americans are vastly better off with their food stamps. These aren't the droids you're looking for.  There is no inflation in food costs.  A dollars worth of ethanol really only costs two dollars in notional currency. For every action there is an equal and opposite dis-interest and rubes are a dime a dozen; even the cream filled ones. No one uses semi-colons anymore. Why doesn't the IRS accept notional currency?

 

Mon, 04/28/2014 - 20:36 | 4705959 devo
devo's picture

It's going to be nice when gold/commodities absorb this mess.

Mon, 04/28/2014 - 20:39 | 4705965 Walt D.
Walt D.'s picture

Welcome to the Casino TBTF Bank A has a $100 billion bet with TBTF Bank B. (Neither TBTF bank has $100 billion). Lets say Bank B loses. Bank B is bailed out to the tune of $100 Billion, which it then gives to bank A. The net rresult is the same as if no bet had been made and bank A was given $100 billion. On to the next hand. See why both bank A an bank B like this.

Mon, 04/28/2014 - 21:01 | 4705973 TeraByte
TeraByte's picture

Deutsche´s csd pile is the underlying cause of pretending the brain dead Greece could be wakened from the coma by life support. Should Greece fall, united fell the whole banking system. First failed Deutsche and a  triggered a global cds avalanche and Lehman´s went down into the history as a bagatelle.

 

Mon, 04/28/2014 - 21:17 | 4706076 GrinandBearit
GrinandBearit's picture

Way too big to fail.

Mon, 04/28/2014 - 21:40 | 4706142 Cashcollateral
Cashcollateral's picture

For fucks sake, how many times is this site going to go on about bloody derivative exposure?

Derivatives are measured on notional contract value, they are NOT measured on exposure at default. The vast bulk of derivatives are made up of currency or interest rate swaps, that while large on a notional basis actually have exposures a fraction of their contract size. In order for a default to occur that would actually cause a loss anywhere near a meaningful volume would require multiple major currencies to literally cease to exist overnight. 

The real unsecured value at risk would be huge at 1% of this number and much more likely 0.1%. but fuck it, let's ignore the real issues in favor of circle-jerking over meaningless comparisons.

No wonder there are no real finance professionals left on this site.

Mon, 04/28/2014 - 22:42 | 4706340 Kprime
Kprime's picture

yah, so that's why the .gov only chipped in 50 mil back in 2008.  They didn't really create 5 trillion in real debt in the last 5 years.  They really only created enough to buy a cup of coffee and a doughnut.  That's the real notional contribution of the taxpayers.  So see, there is no inflation.  The housing market is fully recovered. There is no spoon. The stock market is real. Most Americans are vastly better off with their food stamps. These aren't the droids you're looking for.  There is no inflation in food costs.  A dollars worth of ethanol really only costs two dollars in notional currency. For every action there is an equal and opposite dis-interest and rubes are a dime a dozen; even the cream filled ones. No one uses semi-colons anymore. Why doesn't the IRS accept notional currency?

I need a derivative refill in my bong, it keeps getting bigger and bigger.

Tue, 04/29/2014 - 01:20 | 4706655 Cashcollateral
Cashcollateral's picture

The irony is that you have actually raised real issues: the 5tr in incremental govt debt, cost-push inflation (and lack of demand-pull inflation), the gutted housing market, the overinflated stockmarket, the growing proportion of people on welfare programs. This is the sort of shit that we should be focusing on, rather than jumping all over a meaningless number just because "75 trillion" sounds scary.

For reference: $800bn in CDS payments were triggered by the default of Lehman Brothers. Actual exchange, thanks to netting, was only about $7.2bn. Less than 1%, with a full-scale worst-case-scenario counterparty flip-out.

Even assuming an apocalypse scenario where a full 10% of Deutche's counterparties explode (for context, an NPL ratio of even 5% is considered basically the end of the world for most banks: even in the depths of 2008, the NPL only barely reached 2.6% in the US), that leaves them on the hook for ~$75bn to settle. The Fed prints more than that in a month. Hardly stuff to run around screaming your head off about.

Focus on the real issues here.

Tue, 04/29/2014 - 06:10 | 4706907 tip e. canoe
tip e. canoe's picture

You forgot about AIG.
Talk about an elephant in the room.
With plenty of inconvenient secrets hiding in its bowels.

Mon, 04/28/2014 - 21:43 | 4706154 Bogdog
Bogdog's picture

Like I told my co-workers the other day.....

Building a website is not productive activity. Nor is fiddling with a database.

Taking things out of the ground and making it into stuff that people want to buy is a productive activity.

We just don't do enough of that anymore here in 'merka.

Mon, 04/28/2014 - 22:09 | 4706245 xcehn
xcehn's picture

A top U.S. banking regulator called Deutsche Bank's capital levels "horrible" and said it is the worst on a list of global banks based on one measurement of leverage ratios. "It's horrible, I mean they're horribly undercapitalized," said Federal Deposit Insurance Corp Vice Chairman Thomas Hoenig in an interview. "They have no margin of error." Deutsche's leverage ratio stood at 1.63 percent, according to Hoenig's numbers, which are based on European IFRS accounting rules as of the end of 2012.
In other words, the slighest systemic shock in Europe and Deutsche Bank gets it. And as Deutsche Bank goes, so does Germany, so does Europe, so does the world.

http://www.zerohedge.com/news/2013-06-15/deutsche-bank-horribly-undercap...

http://alternativeeconomics.wordpress.com/2013/06/15/deutsche-bank-60-ti...

Mon, 04/28/2014 - 22:30 | 4706317 AdvancingTime
AdvancingTime's picture

The more and more I study derivatives it now appears the main goal of QE may have been to hold up the underlying value of assets that feed into and support the massive derivative market more than help the economy. QE has up to now stopped an implosion of derivatives and the resulting contagion and shock that would have spread throughout the financial system.

Paul Wilmott from Oxford University estimates the derivatives market at $1.2 quadrillion, to put that in perspective it is about 20 times the size of the world economy. The point of the article below is to call attention to the insanity of derivatives as an instrument or tool to add stability to our financial system. By stacking risk upon risk and transferring it off to another party who may not be able to preform you do not increase stability.

http://brucewilds.blogspot.com/2014/03/derivatives-house-of-cards.html

Mon, 04/28/2014 - 22:58 | 4706376 xcehn
xcehn's picture

By the time tptb finish putting the final touches on their police state, the conditions will be set for the great reset. Depositors will be left holding the bag.

"The FDIC was set up to ensure the safety of deposits. Now it, it seems, its function will be the confiscation of deposits to save Wall Street. In the only mention of “depositors” in the FDIC-BOE directive as it pertains to US policy, paragraph 47 says that “the authorities recognize the need for effective communication to depositors, making it clear that their deposits will be protected.” But protected with what? As with MF Global, the pot will already have been gambled away. From whom will the bank get it back? Not the derivatives claimants, who are first in line to be paid; not the taxpayers, since Congress has sealed the vault; not the FDIC insurance fund, which has a paltry $25 billion in it. As long as the derivatives counterparties have super-priority status, the claims of all other parties are in jeopardy."

http://www.alternet.org/economy/wall-street-ticking-time-bomb-could-blow...

Mon, 04/28/2014 - 22:48 | 4706361 syntaxterror
syntaxterror's picture

Dumb fuck america won't think twice about bailing out this bullshit.

Mon, 04/28/2014 - 23:18 | 4706424 Kina
Kina's picture

lucky they have lots of gold 

Mon, 04/28/2014 - 23:22 | 4706434 Kina
Kina's picture

whoever invented derivatives should be dragged onto the street and have their throat cut!

Mon, 04/28/2014 - 23:41 | 4706478 Seek_Truth
Seek_Truth's picture

Your merchants were the world's important people. By your magic spell all the nations were led astray. - Revelation 18:23

Tue, 04/29/2014 - 02:24 | 4706733 Rogue Economist
Rogue Economist's picture

Still more in the World of Shit of contemporary Economic asshattery.

Don't miss tonight's Special Podcast, an Interview with Steve Ludlum of Economic Undertow.

 

RE

Tue, 04/29/2014 - 02:31 | 4706742 Gideonzsword
Gideonzsword's picture

Ok Zero Hedge Banker guru's, my dumba as a rock commodities trading ass knows fuck-all about the deriviatives market but I can read a simple chart and DB's leverage is multiple times the size of the German economy.

my question is. With us prodding and poking the Russians with the intent to get them to do something VERY aggresive. If the Bear indeed does decide to take a swipe at Ukraine and push all the way to Transinistra is this the push that tips over the iceberg?

How can Germany be sitting on a bomb of this size and even risk the thought of Russia doing something stupid that could affect global markets in unknown ways? Or maybe this is why the Germans backed off in Ukraine so quickly? Would make sense that they would want the trade deal with Ukraine in the first place to spread some of that nasty debt around but when they saw the massive instbaility the gambit created they made sure to ease off.

Sorry if I'm confused. Can JR or someone more knowledgeable please help me out? This just seems really frightening. 

Tue, 04/29/2014 - 04:51 | 4706840 Mediocritas
Mediocritas's picture

Bear in mind that the black hole sitting in Germany's financial sector is offset (partially) by the rivers of gold in its industrial sector. Said another way, Greeks (etc) borrowed money from German banks to buy cars from German auto-makers, so money shifted internally in Germany, with a foreign intermediary.

Merkel will find herself under increasing pressure to loot the industrials to bail out the banks (execised via bailouts of foreign intermediaries), which is a unique problem for Germany given the strong power the industrials hold. Nevertheless, it will eventually come to this and the industrials will eventually cave once the Greeks (etc) have been squeezed to the point where they have no option left but to leave the euro.

The Russian situation will indeed cause an acceleration of critical financial events, but Russia would be foolish to actively push down this course. To do so would make Russia an easy whipping boy for blaming ALL of the financial crisis upon, a crisis that would have happened anyway without Russia having any role in it.

The more cynical would suggest that it's only American elites who are pushing for a Europe / Russia conflict in an effort to weaken both powers and strengthen America, relatively.

Tue, 04/29/2014 - 09:39 | 4707387 Gideonzsword
Gideonzsword's picture

Thank you sir. Mediocritas you are not!

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