How US Banks Are Lying About Their European Exposure; Or How Bilateral Netting Ends With A Bang, Not A Whimper

Tyler Durden's picture

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Zero Govt's picture

we got the definition of fraud now, it's the prosecution of fraud we're all awaiting to hurry the fuk up

Things that go bump's picture

No one is getting prosecuted for this.  When everything has gone in the shitter we are going to have to hunt down the perpretrators like the pigs they are and administer rough justice of our own, if we want it.  

LFMayor's picture

hopefully the Kiss Army will administer that justice.   We're millions strong!

LFMayor's picture

Oh I'm with you brother, the freikorps are the only justice that we're going to see. Until that's up and rolling it's the same game with your choice of two candidates and two parties to lay your VOTE on. 

I was referring to your avatar, and "The Kiss Army", which was a marketing meme that they used (don't know if you were there or not... I remember it though).  The "millions strong" was from the song "crazy nights". 

Kassandra's picture

Insanity...down the rabbit hole again.

Zero Govt's picture

insanity is an institution called Govt puts the parasites and criminals at the top of the food chain ..all the madness we see about us is an effect of that rotten, inept and delusional institution

Ruffcut's picture

Don't give cnbs more terms like bilateral nettings. I pinky swear I'll shit all over this if they spew those words, in the coming days.

How many terms for bullshit can we come up with anyway.

Jay Gould Esq.'s picture

"How many terms for bullshit can we come up with anyway."

"Liesman;" "Beckie;" "Griffeth;" "bank-skank;" "Pisani;" "Power Lunch;" "actionable network," &c.

UP Forester's picture

My fave is that dipshit Simon what's-his-fuck.  But then again, I guess all the networks figure that if they spout all their BS with an accent like Lady Di, the plebes will buy it hooker, limey and stinker....

maxw3st's picture

"...who’s ultimately going to pay for the losses?”

I have been asking that question for some time in regards to the Greek debt. I believe it may have something to do with why a "credit event" is being so carefully avoided. I doubt there is capital to back the outstanding CDS currently trading against Euro debt.

iDealMeat's picture

Precisely..    + a quad in derivatives to you..  Everything is insolvent..

ToddGak's picture

When it all goes bad, the US Gov't will step in again to backstop the banks.  The Fed will soak up as much US Debt as necessary to get cash into the hands of the banks.  They are too big to fail.

AE911Truth's picture

"...who’s ultimately going to pay for the losses?”

When the SHTF the CDS sellers will claim

bank guy in Brussels's picture

Hilarious even though catastrophic in its implications ... for example, this quote from above, on how Goldman bought hedges against the AIG debacle ... from Lehman Brothers!

« Goldman Sachs said it had hedged itself against the collapse of AIG by buying CDS on the firm. Company documents later released by Congress showed that some of that protection was purchased from Lehman Brothers Holdings Inc. »

disabledvet's picture

As if Dexia was any different. Why else put American taxpayers on the hook? Peekaboo...I see you!

canuck's picture

It doesn't really surprise me that that surprises you seeing your handle...

Thepnr's picture

The fan has now stopped turning, shit has overwhelmed it!

Uchtdorf's picture

That happened with my laptop once...uh, the fan thing, not the stink thing, that is.

Vergeltung's picture

excellent new take on an older cliche. well played sir!


lolmao500's picture

“The big problem with all these gross exposures is counterparty risk. When the CDS is triggered due to default, will those counterparties be standing?


Mercury's picture

In addition to counterparty risk we must now (as of this weekend) add reality acknowledgement risk: when some ISDA Determinations Committee rules that a default isn't officially a default....and therefore your hedge is no longer a hedge.

Withdrawn Sanction's picture

ISDA = International Self-Dealing Association.

It's not a loss if we (the bankers who wrote this crap and collected premiums and bonuses for doing so) say it isn't.

Unfortunately, the ISDA determination does not stop the underlying instruments from falling further, as the MF case shows.  Indeed, the result is even more margin/collateral calls.  One way or another, by fire or by wind, this entire house of cards is coming down.

It will not be end of THE world, just then end of THIS (overleveraged, overextended, unproductive) world.  Good riddance.

reader2010's picture

The Greatest Depression with the Chinese characteristics is down the road. Warz bitChez!

lolmao500's picture

Latest Italian spread : 442 points.

But it's closed for now. So no doom till it reopens.

Note to self's picture

Holy shit - SOME people must have pissed their pants looking at a 450 bps close.  Oh wait - that would be all of us.

Rainman's picture

.....if..... it reopens

spinone's picture

If that happens forget it all.

scatterbrains's picture

whew! Did BAC push it's CDS on the back of the tax payers just in time or what ? Bitch looks like it could blow any minute.

disabledvet's picture

And there's the crux of the matter. I never argue with the logic, numbers or veracity of ZH and this is why. "these things have a way of cropping up." I would only say two thing: I think the counter argument that bank bailouts (European banks are too big to nationalize-you must agree to that) truly does "ring fence" the catastrophic condition. The second and my argument is far simpler: we'll kill them if they "do that to US." any arguments on my counter?

chet's picture

It's like nearing the end of a game of Jenga. Which sticks can still be safely removed and which are integral? Was it MF Global?  Greece?  Some French Bank?

NewThor's picture

Netflix? Bank of America? Credit Default Swaps?

midgetrannyporn's picture

Color me surprised. </sarcasm>

FutureShock's picture

Yeah well Benny and Timmy know, and the ink is orderd for the IMF. Won't be american debt it will be theirs, we will just get the inflation. Huge gains will be a comming soon. You know what happens when soon is over.

riley martini's picture

USA  Banks lying so it aint so this isn't China. HFT Cadian lost $1,800,000,000 on the MF fraud . Tyler can you do a piece on the holders of MF stock and the bonds they sold last week?

clones2's picture

Will someone please explain this part... If the banks WROTE protection via CDS, and the CDS wont be paid out... dont they just collect that premium?

clones2's picture

I did miss this part... "

The CDS holdings of U.S. banks are almost three times as much as their $181 billion in direct lending to the five countries at the end of June"

Just trying to figure out some of the math on this....

francis_the_wonder_hamster's picture

"dont they just collect that premium?"

They have already collected the premiums and paid them out in bonuses.  All that's left is the liability.......although, theoretically, they have reserved against the payout.

Withdrawn Sanction's picture

theoretically, they have reserved against the payout.

And there's the rub: How does one know? In the first place, the derivatives transactions are off-balance sheet. In the second, the AIG escapade shows there were no reserves....but even if there were, the third killer is the orders of magnitude are all wrong.

Until the banks can show credible evidence and independently verified data on netting, I will take their obfuscations as just so much self-serving BS. Netting my ass...

If one counterparty can bring this whole thing down (and I believe it can), this whole edifice is so fragile Im at a loss for an apt metaphor, though sand castles at high tide springs to mind...

francis_the_wonder_hamster's picture

Indeed, and we are left to wonder, once again, why we didn't get a central clearing platform for OTC derivatives?  Simply amazing that Dodd-Frank failed to address this.....well, maybe not if one begins to understand just how rigged the game is.

I'm not much of one for metaphors, but I'm thinking of some sort of cheerleader pyramid.....but then again, my thoughts too often stray towards cheerleaders.

Mark123's picture

Zero Hedge is the best at ferreting out these skeletons in the closet!!


So the real hedge for the banksters is that governments (by robbing from their citizens) will always bail out the big banks - and all this fancy CDS financial engineering type stuff is just a smoke screen so they can pretend that their rape and pillage business model is quite reasonable and for the good of us all.


Praise Jesus....those banks are such a blessing to us all!

tony bonn's picture

huge kudos to zh for articulating this subject. unregulated derivatives markets are irreducibly complex systems which cannot be modeled with simple constructs. in essence, the media fucktards want to use (so to speak) arithmetic where differential equations are required and are thus impelled to make a plethora of simplifying assumptions to make their elementary school tools work.

fuck the main stream media.


DosZap's picture

tony bonn,


Sad part is most folks authorized to sell them, do not even know WHAT they are.

giddy's picture

Ummm... okay... modeling derivatives is complex... but the notion that you reap what you sow is pretty simple... in fact by overly complicating what should be simple arithmatic and pretending that its possible to hedge all human activity is so full of hubris and vanity that its way beyond merely offensive.  And -- the point of all this crap is not to save mankind or make civilization a better place -- but to enrich a bunch of fuckwads that believe they're the "best and brightest".  Look at history.  Wash, rinse, repeat.  Greed is the basis of its own distruction.      

spartan117's picture



Jim Sinclair has been saying this for what, 5 years now?  Nothing new.  No way to make good on all those CDS out there.

ReallySparky's picture

OT: Tin Foil Hat On... Was pondering last night the MF bankruptcy and lack of balance sheet details, what if the crap (derivatives), BAC moved into the bank against the FDIC wishes had anything to do with the immenent bankruptcy of MF Global.  Sure would be like a Goldmanite to soak the taxpayers again, with the Fed's blessing of course.

TimmyM's picture

Last collateral standing-PMs

MsCreant's picture

On the rise as you speak.

PulauHantu29's picture

Oh Sweet Jesus, I was afraid you were going to bring this "exposure" thing up again.....