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

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Tue, 11/01/2011 - 14:02 | 1833225 Zero Govt
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

Tue, 11/01/2011 - 14:14 | 1833299 Things that go bump
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.  

Tue, 11/01/2011 - 15:07 | 1833603 LFMayor
LFMayor's picture

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

Tue, 11/01/2011 - 15:25 | 1833697 Things that go bump
Things that go bump's picture

Study much history?

Tue, 11/01/2011 - 15:40 | 1833763 LFMayor
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". 

Tue, 11/01/2011 - 13:57 | 1833183 Kassandra
Kassandra's picture

Insanity...down the rabbit hole again.

Tue, 11/01/2011 - 14:09 | 1833242 Zero Govt
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

Tue, 11/01/2011 - 13:57 | 1833184 Ruffcut
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.

Tue, 11/01/2011 - 14:10 | 1833276 Jay Gould Esq.
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.

Tue, 11/01/2011 - 22:08 | 1835295 UP Forester
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....

Tue, 11/01/2011 - 13:57 | 1833188 maxw3st
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.

Tue, 11/01/2011 - 14:18 | 1833319 iDealMeat
iDealMeat's picture

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

Tue, 11/01/2011 - 19:47 | 1834915 ToddGak
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.

Tue, 11/01/2011 - 20:25 | 1835045 AE911Truth
AE911Truth's picture

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

When the SHTF the CDS sellers will claim

Tue, 11/01/2011 - 13:57 | 1833191 bank guy in Brussels
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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. »

Tue, 11/01/2011 - 18:22 | 1834612 disabledvet
disabledvet's picture

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

Wed, 11/02/2011 - 00:32 | 1835681 canuck
canuck's picture

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

Tue, 11/01/2011 - 13:58 | 1833197 Thepnr
Thepnr's picture

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

Tue, 11/01/2011 - 15:02 | 1833581 Uchtdorf
Uchtdorf's picture

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

Tue, 11/01/2011 - 15:14 | 1833637 Vergeltung
Vergeltung's picture

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


Tue, 11/01/2011 - 14:00 | 1833211 lolmao500
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“The big problem with all these gross exposures is counterparty risk. When the CDS is triggered due to default, will those counterparties be standing?


Tue, 11/01/2011 - 14:52 | 1833446 Mercury
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.

Tue, 11/01/2011 - 15:51 | 1833847 Bearish News
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ISDA [CDS] Determinations Committee:

Tue, 11/01/2011 - 19:46 | 1834905 Withdrawn Sanction
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.

Tue, 11/01/2011 - 14:02 | 1833218 reader2010
reader2010's picture

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

Tue, 11/01/2011 - 14:01 | 1833220 lolmao500
lolmao500's picture

Latest Italian spread : 442 points.

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

Tue, 11/01/2011 - 14:05 | 1833245 Note to self
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.

Tue, 11/01/2011 - 18:36 | 1834645 Rainman
Rainman's picture

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

Tue, 11/01/2011 - 14:02 | 1833221 spinone
spinone's picture

If that happens forget it all.

Tue, 11/01/2011 - 14:03 | 1833231 scatterbrains
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.

Tue, 11/01/2011 - 18:31 | 1834634 disabledvet
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?

Tue, 11/01/2011 - 14:04 | 1833235 chet
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?

Tue, 11/01/2011 - 21:19 | 1835171 NewThor
NewThor's picture

Netflix? Bank of America? Credit Default Swaps?

Tue, 11/01/2011 - 14:05 | 1833249 midgetrannyporn
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Color me surprised. </sarcasm>

Tue, 11/01/2011 - 14:07 | 1833256 FutureShock
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.

Tue, 11/01/2011 - 14:09 | 1833257 riley martini
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?

Tue, 11/01/2011 - 14:07 | 1833262 clones2
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?

Tue, 11/01/2011 - 14:09 | 1833271 clones2
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....

Tue, 11/01/2011 - 15:29 | 1833723 francis_the_won...
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.

Tue, 11/01/2011 - 19:55 | 1834957 Withdrawn Sanction
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...

Wed, 11/02/2011 - 11:29 | 1836928 francis_the_won...
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.

Tue, 11/01/2011 - 14:08 | 1833265 Mark123
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!

Tue, 11/01/2011 - 14:18 | 1833275 tony bonn
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.


Tue, 11/01/2011 - 14:45 | 1833486 DosZap
DosZap's picture

tony bonn,


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

Tue, 11/01/2011 - 19:30 | 1834852 giddy
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.      

Tue, 11/01/2011 - 14:11 | 1833279 spartan117
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.

Tue, 11/01/2011 - 14:13 | 1833290 ReallySparky
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.

Tue, 11/01/2011 - 14:14 | 1833296 TimmyM
TimmyM's picture

Last collateral standing-PMs

Tue, 11/01/2011 - 14:21 | 1833334 MsCreant
MsCreant's picture

On the rise as you speak.

Tue, 11/01/2011 - 14:15 | 1833302 PulauHantu29
PulauHantu29's picture

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

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