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Santelli On CDS Regulation And Why Bank Analysts Failed

Tyler Durden's picture


It would seem, just as during the crisis in 2008/9, that now might be an opportune time to push for 'improvement' in how banks are regulated (and more importantly how the instruments they trade in colossal size are priced and marked-to-market). Rick Santelli believes now has never been a better time but as his guest Tim Backshall of Capital Context notes, regulation of the CDS market can be summed up in one sentence "Get Them On Exchange". Something we have been saying for years (and has been tried before) but with dealers holding all the keys (to market-making) and exchanges cowering for fear of losing clients, we remain less optimistic. Santelli and Backshall critically address the complicity of banks, regulators, analysts, and The Fed in giving 'banks the benefit of the doubt' with regard their use of the bottomless pit of capital they implicitly have but what is more important is for the hordes of sell-side analysts and buy-side sheeple to understand just what this JPM debacle exposes about bank risk (VaR is useless), bank transparency (mark-to-model or worse is widespread), and bank valuation (traditional Price/Book metrics have no merit anymore).



Tim sent over some notes from the call (note they are notes and not clear prose)...

Margin/Collateral – CDS is margined but generally large lines of credit will cover a ton of sins. The problem with these positions is that they are more complex and mark-to-model – so until one side really presses for some margin or collateral – there is no real reckoning – I suspect that is what recently happened.
Regulatory change is simple – exchange trade CDS (some details here on the more complex markets and inability to exchange trade but the largest segment of the CDS market could be on exchange in weeks – it already trades electronically with a number of dealers).

Credit markets have been far less excited about JPM and the big US banks for a couple of months now – post stress tests – equities seemed to believe the hype and momentum did the rest but CDS on JPM, MS, BAC etc did very little and in fact started to deteriorate – JPM at one point was over $5 expensive in stock relative to where its credit market price suggested – today has brought that gap back to zero.

Main lesson from JPM fiasco: banks, regulators and Fed are all complicit in their belief in the ‘benefit of the doubt’ that JPM would not use its risk models in vain – or more simply not take advantage of a bottomless pit of capital to press positions that would otherwise seem untenable.

VaR - since JPM admitted its VaR is meaningless, how long until MS, GS and BAC admit theirs too – VaR simply does not give any useful information on positions that are so levered and non-linear as these tranche positions – things get worse in a hurry.

CDS market in general should be on exchange – at a minimum the major credit indices – only thing holding it back is dealers who make the markets and exchanges who are afraid to upset the dealers.

Synthetic CDO market is likely to be dead now. The whole market is premised on illiquidity and mark to model unrealities that at times mean both sides of a trade can be winners (or losers). I suspect this is what happened here – the other side of the trade Iksil had on started to press their position and forced JPM to realize a mark to market change.

Noone knows how big the hole is – today was worst day in IG9 10Y (the credit index that hinged a lot of the position for JPM) in 6 months. And at $200mm DV01 – this could have been a $1-2bn more loss for JPM – the position is too big to unwind (we know that from the changes in net notionals that DTCC provide) and so they will have to hedge their ‘hedge’ somehow – or face a hedge fund community who smells blood – as it clearly did today. The losses could be huge if we merely get back to pre-LTRO levels of risk

Analysts like Dick Bove who come on and push long positions in banks on the back of earnings, or balance sheet dissection are simply out of their minds – this episode (as we have always known) clearly shows that banks income and balance sheets remain (especially for the biggest banks) opaque at best and manipulated at worst as mark to model, Level 3 assets, and prop trades hidden under the auspice of hedges can flare at any time (ask Boaz Weinstein at Deutsche Bank).

Price to book is irrelevant as an indicator since the book has no value because so little of the real assets are marked to market (or even near) – hence the market discounts them

Also – chatter over gross and net positions in CDS (which we heard so much about from Morgan Stanley) are irrelevant as there is no transparency on the haircut on ‘netting’ means we have no way of knowing how ‘netted’ they are

Bottom line is that anyone estimating an EPS impact of this trade has no idea realistically, there are some huge positions that will run off into year-end (but ithers that remain considerably longer-dated - IG9 10Y) or be hedged and we suspect will create significant gaps (up or down) in various credit markets – but certainly less liquidity and more volatility, and if there was ever a time for regulators/market participants to press for exchange trading of CDS, it is now (though this more complex JPM position would be largely untenable on exchange – and perhaps therein lies the problem)


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Fri, 05/11/2012 - 12:48 | 2417793 Sircornflakes
Sircornflakes's picture

Santelli is great....then again, with hindsight, so is everybody.

Fri, 05/11/2012 - 12:58 | 2417845 ihedgemyhedges
ihedgemyhedges's picture


Funny, Brooksley Born said the same thing in the 90s and Greenspan/Rubin shot that down like a wounded duck trying to get away from 8 hunters unloading on it at 10 feet high......................

Fri, 05/11/2012 - 14:38 | 2418149 Buzzworthy
Buzzworthy's picture

Or like Dick Cheney gunning down one of his hunting buddies.

Fri, 05/11/2012 - 13:02 | 2417854 5880
5880's picture

Floor option Market Makers have been saying this since Clinton changed the rules

We loved when the street would have us quote a Flex option

Fri, 05/11/2012 - 13:16 | 2417913 Gully Foyle
Gully Foyle's picture

"Main lesson from JPM fiasco: banks, regulators and Fed are all complicit in their belief in the ‘benefit of the doubt’ that JPM would not use its risk models in vain – or more simply not take advantage of a bottomless pit of capital to press positions that would otherwise seem untenable."


I'm confused. It strikes me that this JPM money was Corzined. Wasn't the rumor that the money from MF Global went to JPM? Now roughly the same amount is lost by JPM.

Yet no one seems to be making a link.


The final $680 million or so was transferred to other financial institutions with which MF Global did business, including a substantial portion that went to JPMorgan.

Fri, 05/11/2012 - 13:34 | 2417971 Mountainview
Mountainview's picture

How long will they let him do it???

Fri, 05/11/2012 - 13:38 | 2417978 AlaricBalth
AlaricBalth's picture

Firms such as JPMorgan carry a portion of its assets and liabilities at fair value. The majority of such assets and liabilities are measured at fair value on a recurring basis. Certain assets and liabilities are measured at fair value on a nonrecurring basis, including loans accounted for at the lower of cost or fair value that are only subject to fair value adjustments under certain circumstances. Under U.S. GAAP there is a three-level valuation hierarchy for disclosure of fair value measurements. An instrument’s categorization within the hierarchy is based on the lowest level of input that is significant to the fair value measurement. Therefore, for instruments classified in levels 1 and 2 of the hierarchy, where inputs are principally based on observable market data, there is less judgment applied in arriving at a fair value measurement. For instruments classified within level 3 of the hierarchy,which is the classification for all CDS contracts, judgments are more significant. The firm reviews and updates the fair value hierarchy classifications on a quarterly basis. Changes from one quarter to the next related to the observability of inputs to a fair value measurement may result in a reclassification between hierarchy levels.

For instruments classified within level 3 of the hierarchy, judgments used to estimate fair value may be significant. In arriving at an estimate of fair value for an instrument within level 3, management must first determine the appropriate model to use. Second, due to the lack of observability of significant inputs, management must assess all relevant empirical data in deriving valuation inputs – including, but not limited to, transaction details, yield curves, interest rates, volatilities, equity or debt prices, valuations of comparable instruments, foreign exchange rates and credit curves. Finally, management judgment must be applied to assess the appropriate level of valuation adjustments to reflect counterparty credit quality, the firm’s creditworthiness, constraints on liquidity and unobservable parameters, where relevant. The judgments made are typically affected by the type of product and its specific contractual terms, and the level of liquidity for the product or within the market as a whole.

To summarize...the firms are guessing at the valuations. Linear scientific structures, such as valuations models, face severe limitations when applied to complex adaptive financial systems due to the fact that the human behavioral component cannot be measured.

Fri, 05/11/2012 - 13:47 | 2418028 skepticCarl
skepticCarl's picture

Alaric, you put this audience to sleep with facts and analysis.  Give us profanity, rudeness, and the usual cliches, and you'll get more +'s.

Fri, 05/11/2012 - 14:04 | 2418073 AlaricBalth
AlaricBalth's picture

Fuck me...we are fucked. It's all a Ponzi!!! So fuck off!!

(Is that better?)

Fri, 05/11/2012 - 14:12 | 2418088 GeneMarchbanks
GeneMarchbanks's picture

+1 for this one, the previous one I did not care for.

Fri, 05/11/2012 - 16:17 | 2418531 rocker
rocker's picture

I thought both were great. A honest discussion first. 

Then a frustrated with the sytem second.

All in all Santelli proves that he too is another asshole defending the banking system.

Saying, don't look between my sheets.

Fri, 05/11/2012 - 17:56 | 2418815 Iwanttoknow
Iwanttoknow's picture

Both are good.

Fri, 05/11/2012 - 14:12 | 2418083 Xkwisetly Paneful
Xkwisetly Paneful's picture

They're not guessing they are using the most favorable valuation to them available  under the current law.

The solution is not more unaccountable regulators, regulations and even more mountainous reserves basically insuring a smaller and smaller cartel moving forward.  Just like with the health insurance they have successfully perverted governance into the promotion of their own lot in life, stifling competition and using all means within the government to promote their own prosperity. More of the same is not the solution.

Fri, 05/11/2012 - 14:21 | 2418107 Xkwisetly Paneful
Xkwisetly Paneful's picture

BTW huge LOL at the last sentence.

Surely anyone who can drown the audience in the tedium of the vernacular knows that reasonable estimations are possible.  Reasonable, not have no fucking clue, pin the tail on the donkey how can I generate max leverage and enrich myself, maybe call in 20 disconnected physicists and another half dozen never right Ivy league educated economists and go from there estimate.

Fri, 05/11/2012 - 14:40 | 2418156 GeneMarchbanks
GeneMarchbanks's picture

Tracey Jordan: Dr. Spacemen, when they check my DNA, will it tell me what diseases I might get, or help me to remember my ATM PIN code?
Dr Leo Spaceman: Absolutely. Science is whatever we want it to be.

Fri, 05/11/2012 - 23:50 | 2419378 palmereldritch
palmereldritch's picture

  We have no idea where the heart's different in every patient.

Fri, 05/11/2012 - 14:44 | 2418169 AlaricBalth
AlaricBalth's picture

Reasonable estimations work relatively well under a normative distribution scenario, however the incidence of fat-tailed distributions has become more prevalent due to numerous reasons, ie. FRB ZIRP and massaged economic data, which makes historical comparisons within valuation models moot. David Li's now discredited "Copula Function" in relation to the mortgage CDO market proved that these models work fine, until they don't. And then things go to hell damn quickly.  

Fri, 05/11/2012 - 17:41 | 2418780 blunderdog
blunderdog's picture

I haven't quite perfected my model to assign every day of history a numeric value representing its relative historical significance yet, either.

Yesterday was a 531, today was a 724.  If I had to guess, I'd think tomorrow is likely to be in the low 200's.

XP?  Any suggestions?

Fri, 05/11/2012 - 18:50 | 2418923 Xkwisetly Paneful
Xkwisetly Paneful's picture

Given most instances, even an idiot like you can come up with a range  that is close enough.

the guy with the most skin in the game will either have grasp of all potential outcomes or won't have the most skin in the game for long.

the notion that valuations are so complex a reasonable estimate can't be ascertained is ludicrous.



Fri, 05/11/2012 - 19:02 | 2418943 blunderdog
blunderdog's picture

I do believe you've just explained why the system is guaranteed to fail.

Fri, 05/11/2012 - 19:24 | 2418974 Xkwisetly Paneful
Xkwisetly Paneful's picture

Sure, and the reason there is so much latitude under the law is because it is rocket surgery, brain science like has nothing at all to do with using the most favorable valuations possible.

and of course using the most favorable valuations possible has nothing to do with any kind of failure.

No it is because any idiot thinks he can evaluate something and can't-I read it on

Fri, 05/11/2012 - 23:53 | 2419382 palmereldritch
palmereldritch's picture

We have no idea where the brain's different in every patient.

Sat, 05/12/2012 - 11:44 | 2419764 blunderdog
blunderdog's picture

My comprehension of garbled prose is usually pretty good--I briefly did research on aphasics' speech-samples back in college--but you've got a subtle mastery, sir.

Sat, 05/12/2012 - 09:09 | 2419643 HungrySeagull
HungrySeagull's picture

In other words, no Business School or training needed. Just a colored keyboard with extra large keys.

Fri, 05/11/2012 - 14:06 | 2418081 smb12321
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I'm afraid I'm forced to give you a "down" arrow.  Not only did you not use "bitchez" or "sheeple" multiple times you also did not suggest we hang all financial officers, move to the woods and live like serfs or attribute the troubles to a conspiracy.  How dare you try to speak intelligently and cogently on the subject at hand?

Awesome post!  The whole purpose of capitalism / market economy is determining value (the real reason socialism always fails).  Troubles ALWAYS pop up when manipulated values replace real value and nowhere is this more apparent than in "investment banking". 

Fri, 05/11/2012 - 12:49 | 2417803 veyron
veyron's picture

Video was taken down?


I get an Error code 502 and it says "The video you are trying to access is no longer available"

Fri, 05/11/2012 - 12:52 | 2417814 jay28elle
jay28elle's picture

me, too.

Gotta silence the critics?


edited...  it's back.  nevermind.

Fri, 05/11/2012 - 12:49 | 2417804 francis_sawyer
francis_sawyer's picture

All 7 & we'll watch them fall...


Fri, 05/11/2012 - 12:52 | 2417811 The Swedish Chef
The Swedish Chef's picture

"The video you are trying to access is no longer available."

Fri, 05/11/2012 - 12:58 | 2417841 sabra1
sabra1's picture

"The money you are trying to access is no longer available."

Fri, 05/11/2012 - 13:06 | 2417867 francis_sawyer
francis_sawyer's picture

the reality is... there IS no money...

Fri, 05/11/2012 - 13:36 | 2417983 RobD
RobD's picture

True, my niece works at a Chase bank branch and they keep less then 20k in the safe. Funny as hell, has a big walk in safe and there is nothing in it lol.

Sat, 05/12/2012 - 00:00 | 2419390 palmereldritch
palmereldritch's picture

Ironic considering the amount of 'printing' the FED does...can't print the phyzzz tho

Fri, 05/11/2012 - 17:30 | 2418754 cbxer55
cbxer55's picture

I just watched in its entirety. Must be your location.

Fri, 05/11/2012 - 12:52 | 2417815 GeneMarchbanks
GeneMarchbanks's picture

Spains fault.

Fri, 05/11/2012 - 12:52 | 2417817 pan
pan's picture

So where is Blythe in all of this?  What is she doing to keep her job these days?

Fri, 05/11/2012 - 19:09 | 2418956 Freewheelin Franklin
Freewheelin Franklin's picture

Where is Blythe? She's in the JPM vaults covered in chocolate pudding, whipped cream and maraschino cherries....or is that loose, runny feces, semen, and aborted fetuses?

Fri, 05/11/2012 - 12:54 | 2417818 hedgeless_horseman
hedgeless_horseman's picture



What does Rick have against unicorns?

Fri, 05/11/2012 - 12:54 | 2417824 scatterbrains
scatterbrains's picture

"bank transparency (mark-to-model or worse is widespread), and bank valuation (traditional Price/Book metrics have no merit anymore"

Well that's not really important anyway so long as the giant fire hose connecting tax payers lips to Jamie Dimon's ass doesn't get disconnected.


Fri, 05/11/2012 - 12:55 | 2417830 Garristotle
Garristotle's picture

How long before Santelli finally snaps and chokes out someone on the trading floor? He is literally buried alive under tons of hopium every day.

Fri, 05/11/2012 - 13:08 | 2417871 5880
5880's picture

He is probably 5'5", too short to choke anyone down there

He had a COM seat but used brokers to trade 30y Treasury options

too short

Fri, 05/11/2012 - 12:55 | 2417831 Sechel
Sechel's picture

Dodd makes sense, but regulators will always be gamed or captured. That is why we need to limit gov't insurance to only those banking activities the greater economy benefits from. Banks can't have it both ways(rewards without the risk). why not bring back double liability stock and force banks to issue subordinated debt to fund themselves instead of via the Fed and FDIC insurance.

Fri, 05/11/2012 - 13:04 | 2417861 Zero Govt
Zero Govt's picture

Dodd does not make sense, it is a sham

Dodd didn't even address leverage ..none of the 350 plus useless worthless corrupt crones (regulators) in the world have dealt with leverage ..nor has a single politician

Regulation, like the Law, does not work and will never work. Period.

Fri, 05/11/2012 - 13:17 | 2417911 narnia
narnia's picture

The truth is, as long as we have government agencies that feel the need to spend $6.5 trillion and growing annually on a bunch of involuntary purchases, they need a 10% or lower fractional reserve standard with 0% capital requirements on government guaranteed instruments.

Once this behemoth of credit is allowed- or i would even say required- to exist, it's a nuclear stockpile next to a nuclear power plant on a fault line.    

Fri, 05/11/2012 - 12:59 | 2417847 SheepDog-One
SheepDog-One's picture

Thats ok another qualude and the muppets gonna love the analysts again on the next 'stress test'!

Fri, 05/11/2012 - 13:02 | 2417856 Zero Govt
Zero Govt's picture

How would putting CDS's on an exchange clear anything up?

Please in less than a thousand words try to explain given we already have toxic piles of crap quoted on the stock markets (think all the banks in Europe and America) 

people keep thinking the solution to rotten problems is to regulate it

...when the problem is rotten people

regulation does not work (has never worked, will never work) because the regulators are rotten (have a price)

the free market (no rules whatsoever) solves rotten problems by them going to the wall.. all other solutions are a sham ...let's improve our problem solving around here for fucks sake, the debate is just pathetic with non-stop meddlers thinking they have the answer

Fri, 05/11/2012 - 13:10 | 2417888 5880
5880's picture

switching from unknown and unregulated risk to known

options were OTC until the CBOE. CDS and CDOs and swaps brought them back to OTC. A world where you can rip a clients face off and nobody knows for a very long time

you want a world where they make horrible spreads, with commissions, and then run to the market to hedge AFTER it all goes terribly wrong? That was 08

Fri, 05/11/2012 - 13:20 | 2417912 Zero Govt
Zero Govt's picture

a number of people are making a point putting CDS's etc on an exchange will clear up the industry... absolute bollocks

we currently have every bank in Europe and the Big 5 in the US quoted on (regulated by the truckload) stock exchanges and their books are cooked as bad as Enrons. So if their bankrupt books can be made to look fine and dandy what makes anyone in their right mnd think it'll clear up the CDS market????

the solution to frauds selling garbage products is for consumers to wise up (Buyer Beware)

there is no rule based solution to any problem... regulators have failed, the stock exchanges have failed, accountancy and auditing has failed, the Law and Judicial system is a failure, Govt is a tragic rotten farce

...only the free market (works) which means taking some pain sometimes as garbage or fraud is discovered


Fri, 05/11/2012 - 13:18 | 2417914 Apocalicious
Apocalicious's picture

See, breaking up the big banks fixes everything, though, without new regulation. Make them all systemically less important, but if they can't collude and hold the exchanges hostages, threatening to pull all their business if the exchanges list standardized CDS products - cartel over, exchanges would have listed products overnight. CME or CBOE would have had something up long ago if the five or seven banks who dominate their clientele all weren't holding a knife their throat, saying don't take my off exchange business on exchange and I won't take you on exchange business off. If there are 50 banks instead of 5, that collusion becomes a lot harder to manage...

Fri, 05/11/2012 - 13:22 | 2417927 5880
5880's picture


also, the banks load the exchange committees with their guys

they can't say yes or no until they call NY

they killed so much progression

Fri, 05/11/2012 - 13:40 | 2418001 Apocalicious
Apocalicious's picture

Yessir. Chicago guy myself. I'm sorry, nowhere else in the world is there the floor trading expertise on both options and fixed income derivatives as in Chicago. CDS are a perfect fit and they would have been up and running years ago if the banks were not allowed to metasticize into the cartel they are now.

Fri, 05/11/2012 - 13:33 | 2417962 Zero Govt
Zero Govt's picture

" If there are 50 banks instead of 5, that collusion becomes a lot harder to manage..."

Er, no it doesn't (change anything)

..because you're still calling for 1 regulator

5 banks or 50 makes no difference if they only have 1 body (regulator) to corrupt (and they will)

Fri, 05/11/2012 - 13:38 | 2417989 5880
5880's picture

there is no risk control currently

if everything is put into a risk based universal model then where can they hide?

JPM is using their own VAR model, they say

If it's on an exchange then everyone is exposed to the truth

Fri, 05/11/2012 - 13:44 | 2418020 Apocalicious
Apocalicious's picture

Yes, because there is no way banks will find some super genius programmer or mathematician to game a model. You can't control private sector risks. You have to make all the participants small enough so they only matter to the entity taking the risk.

Fri, 05/11/2012 - 15:18 | 2418287 falak pema
falak pema's picture

...You have to make all the participants small enough so they only matter to the entity taking the risk....

Who is yOU?, God, an individual...? 

In 3000 years of western history..."YOU" is government! 

Sat, 05/12/2012 - 09:11 | 2419644 HungrySeagull
HungrySeagull's picture

It may very well come down to keeping score on a pad of paper with pencil.

No money lost and no harm no foul.

Fri, 05/11/2012 - 13:43 | 2418009 Apocalicious
Apocalicious's picture

50 or 5 makes no difference? Are you economically literate at all?

Efficient markets require competition. Please read.


Fri, 05/11/2012 - 14:18 | 2418101 GeneMarchbanks
GeneMarchbanks's picture

Your third link I read to my three year old at night, you know bedtime stories imaginative stuff, so anyway I finish the story and he jumps up and screams "Bullshit!"

Didn't have the heart to punish him for speaking the truth.

Fri, 05/11/2012 - 14:26 | 2418118 Apocalicious
Apocalicious's picture

I'm impressed you're able to read.


I guess I should simply welcome the return to feudalism with open arms, then. Sorry future generations, GeneMarchbanks said freedom is unobtainable, so I give up.

Fri, 05/11/2012 - 14:32 | 2418140 GeneMarchbanks
GeneMarchbanks's picture

Much obliged, I'm rather proud of myself for managing to refrain from laughter as I read aloud. 'Twas not easy.

Feudalism just popped up recently, eh? Yes yes "freedom". Fine. Back to your Infantocracy.

Fri, 05/11/2012 - 14:45 | 2418173 Apocalicious
Apocalicious's picture

Ah Infantocracy. It becomes clearer. We managed to get about as far away from Feudalism as has ever been achieved on this side of the pond, but are being pushed ever closer.


But never mind, friend. I chose the red pill, but some minds can never be freed. Best of luck.

Fri, 05/11/2012 - 13:48 | 2418031 Apocalicious
Apocalicious's picture

Also, you don't allow the regulator to DO ANYTHING OTHER THAN KEEP THEM SMALL. That's an easy and tansparent regulatory process for the public to have oversight on. The more complicated and labrynthian the regulatory framework, the EASIER it is for bad actors to influence. Come on, seriously. You can't honestly argue with that precept...

Fri, 05/11/2012 - 13:58 | 2418039 ebworthen
ebworthen's picture

Zero Govt,


Simple enforcement of contract law and allowing failure would end this.

All the blah-blah-blah 2,000 pages of circumventable regulation and legislation won't do a damn think but make money for attorneys, politicians, and bankers.

This is reducible to simple principles, but modern society is addicted to equivocation and the nebulous opacity of talk, paper, and circular debate.

Simple solution:

-You gamble you lose.

-Loans with 20% down, originator holds the loan for life, no securitization or swaps.

-Savings and deposits, debits and credits, mark-to-reality, cuffs and a cell for law breakers.

This would negate making something out of nothing - which is why it isn't being utilized.

Fri, 05/11/2012 - 17:46 | 2418788 blunderdog
blunderdog's picture

How can contract law be "simply" enforced when every single contract written is dependent on 80,000 pages of precedent and the contents of every law library on Earth?

That's not a joke, BTW.

Fri, 05/11/2012 - 13:06 | 2417866 midgetrannyporn
midgetrannyporn's picture

If only there were another AIG for them to rape the taxpayers with. Counterparty default sounds better than we are stupid greedy lying thieves.

Fri, 05/11/2012 - 13:07 | 2417869 Jim B
Jim B's picture

The banks are playing with fire, I am waiting for it all to blow up.  They are playing with trillions of dollars in phony instruments.  What useful economic activity is actually occurring?  NONE!


A zero hedge article from last Nov estimates total derivatives at 707 Trillion.  The economist puts world GDP at 75 Trillion.  Are we to believe all of these derivatives cancel each other out?


This reminds me of the paper gold market where something is being traded with no corresponding real underlying value.  In other words, people are trading PONZI “obligations”!




Fri, 05/11/2012 - 13:11 | 2417876 falak pema
falak pema's picture

this should have been the US government line in 2008! If you TARP, then  you nationalise and forbid naked derivatives and reinstate Gl-St. It would have stopped contagion THEN. O'bammy didn't and here at ZH all people said was kill the FED, nobody said "REINSTATE PROPER REGULATION AND SEPARATION BIG TIME".

But as the US is totally Oligarchy controlled and government regulation of free market oligarchy is "communism-socialism"; TPTB preferRED to FED-QE the debt and shut the fukk up when it came to reigning in the private Oligarchs. They continued their crazy games world wide with those HF shills riding piggy back. 

ZH loves to deride government controls, loves to deride a central bank which is private and acts private at expense of public, all the while calling it "government controlled PUBLIC KEYNESIAN"; where in reality it is JUST THE OPPOSITE. And now all the PUNDITS want to shut the barn door when the public debt has sky rocketed beyond AL Burj Dubai pinnacle height. We want to reinstall G-ST. NEXT YOU KNOW WE WILL WANT TO SUPER REGULATE DERIVATES.... Zerogovt, will have a heart attack and ZH will have to eat its hat. Or I'll have to relearn my bible at ZH finance, cos I've not understood HOW private capital running the world is in reality PUBLIC controlled. Bizarre...

The US financial system is killing world finance; killing entrepreneurial markets, as ALL markets as FIXED/INTERVENED by the US Oligarchy-FED dump n pump; AND ITS PRIVATE  SECTOR WHO OWNS GOVERNMENT; NOT THE OTHER WAY ROUND.

Wake up! Or tell me how I'm wrong on fundamentals of finance. We do need HONEST government regulation as private OTC "regulation" is Corpocracy personified! 

Fri, 05/11/2012 - 13:27 | 2417949 Apocalicious
Apocalicious's picture

You're missing the point. It doesn't matter if it is state corporatism or corporate statism. Go ahead and chase your tail. The reality is if the population concedes the authority to the government to subsidize industries and/or firms, the problem exists with the form of government, regardless of where the corrupting influence comes from. The role of government is not to put rules, regulation, and oversight in place that will be gamed by the corruptors. The role of government is precisley the opposite - keep the playing field fair, and enforce ownership laws (i.e. make private capital bear both the pain and gain of private investment activity). This means no bail outs, but more importantly enforce anti-trust regulation. We can't get control of the banks if the government pigs we have in place won't do their job. 1950, the top ten banks had less than 50% of the retail deposits. Now, the top 5 have 90%. BREAK. THEM. UP. Make them stand and succeed or fail on their own performance, not because their are only 5 choices and they can all collude...

Fri, 05/11/2012 - 13:43 | 2417994 falak pema
falak pema's picture

Keeping the playing field that something which is IMPOSSIBLE? You seem to think it will always be snake eating the tail. 

You guys have now come to the silly conclusion if PAX AMericana is biting us American people, we have to go back to some pioneer past civilization. Wake Up! You have a population of 330 million; your country is now RM depleted (fossil) and urban dystopian as its suburbia spread and needs cheap energy over long distances with bad/inexistant public transport- water-pollution control-road infrastructure. 

You have lost ALL sense of political balance. You will never have people's direct rule. You will need republican and democratic structures in a Federal framework And you have to make it work. Don't blame the federal government. Make it work honestly and forget your dreams of going back to small governance.

SMALL GOVERNANCE CANNOT WORK IN A WORLD WHERE THE ENTREPRENEURIAL STRUCTURES ARE THE SIZE OF EXXON AND APPLE, TRANSNATIONAL and global.  This is the reality of the world. So stop acting like Lilliputians living in deregulated hopium. 

Fri, 05/11/2012 - 13:53 | 2418043 GeneMarchbanks
GeneMarchbanks's picture

'Don't blame the federal government. Make it work honestly and forget your dreams of going back to small governance.'

Ain't happening. This idea of yours, that Americans are interested in building a government instead of destroying one, is an illusion. Much easier to scream 'End the State' and participate in the mythology of free markets.

Apathy. Decay. Cascading catastrophes, that is the future.

Look away if you can't stomach it.

Fri, 05/11/2012 - 15:06 | 2418232 falak pema
falak pema's picture

lol, too funny in a jaundiced sort of way, the greatest nation since 1945 is so screwed on the political front it can't DEFINE what good governance means and try implement it. Its lost in amercanese transalation. 

Fri, 05/11/2012 - 15:54 | 2418361 GeneMarchbanks
GeneMarchbanks's picture

'Its lost in amercanese transalation.'

Completely. Pragmatic problem solving is almost entirely lost. No one interested in this calling for citizen duty, why? It requires some sacrifice unlike the Corporate Temple which is all self interest no self responsibility.

In one sense, it IS government by the people. Problem is the people have adopted the corporate attitude.


Fri, 05/11/2012 - 17:55 | 2418811 blunderdog
blunderdog's picture

    This idea of yours, that Americans are interested in building a government instead of destroying one, is an illusion. Much easier to scream 'End the State' and participate in the mythology of free markets.

The folks who do the most posting here are all total fringe loonies. Don't think that the Randian/Anarchist/Libertarian/Bircher/whatever-the-fuck vibe around here has anything to do with the views of "The American People."  Very very few Americans believe that you can keep the lights on without the Feds in charge.

Most folks are actually happy with the *existence* of the government--they just hate "those guys" who screwed up the last whatever.

I find it a bit depressing myself, but c'est la vie.

Fri, 05/11/2012 - 13:53 | 2418048 Apocalicious
Apocalicious's picture

Oh, you are a trip. So the evil ruler who has declared himself the universal monarch and built a tyrannical regime dictating our actions isn't a bad GOVERNANCE model. It's just a bad guy.


Um, Exxon isn't what I would call entrepeneurial. Corporate, industrial, yes, but not entrepenurial. Maybe an english as a second language thing, huh, motherchod.


And thank you for highlighting the fact that allowing businesses to grow to quasi monoplies or oligopolies is precisely the problem. Big business is the problem. But the guy I hired who was tasked with ensuring that big business didn't get to be the problem, is now directly on the payroll of big business. So, yes, I want to fire that ass hole, dimwit.

Fri, 05/11/2012 - 15:13 | 2418253 falak pema
falak pema's picture

the evil ruler that runs modern society is the PEOPLE; for, of and by the PEOPLE...remember that???

That is what government is about defending that principle. WHat evil ruler can match the WILL of the people to have that executed? Don't hide in the skirts of populist impotence. You belong(ed?) to a nation that UNDERSTOOD that SIMPLE principle. Making it the bedrock again should be possible; as its already been done! If the American people were truly motivated it would happen again. If it doesn't then you have lost it! So don't use excuses! 

You don't have to invent the MOON to go back to good honest governance of that SIMPLE PAST PRINCIPLE. Its not gobbledygook. 'Cos its been done. Make it happen again. It's as simple as that! 

Sat, 05/12/2012 - 01:26 | 2419465 StychoKiller
StychoKiller's picture

Hmm, thinking is hard work!  How many cheeseburgers will 1Toz buy?

Fri, 05/11/2012 - 13:32 | 2417964 Apocalicious
Apocalicious's picture

"HOW private capital running the world is in reality PUBLIC controlled."


Because they are manipulating the government (PUBLIC). How can you not understand it? If they take over the government, and the government FORCES me to do something, well, I don't have a choice.  That's the law. If it were really private sector, I could simply not do buinsess with them. Corrupting influences have taken over the government, hence it is PUBLIC CONTROLLED. I can't tell the Fed or the IRS to f off because they can put me in prison.


Come on, you really can't be so obtuse...

Fri, 05/11/2012 - 15:39 | 2418358 falak pema
falak pema's picture

If the people of the united states collectively challenged the way the FED, instrument of Oligarchy worked, it could SPIKE it to impotency; wake up! Use due process of LAW! But to do that the people have to be united! DO YOU KNOW WHAT THAT MEANS?

Fri, 05/11/2012 - 13:27 | 2417939 LawsofPhysics
LawsofPhysics's picture

Regulation or transparency motherfuckers, what is it going to be?  Pick one or kill all paper.  This has been played out several times before throughout history.

Fri, 05/11/2012 - 13:39 | 2417986 virgilcaine
virgilcaine's picture

You mean the pimps and pros still run free on Wall St?? Unbelievable. Dimon is the pimp daddy of them all... what a farce.

Fri, 05/11/2012 - 13:49 | 2418036 El Viejo
El Viejo's picture

You mean someone in banking executed a non-regulated transaction???

why they all need to be null and voided right now!


Fri, 05/11/2012 - 13:52 | 2418041 roguetraderinchicago
roguetraderinchicago's picture

"Mark to Model"!?!?  Are you kidding me?  I would love to be able to mark my postions to "model".


This is all so simple to clean up that it undermines any potnetial condifence in the sysstem due to the fact that it is allwed to occur.

Fri, 05/11/2012 - 14:45 | 2418170 Papasmurf
Papasmurf's picture

Derivatives trading, default swaps etc needs to be removed from the taxpayer guaranteed banking system. Turn banking back into a low margin business that facilitates economic activity instead dealing in in weapons of mass desctruction. 

Fri, 05/11/2012 - 14:49 | 2418180 SqueekyFromm
SqueekyFromm's picture

OH, this needs an Irish Poem:

There once was a banker named Dimon.

Who noticed his stock WASN'T climbin'.

'Cause the Big London Whale,

Hedged the eggs in ONE pail.

Which showed neither Reason nor Rhymin'.


Squeeky Fromm, Girl Reporter

Fri, 05/11/2012 - 15:35 | 2418339 Spigot
Spigot's picture

Well, Squeek, I think you're giving the Limeric King a run for his money.

Fri, 05/11/2012 - 16:05 | 2418470 MrButtoMcFarty
MrButtoMcFarty's picture

Bankster Dimon Fuck

No Moral Hazard All Fraud

The Sheep Just Don't Care

Fri, 05/11/2012 - 18:30 | 2418884 SqueekyFromm
SqueekyFromm's picture

OH, haiku!!!

Drooping May flowers

Be-sodden with much water

Whale carcasses rise


Squeeky Fromm

Girl Reporter

Fri, 05/11/2012 - 21:28 | 2419127 indio007
indio007's picture

In other news, JPM foreclosure litigation goes into turbo mode!

They needs themselves some Tier 1 Capital 

Sat, 05/12/2012 - 09:16 | 2419648 HungrySeagull
HungrySeagull's picture

Watch the "Hudsucker Proxy" and see which one gets the dreaded mail floor clearing blue letter.

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