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TBTF Get TBTFer: Top 5 Banks Hold 95.7%, Or $221 Trillion, Of Outstanding Derivatives

Tyler Durden's picture





 

Every quarter the Office of the Currency Comptroller releases its report on Bank Derivative Activities, and every quarter we find that the Too Big To Fail get Too Bigger To Fail. To wit: in Q4 2011, of the total $230.8 trillion in US outstanding derivatives, the Top 5 banks (JPM, BofA, Morgan Stanley, Goldman and HSBC) accounted for 95.7% of all Derivatives. In some respects this is good news: in Q2, the Top 5 banks held 95.9% of the $250 trillion in derivatives. Unfortunately it is also bad news, because $220 trillion is more than enough for the world to collapse in a daisy chained failure of bilateral netting (which not even all the central banks in the world can offset). What is the worst news, is that the just released report indicates that in addition to everything else, we have now hit peak delusion, as banks now report to the OCC that a record high 92.2% of gross credit exposure is "bilaterally netted." While we won't spend much time on this issue now, it is safe to say that bilateral netting is the biggest lie in modern finance (read How US Banks Are Lying About Their European Exposure; Or How Bilateral Netting Ends With A Bang, Not A Whimper for an explanation of this fraud which was exposed completely in the AIG collapse). And just to put this in global perspective, according to the BIS in the first half of 2011, global derivative gross exposure increased by $107 trillion to a record $707 trillion. It will be quite interesting to get the full year report to see if this acceleration in gross exposure has increased. Because if it has, we will now know that in 2011 European banks were forced up to load up on several hundred trillion in mostly interest rate swap exposure. Which can only mean one thing: when and if central banks lose control of government bond curves, an rates start moving wider again, the global margin call will be unprecedented. Until then we can just delude ourselves that central planners have everything under control, have everything under control, have everything under control.

Top 5 bank derivative exposure:

Exposure by bank:

 

And the delusion that everyone is somehow hedged. To the tune of $230 trillion!

Source: OCC

 


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Mon, 03/26/2012 - 16:03 | Link to Comment Chief KnocAHoma
Chief KnocAHoma's picture

So what. Some bets go one way, some the other. It will come out in the wash.

In the meantime - Mama wants a Trademark! http://annoyanidiot.blogspot.com/

 

Mon, 03/26/2012 - 16:06 | Link to Comment Theta_Burn
Theta_Burn's picture

Dated a girl that was bilateral... I highley recommended it

Mon, 03/26/2012 - 16:11 | Link to Comment MillionDollarBonus_
MillionDollarBonus_'s picture

This hatred of the too-big-to-fail concept is indicative of a totally unjustified bias toward small business vs. larger more reputable corporations. I’m personally sick of this ridiculous prejudice. We DON’T NEED tons of new small businesses. We already have plenty of large corporations that provide all the services and products we require. Furthermore, many of these corporations have good relationships with government officials, which shows that they support American values.  

Mon, 03/26/2012 - 16:13 | Link to Comment Ahmeexnal
Ahmeexnal's picture

LET.THEM.EAT.DERIVATIVE.PIE

Mon, 03/26/2012 - 16:17 | Link to Comment The Big Ching-aso
The Big Ching-aso's picture

 

 

As long as no TBTF has to pay out on their derivatives we should be okay.   Okay as shit balls, but ok.

 

Mon, 03/26/2012 - 16:19 | Link to Comment Nothing To See Here
Nothing To See Here's picture

This is just an accounting problem. Here, I printed a couple more zeroes to that revenue column. Problem fixed.

Mon, 03/26/2012 - 20:41 | Link to Comment Stax Edwards
Stax Edwards's picture

MDB seems to be working on his thesis in behavioral econ.  This is one of your better comments MDB, bravo. 

Brawndo FTW!

Mon, 03/26/2012 - 16:58 | Link to Comment LuKOsro
LuKOsro's picture

Oh the weather outside is frightful, 
But the fire is so delightful,
And since we've no place to go,
Let It Snow! Let It Snow! Let It Snow!

 

http://journey-to-alpha.blogspot.co.uk/2012/03/gold-surges-as-chairman-bernanke.html

Mon, 03/26/2012 - 16:18 | Link to Comment Theta_Burn
Theta_Burn's picture

  That particular dish is reserved for anal.ists

Mon, 03/26/2012 - 16:15 | Link to Comment centerline
Mon, 03/26/2012 - 16:20 | Link to Comment Buckaroo Banzai
Mon, 03/26/2012 - 16:39 | Link to Comment centerline
centerline's picture

When my "ship comes in," that is exactly what I would expect to see.

Mon, 03/26/2012 - 17:16 | Link to Comment WonderDawg
WonderDawg's picture

It's easy to grin when your ship comes in and you've got the stock market beat...

Mon, 03/26/2012 - 17:21 | Link to Comment i_fly_me
i_fly_me's picture

My dingy is bigger than your whole boat!

Tue, 03/27/2012 - 01:18 | Link to Comment A Nanny Moose
A Nanny Moose's picture

I hate the ocean, I'll stick to the failroad.

Mon, 03/26/2012 - 16:24 | Link to Comment monopoly
monopoly's picture

MDB. In case you are not aware the majority of business hiring is done by small business, not large corporations.

Tyler, where did you find this guy?

Mon, 03/26/2012 - 16:40 | Link to Comment MillionDollarBonus_
MillionDollarBonus_'s picture

So ... ? That is completely irrelevant to my point. There are already PLENTY of large corporations providing all the goods and services we need. Starting your own business has become nothing but a self-satisfying and gratuitous pursuit. It also has many unhelpful connotations such as those of “fighting the man” or “rebelling against authority” which have become quite wearisome to say the least. There are plenty of opportunities for entrepreneurs WITHIN the current corporate framework. They can join a franchise like McDonalds, or they can work their way up into a top managerial position in a reputable Fortune 500 company. There is simply NO NEED to ‘compete’ with respected corporations.

Mon, 03/26/2012 - 16:40 | Link to Comment monopoly
monopoly's picture

So you expect the millions of those out of work to line up in front of a large company and get a job to provide the goods and services we need. What the hell are you talking about. You think there is enough work from the large corporations to hire them all. And what is wrong with a "self-satisfying pursuit". That is what America is all about. Or was. Start a business, be successful, hire, help others and make a profit. 

You do not make any sense, but then again you never did. 

Mon, 03/26/2012 - 17:08 | Link to Comment MillionDollarBonus_
MillionDollarBonus_'s picture

You think there is enough work from the large corporations to hire them all

Well large reputable corporations WOULD be able to hire them if there weren’t so many “small businesses” stealing their market share. Starting a small business is not only a selfish pursuit, but it also threatens the jobs of many hard-working Americans working at top corporations who often need to start unions just to defend their way of life. Everyone likes to talk about the jobs small businesses create, but nobody wants to talk about the jobs they destroy at reputable competing firms.

Mon, 03/26/2012 - 17:14 | Link to Comment Ned Zeppelin
Ned Zeppelin's picture

MDB is the greatest of the fake trolls. Truly, comic genius at work.

Who needs small business when big businesses can handle everything?

Mon, 03/26/2012 - 17:19 | Link to Comment WonderDawg
WonderDawg's picture

No doubt. The guy is hilarious. I think this thread might be one of his more ingeniuous efforts. Small business stealing jobs from large corporations. I gotta LMFAO on that one.

Mon, 03/26/2012 - 17:15 | Link to Comment Chupacabra-322
Chupacabra-322's picture

@ MDB,

You're a Fascist piece of shit. 

Mon, 03/26/2012 - 23:37 | Link to Comment Hulk
Hulk's picture

Its called humor you ditz...I can't even fucking believe that MDB gets the number of panties all waded up that he does

Mon, 03/26/2012 - 17:21 | Link to Comment MeelionDollerBogus
MeelionDollerBogus's picture

How is hiring a theft of job market-share?

Mon, 03/26/2012 - 17:23 | Link to Comment MeelionDollerBogus
MeelionDollerBogus's picture

The fair, respectful big business environment of American values that MDB supports so much:

http://www.youtube.com/watch?v=F4RdPBImnuE

Mon, 03/26/2012 - 16:42 | Link to Comment monopoly
monopoly's picture

I think MDB is a plant that Tyler pays to see if we all break down and start twirling our beads. I just know it. :)

Mon, 03/26/2012 - 16:57 | Link to Comment ChrisFromMorningside
ChrisFromMorningside's picture

MDB = ZH's resident Jester. He's here to humor us by lampooning mainstream opinion. You're slow to catch on. :-P

Mon, 03/26/2012 - 17:16 | Link to Comment skepticCarl
skepticCarl's picture

Monopoly, you've been punk'd.

Mon, 03/26/2012 - 17:06 | Link to Comment Random_Robert
Random_Robert's picture

"There are plenty of opportunities for entrepreneurs WITHIN the current corporate framework. They can join a franchise like McDonalds, or they can work their way up into a top managerial position in a reputable Fortune 500 company."

That is a complete fallacy.

There are always more entrepreneurs than there are corporations for them to join.

Competition is healthy. Corporate oppression is not.

Mon, 03/26/2012 - 17:21 | Link to Comment falak pema
falak pema's picture

I know its a bit like having sex when you're Pope, or a cardinal. But when you read the history they were at it all the time! WHy oh why did they want to compete with the common man in such common ways! There was NO NEED to 'compete'. They all wore red hats and had a golden ticket thru the pearly gates! Sooo respectable...

Mon, 03/26/2012 - 18:00 | Link to Comment I Am Ben
I Am Ben's picture

I don't understand the downvoters.

 

You make Perfect Sense.

Mon, 03/26/2012 - 18:03 | Link to Comment I Am Ben
I Am Ben's picture

Ctrl+P stuck

Mon, 03/26/2012 - 16:24 | Link to Comment LongSoupLine
LongSoupLine's picture

 

 

"...these corporations have good relationships with government officials, which shows that they support American values." - MDB

 

LMAO...I just soiled myself!  MDB, you continue to be top troll, hands down!

Mon, 03/26/2012 - 16:28 | Link to Comment DaveyJones
DaveyJones's picture

their relationships are so good, I'd say they were sexual

Mon, 03/26/2012 - 16:37 | Link to Comment rodocostarica
rodocostarica's picture

Another good one MDB. The more I read your posts the more I appreciate your brand of humor and sarc.  Im now greening you every post. Way to go man.

Mon, 03/26/2012 - 16:56 | Link to Comment Schmuck Raker
Schmuck Raker's picture

Much better MDB, you'd been slackin'.

Mon, 03/26/2012 - 16:57 | Link to Comment eatthebanksters
eatthebanksters's picture

MDB go back to econ 1...Perfect competiton is much better than oligopolies.  Big banks can do more things than small banks because of their size, but they do less thingsas well.  They are so bloated and so formula driven that they cannot do customized banking except for the largest clients.  We've seen the results of their processes..the housing crisis is one of those.  They cannot be profitable any more working off of spreads on loans, they need to create financially engineered products where someone MUST lose for them to make their profits  (GS - Abacus as an example).  Big is not bad if it is honest and efficient, the problem is the big banks today lie, cheat and steal...their size proposes systemic risk and their actions highten that risk.  I for one would rather see 10,000 small banks replace the TBTF banks.  I would like to see lending become personal again, where the banker knows his client and can help solve problems with wise solutions (instead of creating more problems).  Let's the borrowers of big money syndicate their deals; like they used too.  And fuck London, if those guys want to do stupid risky deals, let them. I'don' know if you're a big banker who really believes what he says, if you are being sarcastic or are truly just a fucking moron...it really doesn't matter as long as we don't listen to people like you.

Mon, 03/26/2012 - 17:16 | Link to Comment falak pema
falak pema's picture

lol, your circular tongue in cheek is awesome. You could swallow your tail and enjoy eating your own eyes as the lights go pop!

Mon, 03/26/2012 - 17:19 | Link to Comment MeelionDollerBogus
MeelionDollerBogus's picture

Reputable like Bank of America stealing everyone's homes and mass forgery? http://www.youtube.com/watch?v=EKmz1vCuNQk

or reputable like MF Global's Jon Corzine authorizing stealing seg-funds money to pay off his personal bad choices of investments and filing the wrong bankruptcy (ch 11) to stop customers from getting delivery of their grains, gold & silver?

MDB? What does "reputable" mean to you?

Is stealing now a good market American value to you, mini-B?

We need tons of honest businesses unlike the ones we have now, and I hope they are mid-sized instead of too small or too big.

What we have now is too crooked to fail as these companies break laws & buy their way out of jail.

Mon, 03/26/2012 - 17:55 | Link to Comment No OB Wan Kenobe
No OB Wan Kenobe's picture

Good one MDB. You are outdoing yourself.

Mon, 03/26/2012 - 17:56 | Link to Comment Savyindallas
Savyindallas's picture

you are one stupid motherfucker. I can't help believe that most of the people approving your post thought that you were being facecious and sarcastic. You deserve to be a serf sucking your master's dick every day

Mon, 03/26/2012 - 21:14 | Link to Comment ClassicalLib17
ClassicalLib17's picture

Sweet nectar of bourbon, MDB,  you hit a home run.  You're back in the game , baby.  Bravo

Mon, 03/26/2012 - 23:33 | Link to Comment Subliminal messenger
Subliminal messenger's picture

"Furthermore, many of these corporations have good relationships with government officials, which shows that they support American values."

What American values are you talking about?

Bomb Iraq values for Halliburton values?

Torture Central Americans for United Fruit Company values?

Attack Iran to save the soon-to-be-valueless USD values?

 

Tue, 03/27/2012 - 05:25 | Link to Comment Subliminal messenger
Subliminal messenger's picture

MDB, can you explain me why the United States has an average monthly trade deficit of 45 billion dollars if there are plenty of large corporations to provide all the services and products you require?

Mon, 03/26/2012 - 16:14 | Link to Comment Gully Foyle
Gully Foyle's picture

Theta_Burn

But was she symmetric?

Mon, 03/26/2012 - 16:26 | Link to Comment Theta_Burn
Theta_Burn's picture

ALWAYS a asymmetrical exclusion zone...

Mon, 03/26/2012 - 16:54 | Link to Comment ChrisFromMorningside
ChrisFromMorningside's picture

Unless one major party in the derivative chain goes under and the entire netting chain is broken. Then the banking sector would experience net losses in the trillions of dollars and central banks would either have to take on a new bailout of historic proportions or allow a systemic meltdown of the 20 largest banks in the Western world.

But that could never happen, could it? 

Mon, 03/26/2012 - 17:59 | Link to Comment Uber Vandal
Uber Vandal's picture

GDP of the PLANET : $61.96 Trillion.

Notional value of derivatives of "top 5" banks: $221 Trillion.

What can possibly go wrong?

Tue, 03/27/2012 - 01:12 | Link to Comment A Nanny Moose
A Nanny Moose's picture

"I am Trayvon"

"Frankied Says Relax."

Mon, 03/26/2012 - 16:06 | Link to Comment LongSoupLine
LongSoupLine's picture

 

 

Yeah, but AAPL hit a new high, so all's ok.

 

Oh...and Maria "my voice etches diamonds" Bartiromo says it's "time to take on more risk"

Mon, 03/26/2012 - 16:05 | Link to Comment SilverTree
SilverTree's picture

So, currently, what is the total world money suply? 

Mon, 03/26/2012 - 16:13 | Link to Comment Theta_Burn
Theta_Burn's picture

     Dude, no trick questions please....

Mon, 03/26/2012 - 16:10 | Link to Comment SilverTree
SilverTree's picture

I forgot a "p".

 

>Ctrl+p

 

fixed.

Mon, 03/26/2012 - 16:11 | Link to Comment francis_sawyer
francis_sawyer's picture

In this case... I think it's >ctrl+V

 

"v" for "vaporized"

Mon, 03/26/2012 - 16:16 | Link to Comment centerline
centerline's picture

Funny. That is what I was going to write!

Mon, 03/26/2012 - 16:19 | Link to Comment Sudden Debt
Sudden Debt's picture

Pi

Mon, 03/26/2012 - 17:19 | Link to Comment Chupacabra-322
Chupacabra-322's picture

@ Silvertree,

I don't know.  But Webster Tarpley last said the Derivertives market total was 1.5 Quadrillion.  In fake debt of course. 

Mon, 03/26/2012 - 16:06 | Link to Comment CClarity
CClarity's picture

Which is why the banks remain in charge and will never have to reduce risk meaningfully cuz they're just TBTF and they know that politicos and regulators and thus taxpayers will bail bail bail them out again and again.

Mon, 03/26/2012 - 16:40 | Link to Comment you enjoy myself
you enjoy myself's picture

indeed.  i'm wondering how it would play out if someone like BAC just said "yeah, Basel 3, uh, fuck that".  seriously, what could anyone do? 

Mon, 03/26/2012 - 17:27 | Link to Comment AgShaman
AgShaman's picture

When they're finished burnin' this mutha to the ground....

I'll bet there's plenty of actors in Washington D.C. that can keep a straight face when they wanna convince the unwashed masses about how it's in their best interest to go back to using Tally Sticks

Mon, 03/26/2012 - 16:08 | Link to Comment francis_sawyer
francis_sawyer's picture

  $220 trillion is more than enough for the world to collapse in a daisy chained failure of bilateral netting (which not even all the central banks in the world can offset).

That's why we need the alien invasion to start now!... NOW DAMMIT!

Mon, 03/26/2012 - 17:16 | Link to Comment LouisDega
LouisDega's picture

I have my Rock and roll McDonalds costume in the closet.

Mon, 03/26/2012 - 16:08 | Link to Comment Frank N. Beans
Frank N. Beans's picture

hey it's only Monopoly money -- it's not REAL money.

 

Mon, 03/26/2012 - 16:21 | Link to Comment Gully Foyle
Gully Foyle's picture

Frank N. Beans

"hey it's only Monopoly money -- it's not REAL money."

Finally someone gets it, it's all fiction.

Korzybski the semanticist pointed out that the rich owned all real wealth, land and minerals for example, and have forever. That anything but those was fictitious wealth.

Our digital wealth represents nothing, it is just numbers. Even Gold is a medium and truly not representitive of wealth. You may as well use bottlecaps.

People assume that something tangible is sucked out of the system if there is a collapse. Not so it merely allows the cou8nters to reset to zero.

Reset to zero with a new single standard that has no competition and no fluctuation.

Meanwhile all the true wealth is already taken and never will be returned.

 

Mon, 03/26/2012 - 16:45 | Link to Comment walküre
walküre's picture

But the bitches living in Upper Manhattan with penthouses overlooking Central Park sure sleep well at nights, thinking that their billions of paper wealth are going to enable them this lifestyle forever.

There lies the problem. If a challenger would declare their paper wealth completely useless and worthless, then we could have real democracy and real opportunity for all.

As long as the paper wealth gets accepted as currency, and THEY control the amount of currency they need on a day to day basis, there will be no collapse or reset.

Mon, 03/26/2012 - 17:22 | Link to Comment Gully Foyle
Gully Foyle's picture

walküre

You don't seem to understand, everything is moving toward that New World Order people fear. One world government, one world currency, one world bank.

Collapse and reset are necessary for that to happen.

Everyone needs to sit at roughly the same table. Welfare state needs to become a hybrid with the Capitalist state.

Look around it is all moving as planned.


Mon, 03/26/2012 - 17:23 | Link to Comment ChrisFromMorningside
ChrisFromMorningside's picture

I'm not too familiar with Korzybski (although I just looked him up, seems like great reading) but that particular claim doesn't seem to hold water in my eyes. The rich in 2012 seem quite disconnected from real wealth. Can you really imagine the twerps on Wall Street trying to physically seize the nation's land? Or any hard physical assets? These aren't the days of yore where the wealthy directly owned and personally physically managed the control of their own assets. For the most part, they only have direct control of pixels on a screen.

In a real SHTF scenario, I think many of these "wealthy" individuals would be left with their Manhattan condos, expensive warddrobes and jewelry but not much else. The way I see it, Wall Street and the political classes / "intelligentsia" in D.C. have a very, very tenuous grip on their power. It wouldn't take much for things to spiral out of their control. Which is why I think we're seeing things like the NDAA, militarization of police, rise of FEMA, etc. In a real SHTF scenario, the military is probably taking control of this nation. 

Mon, 03/26/2012 - 22:04 | Link to Comment Moon Pie
Moon Pie's picture

What is true wealth?  Riches and true wealth often are not the same thing.  Value is another thing entirely.

I am all with the idea that the wealthy exploit the productive energy of the average man or woman, but that has always been the case throughout history.  But here, in the present time, in America at least, the idea was to limit or abolish tyranny. 

Yeah, so we knocked off a monarchy in order to declare and institue that idea, but dozens of other little "monarchies" have sprung up and have leveraged "protectors and defenders" of the Constitution to a point so that they have their realms and fiefdoms, increasingly outside of the law.  Naked Capitalism has a great piece on this today. 

It's going to take someting pretty darn big to quash these new tyrannies. 

Some of the "wealthiest" people I know barely have enough aside for their own burial.  I also know some of the most wretched people with incalcuable riches.  That's not to say some people with riches aren't also "wealthy" and vice versa.

 

Mon, 03/26/2012 - 16:26 | Link to Comment Sudden Debt
Sudden Debt's picture

But you'll pay it back in taxes with real money

Mon, 03/26/2012 - 16:09 | Link to Comment MFL8240
MFL8240's picture

Good to hear, hope they all go under and Blankfied and Dimon are destroyed up by stockholdres.

Mon, 03/26/2012 - 16:10 | Link to Comment i_fly_me
i_fly_me's picture

Technically speaking, the US and Russian nuclear arsenals are bilaterally netted too.  Sleep well children.

Mon, 03/26/2012 - 16:14 | Link to Comment francis_sawyer
francis_sawyer's picture

Here's a documentary video on how it all plays out...

http://www.youtube.com/watch?v=HzF_TbmDH5s

Mon, 03/26/2012 - 16:11 | Link to Comment YesWeKahn
YesWeKahn's picture

This is why Bernank is printing 500 billion here, 600 billion there to control this thing. One day when he wakes up, he will have to print 500000 trillion to save this world.

Mon, 03/26/2012 - 16:22 | Link to Comment blu
blu's picture

If that's all he has to do, then he'll do it and go right back to bed. We wonder tho if by then even that amount will make a dent.

Mon, 03/26/2012 - 16:11 | Link to Comment DaveyJones
DaveyJones's picture

well, I feel better

Mon, 03/26/2012 - 16:12 | Link to Comment Seasmoke
Seasmoke's picture

I see Buffett and WF are not on that list

Mon, 03/26/2012 - 16:18 | Link to Comment Widowmaker
Widowmaker's picture

Good eye.

Mon, 03/26/2012 - 16:15 | Link to Comment I am a Man I am...
I am a Man I am Forty's picture

Big deal, we see how this works now, they just put things on hold until the banks can hedge or get out of their positions before someone yells game on.  If things are not netted out when the shit hits the fan, they will position themselves that they are before they push things over a cliff.  Sort of like GS did in subprime (except they will let the counterparty get ready) and the way the Greece CDS was handled.  Fuck this centrally planned economy.

Mon, 03/26/2012 - 16:15 | Link to Comment spanish inquisition
spanish inquisition's picture

Bilateral. So the Fed is bailing out the private owners of the Fed?

Mon, 03/26/2012 - 16:39 | Link to Comment Al Huxley
Al Huxley's picture

What's the point of owning the FED if you can't take advantage of it.  Of course that's what they're doing.

Mon, 03/26/2012 - 16:16 | Link to Comment ekm
ekm's picture

Da, da, daaaaaaaaaaaaaa

Mon, 03/26/2012 - 16:24 | Link to Comment Sudden Debt
Sudden Debt's picture

If your planning to go out with a bang, make sure the bang is big enough to make it worth my time!

Mon, 03/26/2012 - 16:17 | Link to Comment TahoeBilly2012
TahoeBilly2012's picture

"bilateral netting"=picking up on two chicks at the same time and SCORING! Been there!

Mon, 03/26/2012 - 16:21 | Link to Comment blu
blu's picture

But isn't hard to get the net around both of them?

Mon, 03/26/2012 - 19:36 | Link to Comment NoClueSneaker
NoClueSneaker's picture

Me too. Net scoring went bilateral bankrupcy when one of them started to cry. After almost 30 yrs, me still ashamed of.

Mon, 03/26/2012 - 16:17 | Link to Comment Stackers
Stackers's picture

You dont need to see his bilatteral netting agreements ...... he's got the Droids you're looking for............ We dont need to see his bilateral netting agreements .... he's got the Droids we're looking for ...... move along ..... move along

Mon, 03/26/2012 - 16:20 | Link to Comment Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Can derivatives crash w/o the underlying assets crashing?

Mon, 03/26/2012 - 16:23 | Link to Comment Sudden Debt
Sudden Debt's picture

No

Mon, 03/26/2012 - 17:24 | Link to Comment kridkrid
kridkrid's picture

could you walk me through that, and don't be afraid to talk to me like I'm a 3rd grader.

Mon, 03/26/2012 - 19:25 | Link to Comment spdrdr
spdrdr's picture

The derivatives (Credit Default Swaps) are triggered by the underlying asset default - think insurance.

The prospect of the CDS defaulting will only occur after an underlying default.

It apparently did not happen in the Greek sovereign default..... 

There is always a next time.

 

Mon, 03/26/2012 - 16:19 | Link to Comment blu
blu's picture

$707 trillion? Okay now I guess we need to know what comes after trillion.

I nominate Godzillian. $1 Godzillian, it's enough exposure to flatten Tokyo. Twice.

Mon, 03/26/2012 - 16:23 | Link to Comment Sudden Debt
Sudden Debt's picture

Actually... Zero in our economy point of view

Mon, 03/26/2012 - 17:21 | Link to Comment skepticCarl
skepticCarl's picture

What comes after a trillion?  It's Brazillian, as in "12 Brazillian soldiers were killed in a border ambush today"

Mon, 03/26/2012 - 16:22 | Link to Comment Sudden Debt
Sudden Debt's picture

Oke, only half of the derivatives can fail. So divide it to 2.
Than take in mind that people who buy options and futures LOSE in 98% of all cases!!
Te market won't double in 2 years and drop to zero in 2 years.
So the danger of derivatives is about 35 to 40 trillion. But that's still really bad.

Mon, 03/26/2012 - 16:25 | Link to Comment meetired
meetired's picture

Why and who would dare to make a margin call?
Itz all good.

Mon, 03/26/2012 - 16:27 | Link to Comment Buzzworthy
Buzzworthy's picture

Long shotguns and ammo.  Bailing out the system raised the systemic threat from the level of TNT to hydrogen bomb.  Well done, bankster pr**ks.

Mon, 03/26/2012 - 16:31 | Link to Comment penexpers
penexpers's picture

Um, hello, we can still build that Death Star to offset the derivatives crises and create a massive global economic boom.

Contact: Federal Reserve Bank of the Empire and the Galactic Treasury.

Mon, 03/26/2012 - 16:34 | Link to Comment DavidC
DavidC's picture

After today's bollocks of a market (bad data but Bernanke SAYING that he's still prepared to QE, even though he's not actually saying he WILL) and the market goes apeshit, I'm beginning to wonder whether they ARE too big to fail and we won't get any meaningful correction (or clean out).

Forgive my language but this is just a complete joke now.

DavidC

Mon, 03/26/2012 - 16:32 | Link to Comment forrestdweller
forrestdweller's picture

the great financial black hole. as long as nobody sees it and soes not speak of it, it is not there.

but once you come too close, it will suck you in and destroy everything.

but yet it is less then nothing, it is a non existing thing, called debt.

it is one side of an equation, with abstract 'value' on the other side.

it's all bullshit and crap.

but yet it can destroy us.

Mon, 03/26/2012 - 16:33 | Link to Comment forrestdweller
forrestdweller's picture

my cat wrote that.

Mon, 03/26/2012 - 16:45 | Link to Comment Thamesford
Thamesford's picture

you had to look at him and get an answer -dammit! ;)

Mon, 03/26/2012 - 23:03 | Link to Comment oldman
oldman's picture

@forrestdweller

I recommend that you move to the beach---I used to live in the forest--14 years mostly by myself and I recognize what you' re saying. Not un-catlike at all---my cats and I used to compete in poetry and, in fact, they won most of the time---university cats.

I love the forest more than the beach, but-----------------------------

All I want to say is that now I live on the beach thirty meters from the high tide line with the waves crashing 24/7 and I like it; besides, there are people still looking for me there.

Please take this unsolicited advice for whatever it is worth, though it is not worth anything to an oldman   om

 

Tue, 03/27/2012 - 09:05 | Link to Comment falak pema
falak pema's picture

How about a forrest that overhangs a lovely beach. Like in Treasure Island? Go long on johns and silver! And never accept a black spot from Israeli hands! If they come for you you can always run to the stockade, or go take the Hispanolia all on your own. 

Tue, 03/27/2012 - 12:23 | Link to Comment oldman
oldman's picture

falak,

You named---that's where I am

How did you figure this out

I'm only sorry that my two cats would not leave home to accompany me here    om

Tue, 03/27/2012 - 16:42 | Link to Comment forrestdweller
forrestdweller's picture

that would be good, a forrest going all teh way to the sea.

where i live, there is no sea, there are beaches, but they are on the shores of lakes, and property there is something i cannot afford.

but more than enough forrests.

 

Mon, 03/26/2012 - 16:33 | Link to Comment OldE_Ant
OldE_Ant's picture

lol.  So what is that in dog years, or alien gaster probes?  Sign me up for 7 dog years and 3 gaster probes, I need to do my part.   Have lube and am fully bent.

It's amazing that 707T number looks to be pretty close to the world GDP for a year and the same number as an old boeing aircraft.    Fasten your seatbelts, we will be flying at 35Quadrillion feet, and lunch will ONLY be served if your flying first class.

I'm thinking the table is set and the big boys are ready to eat our freedoms and liberties for dinner very soon all with gold forks stuck in.

Mon, 03/26/2012 - 16:36 | Link to Comment forrestdweller
forrestdweller's picture

they gonna fuck us all. no exceptions.

 

Mon, 03/26/2012 - 17:10 | Link to Comment chunga
Mon, 03/26/2012 - 16:35 | Link to Comment eatthebanksters
eatthebanksters's picture

The only growth industry left...taking the vig on multibillion dollar bets for suckers!

Mon, 03/26/2012 - 16:41 | Link to Comment kito
kito's picture

not sure if tyler covered this, but north dakota in a battle to rid all property taxes...

 

http://www.businessweek.com/ap/2012-03/D9TM88M02.htm

Mon, 03/26/2012 - 16:41 | Link to Comment Thamesford
Thamesford's picture

So Derivatives end up actually being "Stanchions of Bank Destruction"

 

Mon, 03/26/2012 - 16:45 | Link to Comment monopoly
monopoly's picture

This is insane. Where is my pipe?

Mon, 03/26/2012 - 16:52 | Link to Comment q99x2
q99x2's picture

So do we put them into prisons before or after the crash?

Mon, 03/26/2012 - 17:08 | Link to Comment Quinvarius
Quinvarius's picture

In Socialist AmeriKa, criminals put you in prison.

Mon, 03/26/2012 - 17:03 | Link to Comment SilverRhino
SilverRhino's picture

Just pass a law outlawing CDS and derivatives for any corporation using FDIC.   Problem solved pretty much overnight.

 

Mon, 03/26/2012 - 17:10 | Link to Comment LawsofPhysics
LawsofPhysics's picture

The big boys will all decide that the CDS are worthless. There will be a debt jubilee, it just won't be for you.

Mon, 03/26/2012 - 17:11 | Link to Comment falak pema
falak pema's picture

We are getting things is perspective; after the Euro scam we now see that the UK debt scam is even bigger and the market of HF vultures have not attacked this market; as well the derivative mountain in WS is a summit that none can match and its all PRIVATE bank to bank OTC type transactions, their honey line of easy money margins they paid each other, now totally out of control in spite of ZIRP.

Compare US scam to UK scam and then Euro scam, compare the numbers and ask yourself why Greece burns FIRST. You'll then know who the crooks are and just how crooked the FREE markets are. 

Even the best financial blogs seem to forget who the main culprits are....

Mon, 03/26/2012 - 17:12 | Link to Comment yogibear
yogibear's picture

Bernanke and the Federal backstopping trillions and trillions of derivatives, Bernanke's wet dream of printing.

Mon, 03/26/2012 - 17:27 | Link to Comment vote_libertaria...
vote_libertarian_party's picture

oh....I read that as $220 Billion.  And I was thinking it is WAY more than that.

 

Must....read...slower.

Mon, 03/26/2012 - 17:37 | Link to Comment bobola
bobola's picture

"...In 1998, a trillion dollar hedge fund called Long Term Capital Management was near collapse. Using mathematical models to calculating debt risk, LTCM used derivatives to leverage $5 billion into more than $1 trillion, doing business with fifteen of Wall Street's largest financial institutions. The derivative transactions were not regulated, nor were investors able to evaluate LTCM's exposures.  After intervention by the Federal Reserve, the crisis was averted. In congressional hearings into the crisis, Greenspan acknowledged that language had been introduced into an agriculture bill that would prevent CFTC from regulating the derivatives which were at the center of the crisis that threatened the US economy..."

Obviously a meltdown like this can't be allowed to happen again, but look at the derivitave values today.

The question that keeps coming back to me is; "What are the ultra wealthy trading their future ex-worthless fiat currency for before the ponzi collapses...???

Surely they are not using their money to keep this thing propped up till the bitter end.....

 

 

Mon, 03/26/2012 - 17:44 | Link to Comment Heroic Couplet
Heroic Couplet's picture

Derivatives: the hallucinated wealth instruments created in a private and deregulated environment after the Glass-Steagall repeal? THOSE derivatives? Good. Thanks for leaving the term "Obama" out of the title. Take complaints to Phil Gramm and the Republicans who want deregulation but who are too greedy and dumb to realize deregulation in the finance sector always leads to increased risk.

Tue, 03/27/2012 - 05:10 | Link to Comment Legolas
Legolas's picture

Come on, everyone knows there's no difference between them.  If you want to properly omit identities, take out Republican and Democrat. 

Mon, 03/26/2012 - 18:02 | Link to Comment logicalman
logicalman's picture

When I see numbers like these I have to shake my head.

The whole thing is so obviously meaningless that the mind boggles as to how TPTB manage to hold all this shit up!

707 trill equates to approx $100,000 for EVERY PERSON ON THE PLANET for f***s sake!

Slightly off topic, but there is a theory out there that the human mind cannot cope with numbers larger than a quadrillion.

I think I've figured out their plan - PUSH IT PAST A QUADRILLION - that way we KNOW nobody understands what's going on.

 

Mon, 03/26/2012 - 18:40 | Link to Comment hadriansnightmare
hadriansnightmare's picture

Isn't the solution obvious? - just merge the five banks into one-

Mon, 03/26/2012 - 19:28 | Link to Comment James T. Kirk
James T. Kirk's picture

Absolutely correct. Then merge ALL the banks of the world together to eliminate counterparty risk, then end currency speculation by making a single currency unit. One big happy family so we are ready for intergalactic assimilation when the mother ship lands in Central Park. How could I have been so blind? The recent loss of all my gold in a nasty shuttlecraft accident has really opened my eyes.

Mon, 03/26/2012 - 19:18 | Link to Comment Son of Loki
Son of Loki's picture

Well greased Cartel.....

Mon, 03/26/2012 - 19:48 | Link to Comment silverserfer
silverserfer's picture

"AND ITS GONE!!!!!" in a thunderous roaring voice that can be heard around the world.

Mon, 03/26/2012 - 20:00 | Link to Comment ekm
ekm's picture

Let's wait very patiently for the margin call, THE ONE.

Reminder:

Ecclesiastes 3 A Time for Everything

 1 There is a time for everything, 
   and a season for every activity under the heavens:

 2 a time to be born and a time to die, 
   a time to plant and a time to uproot, 
 3 a time to kill and a time to heal, 
   a time to tear down and a time to build, 
 4 a time to weep and a time to laugh, 
   a time to mourn and a time to dance, 
 5 a time to scatter stones and a time to gather them, 
   a time to embrace and a time to refrain from embracing, 
 6 a time to search and a time to give up, 
   a time to keep and a time to throw away, 
 7 a time to tear and a time to mend, 
   a time to be silent and a time to speak, 
 8 a time to love and a time to hate, 
   a time for war and a time for peace.

Mon, 03/26/2012 - 22:50 | Link to Comment oldman
oldman's picture

@Tyler/anyone

OK, I've been away from the table for about twenty years, so I am asking for a bit of instruction from anyone who cares to respond.

1. Total 'netted out', I assume, refers to the ideal matching of credits and losses between members of the group under static or ideal circumstance, i.e. on a computer before accounting for greed and fear.

2. 92.7% is the percentage of these transactions 'netted out' against the $222 trillion total which leaves roughly a mere $16.2 trillion as the ideal risk to the capital of the group of $8.7 trillion or just under 2x the total 'risk based capital.

3. Risk based capital is the capital/equity of the group that is not set aside for other legal reserve requirements, another assumption of this oldman.

4. I am assuming 'total assets' is the same as 'risk based capital' and if this not the case---it gets uglier

5.  in the dark ages, around 1980, the experience of unwinding commodity and option spreads resulted in as much as 5%+/- in illiquid markets. I have no idea of what that +/- might be today, so could anyone venture an EDUCATED guess, please?

6. Everyone's most feared and hated member of this group, Goldman Sachs-----sticks out like a sore thumb with only $103 billion in capital against $44 trillion in derivatives-92.7% netted out or an exposure of more than $3 trillion against the $103 billion of 'risk based capital' for a 'risk premium of only 3%---ha ha ha---how does this outfit stay alive? It is in a class all by itself!

7. If goldman is taken out of the group, the average exposure of each member of the group is roughly ONLY? 2x its risk based capital

So comparing point #2 with point #7 (with Goldman out of #7)---how can they both be around 2x when Goldman holds $44 trillion in derivatives against only $103 billion of total risk based capital of $8.7 trillion?

Apparently, 'risk based capital' of the panel labeled 'Total Credit Exposure to Risk Based Capital' is not the same item as the 'total assets' of the panel below labeled 'Notational Amount of Derivative Contracts' below.

This is as far as i can go with this-----some instruction is required, please.

  thanks        om

Tue, 03/27/2012 - 05:09 | Link to Comment Clashfan
Clashfan's picture

The outright injustice of it all--the grandiosity, the pomposity, the arrogance--it's astounding. Combine that with the total complicity of the many facets of the mainstream media that refuse to even report on this problem much less attempt to explain it, and you have a system that can ignore important elements of reality and program its citizens to ignore them, too. ZH is one of the few internet sites that will attempt to credibly cover the ballooning derivatives market and the implications of it. Thanks, ZH.

I can find increasingly few people in suburbia who can discuss this subject at all. The frustration and hopelessness of even considering mentioning it are tiresome.

The benefits of ruling from the level of the pyramid with the power to manipulate the system like this must be irresistable, and the chains that bind these folks into their positions and decisions are often invisible to outsiders. It's a system that has evolved from centuries of systemic social corruption and cult activity that binds insiders.

The lure of that much power and money is simply all that matters to some, and when this exponentially debauched lifestyle becomes entrenched among a certain class of folks, all of the luxurious spoils of the physical world fall into their laps. Justice becomes a ridiculous word.

"The city casts a shadow on the perfect crime."

 

http://www.youtube.com/watch?v=AuhQf3ds14k

 

http://www.sing365.com/music/lyric.nsf/Gates-of-the-West-lyrics-The-Clas...

 

Tue, 03/27/2012 - 06:30 | Link to Comment Watauga
Watauga's picture

$707 Trillion.  Seriously. 

Tue, 03/27/2012 - 09:33 | Link to Comment MorningStar
MorningStar's picture

Still too big to fail is exactly correct.  I keep hearing that when the Derivatives start failing then the whole house of cards will fall on a global level.

 

Great article, as usual.  Thanks!! 

Tue, 03/27/2012 - 15:56 | Link to Comment pietrod21
pietrod21's picture

READ ABSOLUTELY THAT ABOUT THE BANKS TO BIG TO FAIL WRITTEN BY THE HEAD OF DALLAS FED: http://www.rawstory.com/rs/2012/03/21/dallas-fed-top-five-u-s-banks-hold-over-half-of-industrys-assets/

Tue, 03/27/2012 - 15:56 | Link to Comment pietrod21
pietrod21's picture

READ ABSOLUTELY THAT ABOUT THE BANKS TO BIG TO FAIL WRITTEN BY THE HEAD OF DALLAS FED: http://www.rawstory.com/rs/2012/03/21/dallas-fed-top-five-u-s-banks-hold-over-half-of-industrys-assets/

Do NOT follow this link or you will be banned from the site!