Over-leveraged U.S. banks? Top 4 have $235.05 Trillion in OTC Derivatives

October 4, 2011 by · 3 Comments
Filed under: Credit News 

DAMN!?!?!??!   The United States only has a $14 trillion dollar annual GDP.  The world is around $100 trillion.    Sure looks like all that financial reform and new rules did a bunch.   All I seem to see from that is we have codified “Too Big Too Fail” so that we have to bail out these banks and they still are allowed these outrageous derivative positions.   Welcome to America, the place where as long as you make a big enough mess, we will not only bail your out but we won’t even bother throwing you in jail.

For all the crap I have given Ben Bernanke on this site (I do hope this makes it to you),  he did make one really good call today on C-Span and it gave me a little perspective into him as a person/chairmen/professor.   The question came from a Senator in the hearing about what Mr. Bernanke did to investigate and pursue these alleged criminal issues that have arisen since the crisis made all this wrong-doing apparent.  Mr. Bernanke responded in such an honest manner but it was a well needed slap in the face to our representatives.   He turned around an said that this was not the purview of the Federal Reserve.   AND HE IS CORRECT.

It is our responsibility as a society to punish these people but either because we are incompetent or our representatives are too lobbied, we did nothing.  How can we have the largest financial crisis in the history of the world and really no one goes to jail??? Even after the S&L crisis, we had over 700 prosecutions.  I am so sick of having to say this but we have to do something after every crisis and make sure to set the right precedence.  Quit letting politicians tell you “we need to look forward and not into the past”.   You know what I say to that?   F*$k Y*@! (really)

USA Watch Dog (Greg Hunter) – I keep hammering away at the fact the Fed doled out $16 trillion in the wake of the credit crisis of 2008.  This is an enormous sum that is greater than the all goods and services produced in the U.S. in a single year.  Domestic banks and companies got the money, right along with foreign banks and companies.  In effect, the Federal Reserve bailed out the world financial system.  Now, we are right back to square one facing another financial meltdown with European banks and sovereign debt.  If the Fed spent $16 trillion, why in the heck is this problem not fixed and why isn’t the world economy taking off like a rocket?”  The simple answer is it wasn’t enough money.

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U.S. bill would restrict over-the-counter (OTC) derivatives with new regulations

July 30, 2009 by · Leave a Comment
Filed under: Industry News 

This is much needed.  In no way can we have financial instruments that equal ten times the globe’s GDP and not have it under strict regulation.  The reason is because these paper contracts were used to get more leverage which is fine when everything is stable but can be a total disaster when the economy goes south or the firms that have written these go bust and causes them to go to “full performance”.

These should not be on any off-balance-sheet transaction and any company holding them should have strict capital requirements just like any other form of insurance that protect the policyholder against the institution from defaulting.  If you read a book called “The New Monetarism” it has an interesting chart that shows an inverted pyramid with real assets at the bottom and OTC derivatives at the top and that represents global liquidity.   In this chart, these derivative instruments represented 75% of all the liquidity in the system.

News (Reuters):

U.S. financial regulators would gain the power to restrict holdings of over-the-counter derivatives under legislation to be considered this fall, the chairmen of two House committees said on Thursday.

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Banks to clear credit default swaps through clearinghouse by end of year

July 31, 2008 by · Leave a Comment
Filed under: Industry News 

While reading the morning business news this morning, I came across this snippet. This is the third time we have heard about this central clearinghouse for the corporate debt insurance known as “credit-default swaps”. According to the Bank of International Settlements (BIS), we had $596 trillion dollars of derivatives running around in the OTC market. It is not certain how much of this are credit-default swaps. I am waiting for them to release more concrete information on how this is going to work and if the clearinghouse will actually take on any of the liability of these derivatives?

Here is the snippet from Bloomberg:

Banks that handle about 90 percent of the trading in credit-default swaps told regulators today they will start processing trades through a central clearinghouse by the end of the year.

Dealers including JPMorgan Chase & Co., Deutsche Bank AG and Morgan Stanley said in a letter to Federal Reserve Bank of New York President Timothy Geithner that they will start putting U.S. credit-default swap index contracts through the clearinghouse by Dec. 31. The clearinghouse would be designed to absorb losses in the event a major market-maker fails.