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as you can see, my original thread was reported and pulled.
the bottom line is that derivative exposure is putting our economy yet again at risk.
Goldman Sachs stood to lose billions of dollars on CDSs issued by AIG if U.S. taxpayers hadn’t floated the insurer a $182 billion loan, yet they are increasing their derivative exposure related to capital to 921%.
keep in mind that we have china threatening to walk away from derivative "obligations":
The report cited six foreign banks that received letters that the SOEs reserved the right to default on contracts. Among the SOEs signaling their potential intentions were Air China (AIRYY.PK), China Eastern (CEA) and COSCO (CICOF.PK). All three have sustained "huge derivative losses since late last year". Concerns are being aired by financial circles that those holding underwater hedges may simply renege on them and walk away.
Among the major derivative providers in China are Goldman Sachs (GS), UBS (UBS), Morgan Stanley (MS) and JPMorgan (JPM). None of them provided any comment to Reuters on the letters and no banks were specifically named. Although some are questioning whether such a tactic has any basis in legality, the fact remains that this is China. (seeking alpha)
What do you think is driving this stock market? The bankers and GS are using part of the TARP money to offset losses so they do not have to liquidate real estate holdings, and the rest to drive the market up using derivatives. It is the largest ponzie scheme in history, and sooner or later it will end badly.
What is missing from headlines is that while some loans and investments have provided a positive return to taxpayers, the overall programs themselves are estimated to cost the taxpayers hundreds of billions. Overall the government has received about $30 billion in dividends, premiums for guarantees, and interest payments: $7 billion in TARP dividends from banks, $14 billion for the Federal Reserve from purchases of mortgage-backed securities and other investments, and $9 billion from the FDIC’s bank debt guarantee program.
While $30 billion may sound like a substantial amount of money, it is less than a tenth of the $356 billion that the Congressional Budget Office tells us we will never see back from TARP. And the Fed’s income from purchasing Fannie and Freddie securities will also amount to about a tenth of the ultimate losses we are likely to suffer from bailing out those entities. In regard to the FDIC’s debt guarantee program, premiums are paid up front, making that look like income, while the guarantees will remain outstanding for several years. Given that there is currently almost $340 billion in FDIC guaranteed bank debt outstanding, all it would take is a loss rate of 2.6% on that debt to wipe out any premiums collected so far. (cato)
Oct. 12 (Bloomberg) -- Large banks should be banned from trading derivatives including credit default swaps, said Joseph Stiglitz, the Nobel prize-winning economist.
The CDS positions held by the five largest banks posed “significant risk” to the financial system, Stiglitz said at a press conference in Brussels. Big banks should have extra restrictions placed on them, including a ban on derivative trading, because of the risk that they would need government money if they fail, he said in a speech today.
“We will have another armed robbery unless we prevent the banks, the banks that are too big to fail,” Stiglitz said. “We should say that if you’re too big to fail then you are too big to be. They need more restrictions, such as no derivative trading.”
somebody has the right idea, at least in regards to derivative trading!
Trading in derivatives brought down Lehman Brothers, AIG, and many other buyers, based on mistaken assumptions about the independence of the underlying asset prices; they underestimated the danger that many mortgages would all default at the same time. But the new paper shows that in addition to that kind of danger, risks can arise because a seller can deliberately construct a derivative with a booby trap hiding in plain sight.
It's like encryption: it's easy to construct an encrypted message (your browser does this all the time), but it's hard to decrypt without knowing the key (we believe even the NSA doesn't have the computational power to do it). Similarly, the new result shows that the seller can construct the CDO with a booby trap, but even Goldman Sachs won't have enough computational power to analyze whether a trap is present.
bottom line:
if we had been paying attention, the U.S. should have done everything in its power to correct our mistakes, clean up the mess in our financial system—instead of sweeping it under the carpet—and turned our efforts to maintaining the credibility of the capital markets and the credibility of the dollar.
What do they care? Once the Goldman criminals steal their billions in 2009 they can abandon ship if the feds do not bail out their next mess. They took us for a ride and will be living it up while we are in the great depression version 2. Since more people are waking up to the fact that Goldman is public enemy #1 they might want a controlled demolition of it while they dash with the cash.
again, if these "bankholding" companies want to take chances with their own money that is fine, but let's not let the government put taxpayer funds at risk as well. that has nothing to do with the "free market" system!
Last edited by floridasandy; 10-18-2009 at 04:48 AM..
denninger piece, in part (warning, language a little harsh):
Oh wait. I live in America, where the banks run the Congress, not the other way around. Never mind a President and Chairman of House Financial Services who can't manage to get up off their knees, and they're not praying when they genuflect either.
I've had it with the knob-polishing behavior of these jackasses in DC, especially when it comes to letters like this:
Banks should be given three years to raise capital for offsetting assets and liabilities that must be brought onto their balance sheets, Citigroup Chief Financial Officer John Gerspach said yesterday in a letter to regulators. Requiring banks to “assume the risk-based capital effects immediately, or even over one year, is an undeniably severe penalty,” he wrote.
What?
FASB has already postponed the implementation of this rule, which it voted on in July of 2008. It was originally to take effect in November of last year; the banks at that time said:
``The risks of too much haste are high,'' the securitization forum and Sifma said in a July 16 letter to the FASB. The ``abrupt consolidation'' of off-balance-sheet structures ``is likely to swell the balance sheets of the affected entities.''
So they got a reprieve for one year.
Now the banks are griping that this isn't good enough, and they want even more time!
An "undeniably severe penalty"?
Citibank, JP Morgan and the rest have all known about this for more than two years. They have had all this time to prepare for this event, they have had all this time to raise capital, they have had buoyant stock prices occasioned by FASB being literally extorted by Congress into allowing banks to lie about asset values, thereby cranking their stock prices up by 300, 400, even 600%. Specifically:
Last edited by floridasandy; 10-18-2009 at 05:03 AM..
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