Banks, if you look at my chart, are predominantly on the floating, LIBOR side of the swap. You can see what happened to the banks when LIBOR spiked. They became insolvent. IT IS A SCAM. So they take the other side once in awhile to make it look like it is a free market. Lol. You are naive. Look at the damn chart: Examples of Globalization Austerity Is Placed on America in Three Crucial WaysI know the loan is not a swap. But to qualify for the loan, the company is forced to take a swap. Banks are predominantly on the floating, low interest side of the trade because the government or medium sized business fears the floating rate, fearing inflation and rising interest rates that never come! PIMCO Investment Basics - What Are Interest Rate Swaps and How Do They WorkOne more thing, Todd. Interest rate swap scam, the biggest bankster scam, works like this. The medium sized private company goes to a TBTF bank for a loan. The company or government agency, in order to get the loan, must take one side of a swap. They take the fixed higher rate and the bank "gambles" and takes the low rate that is floating. But the Fed always watches the backs of the banks and the swaps nearly always win for them, unless LIBOR gets higher than the swap rate, which is what happened in the Great Recession.
The medium sized private company goes to a TBTF bank for a loan. The company or government agency, in order to get the loan, must take one side of a swap.
A loan isn't a swap.
They take the fixed higher rate and the bank "gambles" and takes the low rate that is floating.
I guess you could say that deposit accounts have a floating rate. So what? That still isn't a swap.
But the Fed always watches the backs of the banks and the swaps nearly always win for them,
Most interest rate swaps have banks on both sides of the trade. Do you feel the Fed makes both sides win?
From Pimco:
The counterparties in a typical swap transaction are a corporation, a bank or an investor on one side (the bank client) and an investment or commercial bank on the other side. After a bank executes a swap, it usually offsets the swap through an interdealer broker and retains a fee for setting up the original swap. If a swap transaction is large, the interdealer broker may arrange to sell it to a number of counterparties, and the risk of the swap becomes more widely dispersed. This is how banks that provide swaps routinely shed the risk, or interest-rate exposure, associated with them.
Initially, interest rate swaps helped corporations manage their floating-rate debt liabilities by allowing them to pay fixed rates, and receive floating-rate payments. In this way, corporations could lock into paying the prevailing fixed rate and receive payments that matched their floating-rate debt. (Some corporations did the opposite – paid floating and received fixed – to match their assets or liabilities.) However, because swaps reflect the market’s expectations for interest rates in the future, swaps also became an attractive tool for other fixed-income market participants, including speculators, investors and banks.
As a result, the swap market has grown immensely in the past 20 years or so; the notional dollar value of outstanding interest rate swaps globally was $230 trillion at the end of 2006, according to the Bank for International Settlements. Swap volume is termed “notional” because principal amounts, although included in total swap volume, are never actually exchanged. Only interest payments change hands in a swap, as described below.
But to qualify for the loan, the company is forced to take a swap.
Okay, a company borrows $100,000 at 5% for 2 years. What does the swap agreement say? Spell it out.
Banks are predominantly on the floating, low interest side of the trade.
Why do you feel banks need to be on the floating side? Most of their loans are fixed.
They would prefer their liabilities to be fixed as well.
After a bank executes a swap, it usually offsets the swap through an interdealer broker and retains a fee for setting up the original swap.
Look at that, the bank is on both sides of the swap, not predominantly on the floating side.
Banks lend mostly fixed. It they could, they'd prefer to borrow fixed.
They don't need any more exposure to floating rates. If I bothered to click on your blog,
it would probably show that you're misreading the chart.
But to qualify for the loan, the company is forced to take a swap.
Okay, a company borrows $100,000 at 5% for 2 years. What does the swap agreement say? Spell it out.
Or did you realize your error?
I am not going to argue with you. If you look at the chart you will see that when the floating exceeded the fixed, the banks crumbled. If you can't see it perhaps you should focus on something else.
Post your chart here and I'll take a look.
And tell me more about these forced swap agreements. Should be funny.