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Just Got Fooled Again.
- Thread starter Windship
- Start date
Windship
VIP Member
- May 27, 2014
- 3,096
- 131
- 85
- Thread starter
- #42
None of the trumpites have the ability to reason. trump will continue this "war on terror" bull shit which has stolen many of our rights and is the BASIS for the continuation of the same. trump is a continuation of carter, reagan, bush, clinton, bush and our favorite criminal...... obama. You ignore where he came from and how he got to where he is today. He got there by bilking and screwing his workforce and his investors. How does anyone make money in the market if you dont see the signs and ignore information?
Actually, to us dumbies, it appears that investors and the Stock Market are having a Trump rally. It certainly appears that Wall Street has a lot of confidence that Trump will do a lot for business, individuals, and the economy. The Stock Market is at an all time high. Perhaps your own "reading" of the Markets is a bit skewed?
A rally? Is that what you call it? I call it a 553 trillionusd in derivatives bubble.
I realize ypu are the self-proclaimed expert here but the news media are calling it a Trump rally.
Ok, so, where am I wrong and a link too plz.
Windship
VIP Member
- May 27, 2014
- 3,096
- 131
- 85
- Thread starter
- #43
------------------------------------------------------------------------------------------------------------------ WAR on Terror meaning war on 'Islamic state' is all I care about . Preservation of the USA , sovereignty , borders , rebuilding the USA military and a few other things like destroying mrobamas legacy , iran deal , gun RIGHTS are my only concerns . Everthing else like overtime pay , well , I will figure that out as best I can Windship .None of the trumpites have the ability to reason. trump will continue this "war on terror" bull shit which has stolen many of our rights and is the BASIS for the continuation of the same. trump is a continuation of carter, reagan, bush, clinton, bush and our favorite criminal...... obama. You ignore where he came from and how he got to where he is today. He got there by bilking and screwing his workforce and his investors. How does anyone make money in the market if you dont see the signs and ignore information?
Ok, look up "what builds a strong economy". The only way to build a strong economy is to pay the workforce enough so that they can spend and acquire credit.
owebo
Gold Member
Dispute what Hillary voter?does anyone dispute that?
Windship
VIP Member
- May 27, 2014
- 3,096
- 131
- 85
- Thread starter
- #47
The $555 Trillion Derivatives Debt Implosion Is About to Begin
by Phoenix Capital...
Jun 25, 2016 2:36 PM
1.2K
SHARES
TwitterFacebookReddit
The next crisis is here.
The BREXIT or British exit from the EU is this crisis’ Bear Stearns: an unexpected situation that Central Banks will go all out to sweep under the rug.
Whether or not they will succeed remains to be seen. But what has started cannot be undone.
For seven years, the Central Banks have maintained the illusion that all is well. Meanwhile, global leverage has exploded to record highs, with the bond bubble now a staggering $100 trillion in size.
To top it off, over $10 trillion of this is sporting negative yields in nominal terms. Indeed, globally bond yields are at levels not seen since the BRONZE AGE.
The Brexit is just the first jolt to this house of cards. It won’t be the last. Spain, Italy and other EU problem countries will soon be lining up to renegotiate their debt levels with the EU.
At that point it’s GAME OVER.
Globally over $500 trillion in derivatives trade based on bond yields.
This is why EVERY move the Central Banks have made post-2009 has been aimed at avoiding debt restructuring or defaults in the bond markets. Why does Greece, a country that represents less than 2% of EU GDP, continue to receive bailouts instead of just defaulting?
DERIVATIVES.
Now that the BREXIT has happened, the restructurings will begin. Previously, the EU could always threaten the perceived financial Armageddon of leaving the EU to problem countries that wanted debt forgiveness.
Not anymore. Britain left the EU and Armageddon didn’t hit. So Spain, Italy and other nations will start threatening to leave if they don’t get debt forgiveness or a restructuring.
The derivatives markets smell this. This is why Deutsche Bank (DB) which sits on the largest derivatives book in the world, is on the verge of taking out a 20 year Head and Shoulders pattern.
This is also why financials in general (the firms sitting on large derivatives books), have taken out their post-2009 bull market trendline.
Again, the next crisis is here. The time to start preparing is now. The BREXIT was this crisis’ Bear Stearns. You don’t want to wit until the “Lehman” moment to prepare.
If you’ve yet to take action to prepare yourself and your portfolio for the next round of the Crisis, we just published a 21-page investment report titled Stock Market Crash Survival Guide.
In it, we outline precisely how the crash will unfold as well as which investments will perform best during a stock market crash.
We are giving away just 1,000 copies for FREE to the public.
To pick up yours, swing by:
Subscribe Now to Gains, Pains, & Capital
Best Regards
Graham Summers
Chief Market Strategist
Phoenix Capital Research
by Phoenix Capital...
Jun 25, 2016 2:36 PM
1.2K
SHARES
TwitterFacebookReddit
The next crisis is here.
The BREXIT or British exit from the EU is this crisis’ Bear Stearns: an unexpected situation that Central Banks will go all out to sweep under the rug.
Whether or not they will succeed remains to be seen. But what has started cannot be undone.
For seven years, the Central Banks have maintained the illusion that all is well. Meanwhile, global leverage has exploded to record highs, with the bond bubble now a staggering $100 trillion in size.
To top it off, over $10 trillion of this is sporting negative yields in nominal terms. Indeed, globally bond yields are at levels not seen since the BRONZE AGE.
The Brexit is just the first jolt to this house of cards. It won’t be the last. Spain, Italy and other EU problem countries will soon be lining up to renegotiate their debt levels with the EU.
At that point it’s GAME OVER.
Globally over $500 trillion in derivatives trade based on bond yields.
This is why EVERY move the Central Banks have made post-2009 has been aimed at avoiding debt restructuring or defaults in the bond markets. Why does Greece, a country that represents less than 2% of EU GDP, continue to receive bailouts instead of just defaulting?
DERIVATIVES.
Now that the BREXIT has happened, the restructurings will begin. Previously, the EU could always threaten the perceived financial Armageddon of leaving the EU to problem countries that wanted debt forgiveness.
Not anymore. Britain left the EU and Armageddon didn’t hit. So Spain, Italy and other nations will start threatening to leave if they don’t get debt forgiveness or a restructuring.
The derivatives markets smell this. This is why Deutsche Bank (DB) which sits on the largest derivatives book in the world, is on the verge of taking out a 20 year Head and Shoulders pattern.
This is also why financials in general (the firms sitting on large derivatives books), have taken out their post-2009 bull market trendline.
Again, the next crisis is here. The time to start preparing is now. The BREXIT was this crisis’ Bear Stearns. You don’t want to wit until the “Lehman” moment to prepare.
If you’ve yet to take action to prepare yourself and your portfolio for the next round of the Crisis, we just published a 21-page investment report titled Stock Market Crash Survival Guide.
In it, we outline precisely how the crash will unfold as well as which investments will perform best during a stock market crash.
We are giving away just 1,000 copies for FREE to the public.
To pick up yours, swing by:
Subscribe Now to Gains, Pains, & Capital
Best Regards
Graham Summers
Chief Market Strategist
Phoenix Capital Research
Windship
VIP Member
- May 27, 2014
- 3,096
- 131
- 85
- Thread starter
- #48
[TD="width: 496px"][/TD][/TR][/TBODY]
Windship
VIP Member
- May 27, 2014
- 3,096
- 131
- 85
- Thread starter
- #49
Big Banks and Derivatives: Why Another Financial Crisis Is Inevitable
Steve Denning ,
CONTRIBUTOR
I write about radical management, leadership, innovation & narrative.
Opinions expressed by Forbes Contributors are their own.
Remember Jaws? In 1975, the small town of Amity was on the eve of the Fourth of July weekend, a time of celebration of the founding of this marvelous country. But just before the celebration was about to begin, a vicious shark attack occurs. Concerned about losing the money from the holiday tourist trade, the mayor and townsfolk ignore the warnings to keep people out of the water. But then after another shark attack, and yet another, the town’s leadership finally grasps the peril, but not before more disasters occurred.
Jaws, writes John Whitehead, wasn’t just a simple story about sharks. Instead, it was a social commentary about how a love of money can blind us to averting preventable disasters.
Fast forward to the financial meltdown of 2008 and what do we see? America again was celebrating. The economy was booming. Everyone seemed to be getting wealthier, even though the warning signs were everywhere: too much borrowing, foolish investments, greedy banks, regulators asleep at the wheel, politicians eager to promote home-ownership for those who couldn’t afford it, and distinguished analysts openly predicting this could only end badly. And then, when Lehman Bros fell, the financial system froze and world economy almost collapsed. Why?
The root cause wasn’t just the reckless lending and the excessive risk taking. The problem at the core was a lack of transparency. After Lehman’s collapse, no one could understand any particular bank’s risks from derivative trading and so no bank wanted to lend to or trade with any other bank. Because all the big banks’ had been involved to an unknown degree in risky derivative trading, no one could tell whether any particular financial institution might suddenly implode.
Since then, massive efforts have been made to clean up the banks, and put in place regulations aimed at restoring trust and confidence in the financial system. But the result in terms of dealing with the basic problem, according to a terrific article by Frank Partnoy and Jesse Eisinger in The Atlantic entitled “What’s Inside America’s Banks?” is failure.
Another global financial crisis is on the way
Financial reform didn’t work. Banks today are bigger and more opaque than ever, and they continue to trade in derivatives in many of the same ways they did before the crash, but on a larger scale and with precisely the same unknown risks.
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Ignoring warning signs has inevitable consequences. We ignored them before and we saw what happened. We can say this with virtual certainty: if we continue as now and ignore them again, the great white shark of a global financial meltdown will gobble up the meager economic recovery and make 2008 look like a hiccup.
We can’t say when this will happen. We can’t say which bank or which particular instrument will trigger the debacle. What we can say with virtual certainty is that if we continue as now is that it will happen. Because the scale of the trading is larger, and because the depleted government treasures are not well placed for another huge bailout, the impact will be worse than 2008.
Today’s financial scandals are mere sideshows
Thus the biggest risk we face is not the stories of repeated wrongdoing by the banks that are still making headlines, such as:
Bad as these scandals are and vast as the money involved in them is by any normal standard, they are mere blips on the screen, compared to the risk that is still staring us in the face: the lack of transparency in derivative trading that now totals in notional amount more than $700 trillion. That is more than ten times the size of the entire world economy. Yet incredibly, we have little information about it or its implications for the financial strength of any of the big banks.
Moreover the derivatives market is steadily growing. “The total notional value, or face value, of the global derivatives market when the housing bubble popped in 2007 stood at around $500 trillion… The Over-The-Counter derivatives market alone had grown to a notional value of at least $648 trillion as of the end of 2011… the market is likely worth closer to $707 trillion and perhaps more,” writes analyst Jenny Walsh in The Paper Boat.
“The market has grown so unfathomably vast, the global economy is at risk of massive damage should even a small percentage of contracts go sour. Its size and potential influence are difficult just to comprehend, let alone assess.”
The bulk of this derivative trading is conducted by the big banks. Bankers generally assume that the likely risk of gain or loss on derivatives is much smaller than their “notional amount.” Wells Fargo for instance says the concept “is not, when viewed in isolation, a meaningful measure of the risk profile of the instruments” and “many of its derivatives offset each other”.
However as we learned in 2008, it is possible to lose a large portion of the “notional amount” of a derivatives trade if the bet goes terribly wrong, particularly if the bet is linked to other bets, resulting in losses by other organizations occurring at the same time. The ripple effects can be massive and unpredictable.
Banks don’t tell investors how much of the “notional amount” that they could lose in a worst-case scenario, nor are they required to. Even a savvy investor who reads the footnotes can only guess at what a bank’s potential risk exposure from the complicated interactions of derivatives might be. And when experts can’t assess risk, and large bets go wrong simultaneously, the whole financial system can freeze and lead to a global financial meltdown.
In 2008, governments had enough resources to avert total calamity. Today’s cash-strapped governments are in no position to cope with another massive bailout.
Wells Fargo: is this good bank “extremely safe”?
The article in The Atlantic clarifies what’s going on by exploring what’s going on inside what is arguably the safest and most conservative bank: Wells Fargo [WFC].
Last year, I had written an article about the case for considering Wells Fargo as a “a good bank”.
Wells does what banks are supposed to do: take deposits and then lend the money back out. Interest margin drives half its revenues. Fees from mortgages, investment accounts and credit cards generate the other half. ‘I couldn’t care less about league tables,’ says Wells CEO Stumpf. ‘I’m more interested in kitchen tables and conference room tables.’ By operating a bank like a bank, the article says, Stumpf has at once made Wells exceedingly profitable—for 2011 the bank’s net income jumped 28% to $15.9 billion, on $81 billion in revenue—and extremely safe. The value of Wells Fargo’s shares is now the highest of any U.S. bank: $173 billion as of early December 2012.
Wells Fargo: large scale trading in derivatives
But among the startling disclosures in the article in The Atlantic from examining the footnotes in its most recent annual report are:
Ever heard of “variable interest entities” aka VIEs? If not, you are not alone. They are phenomena that reside in what The Atlantic calls “an even lower circle of financial hell” than proprietary trading. They are basically a new label for “special-purpose entities” i.e. the infamous accounting devices that Enron employed to hide its debts. These deals were called ‘off-balance-sheet’ transactions, because they did not appear on Enron’s balance sheet.
The article likens variable interest entities to “a horror film, which the special-purpose entity has been reanimated… The problem is especially worrisome at banks: every major bank has substantial positions in VIEs.”
As of the end of 2011, Wells Fargo, the “extremely safe bank”, reported “significant continuing involvement” with variable-interest entities that had total assets of about $1.5 trillion. The ‘maximum exposure to loss’ that it reports is much smaller, but still substantial: just over $60 billion, more than 40 percent of its capital reserves. The bank says the likelihood of such a loss is ‘extremely remote.’ As The Atlantic comments: “We can hope.”
Worse: “Wells Fargo… excludes some VIEs from consideration, for many of the same reasons Enron excluded its special-purpose entities: the bank says that its continuing involvement is not significant, that its investment is temporary or small, or that it did not design or operate these deals. (Wells Fargo isn’t alone; other major banks also follow this Enron-like approach to disclosure.)… The presence of VIEs on Wells Fargo’s balance sheet ‘is a signal that there is $1.5 trillion of exposure to complete unknowns.’”
Other banks are even riskier
Thus it turns out that Wells Fargo isn’t so much an “extremely safe” bank in absolute terms but rather a bank that isn’t doing as much risky stuff as the other big banks. “One reason Wells Fargo is trusted more than other big banks is that its notional amount of derivatives is comparatively small… It’s just somewhat less involved in derivatives than other banks.” The amount of its ‘notional involvement’ in proprietary trading in derivatives amounts to “only” about half the size of the entire US economy.
By contrast, at the end of the third quarter of 2012, JPMorgan had $72 trillion in notional amount on its books—almost five times the size of the U.S. economy, or about the size of the entire world economy.
But even at the lower levels of trading by Wells Fargo, the numbers are so large that they put Wells Fargo’s seemingly immense capital reserves—$148 billion—as a mere drop in an ocean of potential losses.
Wells Fargo declined to answer questions from the journalists from The Atlantic. Their response to requests for clarification was to suggest re-reading the unhelpful sections of the annual report. They also declined to answer: “How much money would Wells Fargo lose from these trades under various scenarios?”
Ironically, Jamie Dimon has been proven right when he made light of the $6 billion trading loss at JPMorgan last year. Compared to the scale of these potential losses, and the financial crisis that lies ahead, a loss of $6 billion is merely a “tempest in a teacup.”
How does Wells Fargo make money?
The Atlantic also finds worrying issues in how Wells Fargo does make money. Scouring through Wells Fargo’s annual report, seemingly safe conservative categories turn out to involve proprietary trading:
Specialists and hedge funds as much in the dark as the public
Public confidence in banks is now at a record low. According to Gallup, in the late 1970s, around 60 percent of Americans said they trusted big banks “a great deal” or “quite a lot.” In June 2012, less than 25 percent of respondents told Gallup they had faith in big banks.
But it’s not just public confidence. Specialists are equally bewildered. The Atlantic cites:
Wall Street already reflects its distrust of the big banks. Even after a run-up in the price of bank stocks this fall, many remain below “book value,” which means that the banks are worth less than the stated value of the assets on their books. This indicates that investors don’t believe the stated value, or don’t believe the banks will be profitable in the future—or both.
The reality is that even an ostensibly simple and “extremely safe” bank like Wells Fargo impossible to understand. Every major bank’s financial statements have some or all of these problems; many banks are much worse.
Regulation hasn’t worked
In the wake of the recent financial crisis, the government has moved to give new powers to the regulators who oversee the markets. But the net result of the effort to regulate the big banks is almost as stupefying as the amounts of money involved. Draft Basel III regulations total 616 pages. Quarterly reporting to the Fed required a spreadsheet with 2,271 columns. 2010’s Dodd-Frank law was 848 pages and required regulators to create so many new rules (not fully defined by the legislation itself) that it could amount to 30,000 pages of legal minutiae when fully codified. What human mind can possibly comprehend all this?
Complex accounting rules have thus made the problem worse. Clever bankers, aided by their lawyers and accountants, find ways around the intentions of the regulations while remaining within the letter of the law. Because these rules have grown ever more detailed and lawyerly—while still failing to cover every possible circumstance—they have had the perverse effect of allowing banks to avoid giving investors the information needed to gauge the value and risk of a bank’s portfolio.
What to do: more clarity and actual sanctions
Some experts propose that the banking system needs more capital. Others call for a return to Glass-Steagall or a full-scale breakup of the big banks. These reforms could help, but none squarely addresses the problem of opacity, or the mischief that opacity enables.
The Atlantic suggests that a starting point is “to rebuild the twin pillars of regulation that Congress built in 1933 and 1934, in the aftermath of the 1929 crash. First, there must be a straightforward standard of disclosure for Wells Fargo and its banking brethren to follow: describe risks in commonsense terms that an investor can understand. Second, there must be a real risk of punishment for bank executives who mislead investors, or otherwise perpetrate fraud and abuse.”
The Atlantic argues that these two pillars don’t require massively complicated regulation. The straightforward disclosure regime that prevailed for decades starting in the 1930s didn’t require extensive legal rules. Nor did vigorous prosecution of financial crime.
However it does require political will-power. The decision not to prosecute UBS for criminal tax fraud in 2009, when a smaller bank was so prosecuted, sends a clear signal that the large banks are not only too big to fail and too complex to manage. They are also too big to punish.
The Atlantic suggests a grand bargain: “simpler rules and streamlined regulation if they subject themselves to real enforcement.”
A paradigm shift in banking
Rules and penalties can only take us so far. Nothing significant is likely to change until the dynamic of the financial sector changes. The SEC and the courts can pursue the banks with court cases and penalties, but they will always be confronted with time-wasting legal defenses, as well as time lags between the invention of new ways to fleece customers and the discovery and proof of those methods.
The financial sector is in effect an extreme example of the shareholder value theory run amok. Pursuit of profit not only undermines the banks themselves and ultimately the global economy as a whole.
Regulation and enforcement will only work if it is accompanied by a paradigm shift in the banking sector that changes the context in which banks operate and the way they are run, so that banks shift their goal from making money to adding value to stakeholders, particularly customers. This would require action from the legislature, the SEC, the stock market and the business schools, as well as of course the banks themselves.
Ultimately, change is for the banks’ own good. Without it, investors will continue to worry about which bank will be the next Lehman Brothers, while the rest of us can only brace ourselves for the next inevitable financial cataclysm.
And read also:
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Lest We Forget: Why We Had A Financial Crisis
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Big bad banks: The science of changing pathologically asocial behavior
Steve Denning ,
CONTRIBUTOR
I write about radical management, leadership, innovation & narrative.
Opinions expressed by Forbes Contributors are their own.
Remember Jaws? In 1975, the small town of Amity was on the eve of the Fourth of July weekend, a time of celebration of the founding of this marvelous country. But just before the celebration was about to begin, a vicious shark attack occurs. Concerned about losing the money from the holiday tourist trade, the mayor and townsfolk ignore the warnings to keep people out of the water. But then after another shark attack, and yet another, the town’s leadership finally grasps the peril, but not before more disasters occurred.Jaws, writes John Whitehead, wasn’t just a simple story about sharks. Instead, it was a social commentary about how a love of money can blind us to averting preventable disasters.
Fast forward to the financial meltdown of 2008 and what do we see? America again was celebrating. The economy was booming. Everyone seemed to be getting wealthier, even though the warning signs were everywhere: too much borrowing, foolish investments, greedy banks, regulators asleep at the wheel, politicians eager to promote home-ownership for those who couldn’t afford it, and distinguished analysts openly predicting this could only end badly. And then, when Lehman Bros fell, the financial system froze and world economy almost collapsed. Why?
The root cause wasn’t just the reckless lending and the excessive risk taking. The problem at the core was a lack of transparency. After Lehman’s collapse, no one could understand any particular bank’s risks from derivative trading and so no bank wanted to lend to or trade with any other bank. Because all the big banks’ had been involved to an unknown degree in risky derivative trading, no one could tell whether any particular financial institution might suddenly implode.
Since then, massive efforts have been made to clean up the banks, and put in place regulations aimed at restoring trust and confidence in the financial system. But the result in terms of dealing with the basic problem, according to a terrific article by Frank Partnoy and Jesse Eisinger in The Atlantic entitled “What’s Inside America’s Banks?” is failure.
Another global financial crisis is on the way
Financial reform didn’t work. Banks today are bigger and more opaque than ever, and they continue to trade in derivatives in many of the same ways they did before the crash, but on a larger scale and with precisely the same unknown risks.
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Ignoring warning signs has inevitable consequences. We ignored them before and we saw what happened. We can say this with virtual certainty: if we continue as now and ignore them again, the great white shark of a global financial meltdown will gobble up the meager economic recovery and make 2008 look like a hiccup.
We can’t say when this will happen. We can’t say which bank or which particular instrument will trigger the debacle. What we can say with virtual certainty is that if we continue as now is that it will happen. Because the scale of the trading is larger, and because the depleted government treasures are not well placed for another huge bailout, the impact will be worse than 2008.
Today’s financial scandals are mere sideshows
Thus the biggest risk we face is not the stories of repeated wrongdoing by the banks that are still making headlines, such as:
- Trading gone awry: JPMorgan’s [JPM] loss of $6 billion from trading activities of which CEO Jamie Dimon was blissfully unaware.
- Price fixing at LIBOR. “Many of the biggest banks now stand accused of manipulating the world’s most popular benchmark interest rate, the London Interbank Offered Rate (LIBOR).
- Foreclosure abuses. Just this week, big banks agreed two settlementstotaling $20.15 billion for foreclosure abuses.
- Money laundering: Accusations of illegal, clandestine bank activities are also proliferating. Large global banks have been accused by U.S. government officials of helping Mexican drug dealers launder money (HSBC), and of funneling cash to Iran (Standard Chartered).
- Tax evasion: Two Swiss banks were involved in Switzerland-based. In 2009, UBS [UBS] helped 20,000 U.S. taxpayers with assets of about $20 billion hide their identities from the IRS. Now, the oldest Swiss bank, Wegelin & Co. has been indicted on criminal charges for helping U.S. taxpayers avoid taxes on at least $1.2 billion for a nearly ten years.
- Misleading clients with worthless securities: Only after the financial crisis of 2008 did people learn that banks routinely misled clients, sold them securities known to be garbage, and even, in some cases, secretly bet against them to profit from their ignorance.
Bad as these scandals are and vast as the money involved in them is by any normal standard, they are mere blips on the screen, compared to the risk that is still staring us in the face: the lack of transparency in derivative trading that now totals in notional amount more than $700 trillion. That is more than ten times the size of the entire world economy. Yet incredibly, we have little information about it or its implications for the financial strength of any of the big banks.
Moreover the derivatives market is steadily growing. “The total notional value, or face value, of the global derivatives market when the housing bubble popped in 2007 stood at around $500 trillion… The Over-The-Counter derivatives market alone had grown to a notional value of at least $648 trillion as of the end of 2011… the market is likely worth closer to $707 trillion and perhaps more,” writes analyst Jenny Walsh in The Paper Boat.
“The market has grown so unfathomably vast, the global economy is at risk of massive damage should even a small percentage of contracts go sour. Its size and potential influence are difficult just to comprehend, let alone assess.”
The bulk of this derivative trading is conducted by the big banks. Bankers generally assume that the likely risk of gain or loss on derivatives is much smaller than their “notional amount.” Wells Fargo for instance says the concept “is not, when viewed in isolation, a meaningful measure of the risk profile of the instruments” and “many of its derivatives offset each other”.
However as we learned in 2008, it is possible to lose a large portion of the “notional amount” of a derivatives trade if the bet goes terribly wrong, particularly if the bet is linked to other bets, resulting in losses by other organizations occurring at the same time. The ripple effects can be massive and unpredictable.
Banks don’t tell investors how much of the “notional amount” that they could lose in a worst-case scenario, nor are they required to. Even a savvy investor who reads the footnotes can only guess at what a bank’s potential risk exposure from the complicated interactions of derivatives might be. And when experts can’t assess risk, and large bets go wrong simultaneously, the whole financial system can freeze and lead to a global financial meltdown.
In 2008, governments had enough resources to avert total calamity. Today’s cash-strapped governments are in no position to cope with another massive bailout.
Wells Fargo: is this good bank “extremely safe”?
The article in The Atlantic clarifies what’s going on by exploring what’s going on inside what is arguably the safest and most conservative bank: Wells Fargo [WFC].
Last year, I had written an article about the case for considering Wells Fargo as a “a good bank”.
Wells does what banks are supposed to do: take deposits and then lend the money back out. Interest margin drives half its revenues. Fees from mortgages, investment accounts and credit cards generate the other half. ‘I couldn’t care less about league tables,’ says Wells CEO Stumpf. ‘I’m more interested in kitchen tables and conference room tables.’ By operating a bank like a bank, the article says, Stumpf has at once made Wells exceedingly profitable—for 2011 the bank’s net income jumped 28% to $15.9 billion, on $81 billion in revenue—and extremely safe. The value of Wells Fargo’s shares is now the highest of any U.S. bank: $173 billion as of early December 2012.
Wells Fargo: large scale trading in derivatives
But among the startling disclosures in the article in The Atlantic from examining the footnotes in its most recent annual report are:
- The sheer volume of proprietary trading at Wells Fargo suggests that this bank is not what it seems.
- A large part of that trading is not in safe conservative things like equities or bonds but in derivatives—the things that almost blew up the economy in 2008.
- These derivatives are hidden under seemingly the benign headings.
- The scale of this trading is breath-taking.
- The benignly labeled activity “customer accommodations” has derivatives on its books with notional risk of $2 trillion. That number, assuming it is accurate, can make any particular trading loss appear minuscule.
Ever heard of “variable interest entities” aka VIEs? If not, you are not alone. They are phenomena that reside in what The Atlantic calls “an even lower circle of financial hell” than proprietary trading. They are basically a new label for “special-purpose entities” i.e. the infamous accounting devices that Enron employed to hide its debts. These deals were called ‘off-balance-sheet’ transactions, because they did not appear on Enron’s balance sheet.
The article likens variable interest entities to “a horror film, which the special-purpose entity has been reanimated… The problem is especially worrisome at banks: every major bank has substantial positions in VIEs.”
As of the end of 2011, Wells Fargo, the “extremely safe bank”, reported “significant continuing involvement” with variable-interest entities that had total assets of about $1.5 trillion. The ‘maximum exposure to loss’ that it reports is much smaller, but still substantial: just over $60 billion, more than 40 percent of its capital reserves. The bank says the likelihood of such a loss is ‘extremely remote.’ As The Atlantic comments: “We can hope.”
Worse: “Wells Fargo… excludes some VIEs from consideration, for many of the same reasons Enron excluded its special-purpose entities: the bank says that its continuing involvement is not significant, that its investment is temporary or small, or that it did not design or operate these deals. (Wells Fargo isn’t alone; other major banks also follow this Enron-like approach to disclosure.)… The presence of VIEs on Wells Fargo’s balance sheet ‘is a signal that there is $1.5 trillion of exposure to complete unknowns.’”
Other banks are even riskier
Thus it turns out that Wells Fargo isn’t so much an “extremely safe” bank in absolute terms but rather a bank that isn’t doing as much risky stuff as the other big banks. “One reason Wells Fargo is trusted more than other big banks is that its notional amount of derivatives is comparatively small… It’s just somewhat less involved in derivatives than other banks.” The amount of its ‘notional involvement’ in proprietary trading in derivatives amounts to “only” about half the size of the entire US economy.
By contrast, at the end of the third quarter of 2012, JPMorgan had $72 trillion in notional amount on its books—almost five times the size of the U.S. economy, or about the size of the entire world economy.
But even at the lower levels of trading by Wells Fargo, the numbers are so large that they put Wells Fargo’s seemingly immense capital reserves—$148 billion—as a mere drop in an ocean of potential losses.
Wells Fargo declined to answer questions from the journalists from The Atlantic. Their response to requests for clarification was to suggest re-reading the unhelpful sections of the annual report. They also declined to answer: “How much money would Wells Fargo lose from these trades under various scenarios?”
Ironically, Jamie Dimon has been proven right when he made light of the $6 billion trading loss at JPMorgan last year. Compared to the scale of these potential losses, and the financial crisis that lies ahead, a loss of $6 billion is merely a “tempest in a teacup.”
How does Wells Fargo make money?
The Atlantic also finds worrying issues in how Wells Fargo does make money. Scouring through Wells Fargo’s annual report, seemingly safe conservative categories turn out to involve proprietary trading:
- Almost $1.5 billion of the seemingly safe “interest income” comes from “trading assets”;
- Another $9.1 billion results from “securities available for sale.”
- One billion dollars of the bank’s seemingly safe “non-interest income” are “net gains from trading activities.”
- Up and down the ledger, abstruse, all-embracing categories appear: “other fees earned from related activities,” “other interest income,” and just plain “other.” The income statement’s “other” catchalls collectively amounted to $6.6 billion of Wells Fargo’s income in 2011.
Specialists and hedge funds as much in the dark as the public
Public confidence in banks is now at a record low. According to Gallup, in the late 1970s, around 60 percent of Americans said they trusted big banks “a great deal” or “quite a lot.” In June 2012, less than 25 percent of respondents told Gallup they had faith in big banks.
But it’s not just public confidence. Specialists are equally bewildered. The Atlantic cites:
- Ed Trott, a former Financial Accounting Standards Board member, when asked whether he trusted bank accounting, he said, simply, “Absolutely not.”
- Several financial executives told The Atlantic that they see the large banks as “complete black boxes.”
- A chief executive of one of the nation’s largest financial institutions considers banks “uninvestable,” a Wall Street neologism for “untouchable.”
- Paul Singer, who runs the influential investment fund Elliott Associates, wrote to his partners this summer, “There is no major financial institution today whose financial statements provide a meaningful clue” about its risks.
- Arthur Levitt, the former chairman of the SEC, lamented to us in November that none of the post-2008 remedies has “significantly diminished the likelihood of financial crises.”
- A recent survey by Barclays Capital found that more than half of institutional investors did not trust how banks measure the riskiness of their assets.
- When hedge-fund managers were asked how trustworthy they find “risk weightings”—the numbers that banks use to calculate how much capital they should set aside as a safety cushion in case of a business downturn—about 60 percent of those managers answered 1 or 2 on a five-point scale, with 1 being “not trustworthy at all.” None of them gave banks a 5.
- A disturbing number of former bankers have recently declared that the banking industry is broken, including Herbert Allison, the ex-president of Merrill Lynch and former head of the Obama administration’s Troubled Asset Relief Program, Philip Purcell (ex-CEO of Morgan Stanley Dean Witter), Sallie Krawcheck (ex-CFO of Citigroup), David Komansky (ex-CEO of Merrill Lynch), and John Reed (former co-CEO of Citigroup) and Sandy Weill, another ex-CEO of Citigroup. The Atlantic notes that “this newfound clarity typically follows their passage from financial titan to rich retiree.”
- Bill Ackman, one of the nation’s highest-profile and most successful investors, lost almost $400 million betting on the recovery of Citigroup [C]. Last spring, Pershing Square sold its entire stake in Citigroup, as the bank’s strategy drifted, at a loss approaching $400 million.
Wall Street already reflects its distrust of the big banks. Even after a run-up in the price of bank stocks this fall, many remain below “book value,” which means that the banks are worth less than the stated value of the assets on their books. This indicates that investors don’t believe the stated value, or don’t believe the banks will be profitable in the future—or both.
The reality is that even an ostensibly simple and “extremely safe” bank like Wells Fargo impossible to understand. Every major bank’s financial statements have some or all of these problems; many banks are much worse.
Regulation hasn’t worked
In the wake of the recent financial crisis, the government has moved to give new powers to the regulators who oversee the markets. But the net result of the effort to regulate the big banks is almost as stupefying as the amounts of money involved. Draft Basel III regulations total 616 pages. Quarterly reporting to the Fed required a spreadsheet with 2,271 columns. 2010’s Dodd-Frank law was 848 pages and required regulators to create so many new rules (not fully defined by the legislation itself) that it could amount to 30,000 pages of legal minutiae when fully codified. What human mind can possibly comprehend all this?
Complex accounting rules have thus made the problem worse. Clever bankers, aided by their lawyers and accountants, find ways around the intentions of the regulations while remaining within the letter of the law. Because these rules have grown ever more detailed and lawyerly—while still failing to cover every possible circumstance—they have had the perverse effect of allowing banks to avoid giving investors the information needed to gauge the value and risk of a bank’s portfolio.
What to do: more clarity and actual sanctions
Some experts propose that the banking system needs more capital. Others call for a return to Glass-Steagall or a full-scale breakup of the big banks. These reforms could help, but none squarely addresses the problem of opacity, or the mischief that opacity enables.
The Atlantic suggests that a starting point is “to rebuild the twin pillars of regulation that Congress built in 1933 and 1934, in the aftermath of the 1929 crash. First, there must be a straightforward standard of disclosure for Wells Fargo and its banking brethren to follow: describe risks in commonsense terms that an investor can understand. Second, there must be a real risk of punishment for bank executives who mislead investors, or otherwise perpetrate fraud and abuse.”
The Atlantic argues that these two pillars don’t require massively complicated regulation. The straightforward disclosure regime that prevailed for decades starting in the 1930s didn’t require extensive legal rules. Nor did vigorous prosecution of financial crime.
However it does require political will-power. The decision not to prosecute UBS for criminal tax fraud in 2009, when a smaller bank was so prosecuted, sends a clear signal that the large banks are not only too big to fail and too complex to manage. They are also too big to punish.
The Atlantic suggests a grand bargain: “simpler rules and streamlined regulation if they subject themselves to real enforcement.”
A paradigm shift in banking
Rules and penalties can only take us so far. Nothing significant is likely to change until the dynamic of the financial sector changes. The SEC and the courts can pursue the banks with court cases and penalties, but they will always be confronted with time-wasting legal defenses, as well as time lags between the invention of new ways to fleece customers and the discovery and proof of those methods.
The financial sector is in effect an extreme example of the shareholder value theory run amok. Pursuit of profit not only undermines the banks themselves and ultimately the global economy as a whole.
Regulation and enforcement will only work if it is accompanied by a paradigm shift in the banking sector that changes the context in which banks operate and the way they are run, so that banks shift their goal from making money to adding value to stakeholders, particularly customers. This would require action from the legislature, the SEC, the stock market and the business schools, as well as of course the banks themselves.
Ultimately, change is for the banks’ own good. Without it, investors will continue to worry about which bank will be the next Lehman Brothers, while the rest of us can only brace ourselves for the next inevitable financial cataclysm.
And read also:
The new management paradigm and John Mackey’s Whole Foods
Lest We Forget: Why We Had A Financial Crisis
Does Wells Fargo practice radical management?
What shall we do with the big bad banks?
Big bad banks: The science of changing pathologically asocial behavior
Iceweasel
Diamond Member
Jesus Christ. This boy went full auto on us.
Windship
VIP Member
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None of the trumpites have the ability to reason. trump will continue this "war on terror" bull shit which has stolen many of our rights and is the BASIS for the continuation of the same. trump is a continuation of carter, reagan, bush, clinton, bush and our favorite criminal...... obama. You ignore where he came from and how he got to where he is today. He got there by bilking and screwing his workforce and his investors. How does anyone make money in the market if you dont see the signs and ignore information?
I stopped reading at "NONE of the....."
When that's the opening words, you know the rest is utter bullshit.
Progressives aren't supposed to stereotype people, when did they abandon that lie?
Ok, cool but the next time you "stop reading"? maybe you should just "keep on reading". See?...thats your problem. Selective learning.
Windship
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February 17, 2016
This Is Why America Is In Grave Danger: The Accelerating Death Of The Global Economy Awaits The Coming Derivatives Massacre - How Long Before These 'Weapons Of Mass Destruction' Are Unleashed?
By Godzilla - All News Pipeline
We all can see how the economy is slowing down. Gas consumption is down to 1995 levels, The Baltic Dry Index is at it's lowest levels EVER and commodity prices have tanked. So whats really going on? There is a trend that's been happening since 1999 that is quite interesting. These trends could be an indicator of our future economy, as in THIS YEAR because it precedes the election of new President. So let me explain.
In 1999, all was great. The Dot Com industry was making millions for people and the NASDAQ was booming. In February of 2000, the Federal Reserve began raising interest rates, towards the highest since 1995. At the same time, the economy was slowing. A poor holiday shopping return in 1999 disappointed the Dot Com industry. On the 12th of April the NASDAQ dropped 386 points, at the time, the lowest one day drop in history. By the time newly elected President G.W. Bush entered office, the NASDAQ had lost 60% of it's value, erasing 7 trillion dollar in wealth.
The Dot Com bubble was fueled by the Main Stream Media, the so called experts and even the Chairman of the Federal Reserve. The Dot Com stock bubble was an asset that that turned into a bubble which popped shortly before the elections of G.W. Bush. This provides some clues for a trend. Let's look at the facts:
A bubble (of assets) emerges and grows on very low Federal Reserve interest rates.
Experts, the media and the Chairman of the Federal Reserve say's everything is fine and growth will continue.
The Federal Reserve raises interest rates.
The economy begins to slow down.
The Dot Com bubble bursts just before the Presidential election, G.W. Bush's first term.
Shortly after his election, President Bush makes several speech's about the importance of home ownership. The next "bubble" has begun. The new asset was housing. In 2001, the Federal Reserve began dropping interest rates that flattened about about 1%. This helped the housing market explode as everyone wanted a house. Housing prices skyrocketed. The banks began giving loans to people who really couldn't afford them, with a lot of pushing and help from Liberal lawyers and the Federal government. The banks didn't care, because default left the bank with a house, at the time, rising in price.
No down payment, low interest rate home loans, or sub-prime mortgages, became the fad. The banks desire for profit decided to package up the regular mortgages with the sub-prime mortgages and sell them to other banks, pension funds, hedge funds and sovereign funds. The became know as CDO's, collataralized debt obligations. Experts appeared all over the news over the years, claiming that housing was not a "bubble". The Federal Reserve began raising interest rates, by 2007, they had reached 5.25% (from 1%). The result was that sub-prime mortgages defaulted in huge numbers. As more and more houses hit the market, prices plummeted as well as overall consumption. The next crisis had begun and would reach it's peak in the Fall of 2008, right before the Presidential elections.
CDOCDO's and houses became worthless in short time and nobody was buying. Lehman Bros lost their ass and filed for bankruptcy on September 15, 2008. The bubble had burst. By the end of November of 2008, Americans lost one quarter of the net worth. Stocks went down 45% from 2007 highs and housing prices dropped 20%. The overall loss doubled the Dot Com bubble fiasco, as 14 trillion dollars of wealth was lost. The big banks, Citigroup, JP MorganChase, Goldman Sachs and Bank of America were heavy buyers in CDO's and this spread throughout the world. The housing bubble burst, 2 months before the election of Barack Obama. Let's see if the trend applies:
A bubble (of assets) emerges and grows on very low Federal Reserve interest rates.
Experts, the media and the Chairman of the Federal Reserve say's everything is fine and growth will continue.
The Federal Reserve raises interest rates.
The economy begins to slow down
The housing bubble bursts just before the Presidential election, Barak Obama's first term.
Everything that happened in 2000, happened in 2008. We had both an asset bubble explosion that wiped out trillions. Let's move to what this cycle holds as far as the trend. The Federal Reserve recently increased interest rates, which had been at near zero. The economy is slowing, as I stated above. The Bloomberg Commodity Index is at a low not seen since.....2008! This slump is a clear indicator of a slowing economy on a Global scale. Holiday spending of 2015 was the worst since 2008. US manufacturing is contracting. The EXPERTS are saying that things are great.
Following the checklist, we have experts saying the economy is fine. We have the Federal Reserve raising interest rates and we a have a slowing economy. Only one thing left, the asset bubble! Looking back at the Dot com and Housing bubbles, we have something that easily achieves bubble status. This is one of those things that seems to grow and grow in the economic world. On September 18th, 2008, Hank Paulson told Congress that 5.5 trillion dollars would disappear by 2pm if the government didn't take action. The threat was... keep the big banks alive or else. Probably the biggest con job in history.
Between TARP and various actions, including the actions of the Federal Reserve, it has cost about 20 trillion bucks since then. I don't think anyone believes the US national debt went from 9 trillion to 19 trillion since 2008 because the Federal government grew that much, do you? Now the "Too Big To Fail Banks" have a safety net, basically to do what they want. It is resulting in the ultimate bubble....it is the asset that will destroy everything, when it pops, and it will pop. It is the most dangerous casino gambling market in the world, the Derivatives Market! The total net worth of all outstanding contracts is 559.2 TRILLION DOLLARS, according to the Bank of International Settlements.
A derivative is a speculative contract or a bet placed on stocks, commodities, mortgages and other economic things like interest rates. It's simply legalized gambling. Usually, gamblers don't fare too well, but the house always wins. We are not the house, in case you wanted to know. As I type this, there is not anything of economic worth that doesn't have a derivative attached to it. ALL DERIVATIVES ARE BETS! The CDO's that crashed with the housing bubble were just a small part of the derivatives market, in 2008, only 500 billion dollars worth of of the derivative market. NOTHING compared to the 559.9 TRILLION dollar derivative market we have today.
Let's look at the exposure to derivatives of the top five "too big to fail banks".
Citigroup: Assets = 1.8 Trillion dollars Exposure to derivative = more than 53 trillion dollars.
JP Morgan/Chase assets = 2.4 trillion dollars Exposure to derivatives = more than 51 trillion dollars.
Goldman Sachs assets = less than a trillion dollars Exposure to derivatives = more than 51 trillion dollars
Bank of America assets = just more than 2.1 trillion dollars Exposure to derivatives = more than 45 trillion dollars
Morgan Stanley total assets = less than a trillion dollars Exposure to derivatives = 31 trillion dollars.
Overall, the biggest US banks collectively have more than 247 trillion dollars of exposures to derivatives contracts. That's 13 times the US national debt. This kind of gambling has inflated the biggest economic bubble in history. The derivative bubble, like all bubbles, will burst. Let's review this trend again:
A bubble (of assets) emerges and grows on very low Federal Reserve interest rates.
Experts, the media and the Chairman of the Federal Reserve say's everything is fine and growth will continue.
The Federal Reserve raises interest rates.
The economy begins to slow down
The derivative bubble bursts just before the Presidential election of.........?
If this short term trend becomes reality, I can't even imagine how this will play out or what it will result in. The "Too Big To Fail" banks have put themselves in a position where they can't be bailed out on this one. Too Big To Fail is no longer true, Too Big To Save may be the new term for these huge banks in 2016. 2016 could make 1929, 2000 and 2008 all, combined, look like a picnic. Hopefully, you are as prepared as possible to weather this type of economic storm. I can't find words to describe the possible calamity if this were to occur. Can you?
The new videos below tell the tale of economic collapse that we're now watching unfolding all across the world.
This Is Why America Is In Grave Danger: The Accelerating Death Of The Global Economy Awaits The Coming Derivatives Massacre - How Long Before These 'Weapons Of Mass Destruction' Are Unleashed?
By Godzilla - All News Pipeline
We all can see how the economy is slowing down. Gas consumption is down to 1995 levels, The Baltic Dry Index is at it's lowest levels EVER and commodity prices have tanked. So whats really going on? There is a trend that's been happening since 1999 that is quite interesting. These trends could be an indicator of our future economy, as in THIS YEAR because it precedes the election of new President. So let me explain.
In 1999, all was great. The Dot Com industry was making millions for people and the NASDAQ was booming. In February of 2000, the Federal Reserve began raising interest rates, towards the highest since 1995. At the same time, the economy was slowing. A poor holiday shopping return in 1999 disappointed the Dot Com industry. On the 12th of April the NASDAQ dropped 386 points, at the time, the lowest one day drop in history. By the time newly elected President G.W. Bush entered office, the NASDAQ had lost 60% of it's value, erasing 7 trillion dollar in wealth.
The Dot Com bubble was fueled by the Main Stream Media, the so called experts and even the Chairman of the Federal Reserve. The Dot Com stock bubble was an asset that that turned into a bubble which popped shortly before the elections of G.W. Bush. This provides some clues for a trend. Let's look at the facts:
A bubble (of assets) emerges and grows on very low Federal Reserve interest rates.
Experts, the media and the Chairman of the Federal Reserve say's everything is fine and growth will continue.
The Federal Reserve raises interest rates.
The economy begins to slow down.
The Dot Com bubble bursts just before the Presidential election, G.W. Bush's first term.
Shortly after his election, President Bush makes several speech's about the importance of home ownership. The next "bubble" has begun. The new asset was housing. In 2001, the Federal Reserve began dropping interest rates that flattened about about 1%. This helped the housing market explode as everyone wanted a house. Housing prices skyrocketed. The banks began giving loans to people who really couldn't afford them, with a lot of pushing and help from Liberal lawyers and the Federal government. The banks didn't care, because default left the bank with a house, at the time, rising in price.
No down payment, low interest rate home loans, or sub-prime mortgages, became the fad. The banks desire for profit decided to package up the regular mortgages with the sub-prime mortgages and sell them to other banks, pension funds, hedge funds and sovereign funds. The became know as CDO's, collataralized debt obligations. Experts appeared all over the news over the years, claiming that housing was not a "bubble". The Federal Reserve began raising interest rates, by 2007, they had reached 5.25% (from 1%). The result was that sub-prime mortgages defaulted in huge numbers. As more and more houses hit the market, prices plummeted as well as overall consumption. The next crisis had begun and would reach it's peak in the Fall of 2008, right before the Presidential elections.
CDOCDO's and houses became worthless in short time and nobody was buying. Lehman Bros lost their ass and filed for bankruptcy on September 15, 2008. The bubble had burst. By the end of November of 2008, Americans lost one quarter of the net worth. Stocks went down 45% from 2007 highs and housing prices dropped 20%. The overall loss doubled the Dot Com bubble fiasco, as 14 trillion dollars of wealth was lost. The big banks, Citigroup, JP MorganChase, Goldman Sachs and Bank of America were heavy buyers in CDO's and this spread throughout the world. The housing bubble burst, 2 months before the election of Barack Obama. Let's see if the trend applies:
A bubble (of assets) emerges and grows on very low Federal Reserve interest rates.
Experts, the media and the Chairman of the Federal Reserve say's everything is fine and growth will continue.
The Federal Reserve raises interest rates.
The economy begins to slow down
The housing bubble bursts just before the Presidential election, Barak Obama's first term.
Everything that happened in 2000, happened in 2008. We had both an asset bubble explosion that wiped out trillions. Let's move to what this cycle holds as far as the trend. The Federal Reserve recently increased interest rates, which had been at near zero. The economy is slowing, as I stated above. The Bloomberg Commodity Index is at a low not seen since.....2008! This slump is a clear indicator of a slowing economy on a Global scale. Holiday spending of 2015 was the worst since 2008. US manufacturing is contracting. The EXPERTS are saying that things are great.
Following the checklist, we have experts saying the economy is fine. We have the Federal Reserve raising interest rates and we a have a slowing economy. Only one thing left, the asset bubble! Looking back at the Dot com and Housing bubbles, we have something that easily achieves bubble status. This is one of those things that seems to grow and grow in the economic world. On September 18th, 2008, Hank Paulson told Congress that 5.5 trillion dollars would disappear by 2pm if the government didn't take action. The threat was... keep the big banks alive or else. Probably the biggest con job in history.
Between TARP and various actions, including the actions of the Federal Reserve, it has cost about 20 trillion bucks since then. I don't think anyone believes the US national debt went from 9 trillion to 19 trillion since 2008 because the Federal government grew that much, do you? Now the "Too Big To Fail Banks" have a safety net, basically to do what they want. It is resulting in the ultimate bubble....it is the asset that will destroy everything, when it pops, and it will pop. It is the most dangerous casino gambling market in the world, the Derivatives Market! The total net worth of all outstanding contracts is 559.2 TRILLION DOLLARS, according to the Bank of International Settlements.
A derivative is a speculative contract or a bet placed on stocks, commodities, mortgages and other economic things like interest rates. It's simply legalized gambling. Usually, gamblers don't fare too well, but the house always wins. We are not the house, in case you wanted to know. As I type this, there is not anything of economic worth that doesn't have a derivative attached to it. ALL DERIVATIVES ARE BETS! The CDO's that crashed with the housing bubble were just a small part of the derivatives market, in 2008, only 500 billion dollars worth of of the derivative market. NOTHING compared to the 559.9 TRILLION dollar derivative market we have today.
Let's look at the exposure to derivatives of the top five "too big to fail banks".
Citigroup: Assets = 1.8 Trillion dollars Exposure to derivative = more than 53 trillion dollars.
JP Morgan/Chase assets = 2.4 trillion dollars Exposure to derivatives = more than 51 trillion dollars.
Goldman Sachs assets = less than a trillion dollars Exposure to derivatives = more than 51 trillion dollars
Bank of America assets = just more than 2.1 trillion dollars Exposure to derivatives = more than 45 trillion dollars
Morgan Stanley total assets = less than a trillion dollars Exposure to derivatives = 31 trillion dollars.
Overall, the biggest US banks collectively have more than 247 trillion dollars of exposures to derivatives contracts. That's 13 times the US national debt. This kind of gambling has inflated the biggest economic bubble in history. The derivative bubble, like all bubbles, will burst. Let's review this trend again:
A bubble (of assets) emerges and grows on very low Federal Reserve interest rates.
Experts, the media and the Chairman of the Federal Reserve say's everything is fine and growth will continue.
The Federal Reserve raises interest rates.
The economy begins to slow down
The derivative bubble bursts just before the Presidential election of.........?
If this short term trend becomes reality, I can't even imagine how this will play out or what it will result in. The "Too Big To Fail" banks have put themselves in a position where they can't be bailed out on this one. Too Big To Fail is no longer true, Too Big To Save may be the new term for these huge banks in 2016. 2016 could make 1929, 2000 and 2008 all, combined, look like a picnic. Hopefully, you are as prepared as possible to weather this type of economic storm. I can't find words to describe the possible calamity if this were to occur. Can you?
The new videos below tell the tale of economic collapse that we're now watching unfolding all across the world.
Windship
VIP Member
- May 27, 2014
- 3,096
- 131
- 85
- Thread starter
- #57
UL 14, 2015 @ 04:22 PM 104,153 VIEWSThe Little Black Book of Billionaire Secrets
The Big Bank Bailout
Mike Collins ,
CONTRIBUTOR
I write about manufacturing and government policies
Opinions expressed by Forbes Contributors are their own.
Most people think that the big bank bailout was the $700 billion that the treasury department used to save the banks during the financial crash in September of 2008. But this is a long way from the truth because the bailout is still ongoing. The Special Inspector General for TARP summary of the bailout says that the total commitment of government is $16.8 trillion dollars with the $4.6 trillion already paid out. Yes, it was trillions not billions and the banks are now larger and still too big to fail. But it isn’t just the government bailout money that tells the story of the bailout. This is a story about lies, cheating, and a multi-faceted corruption which was often criminal.
• Rating agencies- Rating agencies like Standard and Poor’s are paid by the banks (which is a conflict of interest) and have a huge influence on the ratings of securities. During the housing bubble ratings agencies continued to give triple AAA ratings to toxic mortgages. The justice department wants $5 billion in restitution from Standard and Poor’s for its part in falsifying ratings.
• Money laundering – It has been proven that the American Division of the HSBC bank did money laundering for Mexican drug cartels to the tune of $881 billion according to the Justice Department. The penalty to this bank for blatant corruption was $1.9 billion and the New York Times laments that HSBC was too big to indict. Nobody goes to jail at a time when an unemployed black person gets 10 years for robbing a minute mart.
• Betting Against – Both JP Morgan Chase and Goldman Sachs worked with hedge funds to bet against the toxic mortgages after the crash had started. They made money by selling short on the financial catastrophe they had created. JP Morgan was fined $296.9 million and Goldman Sachs was fined $550 million for actions
• Insider Trading –The jailed billionaire Raj Rajartmn made nearly $One million a minute by getting inside information from Goldman Schs. The New York attorney has fingered 70 hedge funds but the prosecution is very slow.
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The operating principles of the big banks is a cesspool of greed, ethics and criminal intent and they give a very bad name to free market capitalism. During the housing bubble Wall street was considered the heart and soul of free market capitalism, but when they were in danger of total collapse they fell on their knees as socialists, begging the government and tax payers to bail them out
Many people have asked why the government bailed them out. Isn’t capitalism designed to get rid of the weak and the failed; so why didn’t we just let them fail? The answer was that they were too big to fail and allowing them to fail could have created a worldwide depression. . In fact, in a meeting with Congress on September 18th, 2008. Treasury Secretary Paulson told the members that $5.5 trillion in wealth could disappear by 2pm of that day. In a meeting with Senator Sherrod Brown, Secretary Paulson and Federal Reserve Chairman Ben Bernanke said, “we need $700 billion and we need it in 3 days.”
So how did this all happen?
1933 – The Glass –Stiegel Act regulated interest rates, established deposit insurance, and erected a wall between commercial and investment banking by restricting the former from engaging in non-banking activities like securities and insurance.
1978 – A successful legal challenge to the state usury laws and the massive promotion of credit cards by the banks led to dramatic growth of credit card debt by consumers.
1979 – Pension regulation was loosened which created a new market for speculation and the capital to feed it.
1980 – Investors fled conventional interest bearing accounts to alternatives such as money market, venture capital and hedge funds which were lightly regulated.
1982- Congress passed the Garn-St. Germaine Depository Institution Act which deregulated the Savings and Loan industry. This led to speculation with other people’s money and a crisis which would cost the taxpayer $201 billion. The deregulation of interest rates at conventional banks also led to elimination of bank net-worth, accounting standards, and loan to value ratio requirements.
1999-Republican Phil Gramm successfully led the effort that repealed most of the Glass-Stiegel Act, which was a depression era law that kept Commercial Banking and Investment separated.
2000- Only a year later Gramm inserted the new Commodity Futures Modernization Act into a must pass budget bill that rocketed through the Congress. One part of this bill would prohibit the regulation of Derivatives which allowed finance gurus to leverage and speculate with other people’s money. By using derivatives, credit default swaps and other unregulated financial instruments the big banks were able to chop up and resell loans and mortgages as repackaged securities or derivatives. The new securitization became globalized and eventually affected the world economy
After the creation of new financial tools (like credit default swaps and derivatives) as well as more access to everybody’s money; the banks began to do high risk gambling just like a big casino. The new financial tools were backed by the government so that taxpayers would get hung with the bill.
2007 – The speculation and lack of effective regulation eventually led to the crash of 2007 and The Great Recession. The industry is not afraid to do it again because they know no one goes to jail and the government will bail them out.
Why didn’t more people know that the bailout had climbed into the trillions?
In an article Secrets and Lies of the Bailout, Matt Taibbi says “It was all a lie – one of the biggest and most elaborate falsehoods ever sold to the American people. We were told that the taxpayer was stepping in – only temporarily, mind you – to prop up the economy and save the world from financial catastrophe. What we actually ended up doing was the exact opposite: committing American taxpayers to permanent, blind support of an ungovernable, unregulatable, hyper concentrated new financial system that exacerbates the greed and inequality that caused the crash, and forces Wall Street banks like Goldman Sachs and Citigroup to increase risk rather than reduce it.
After the original $700 billion bailout, the ongoing bailout was kept very secret because Chairman Ben Bernanke, argued that revealing borrower details would create a stigma — investors and counterparties would shun firms that used the central bank as lender of last resort. In fact, $7.7 trillion of the secret emergency lending was only disclosed to the public after Congress forced a one-time audit of the Federal Reserve in November of 2011. After the audit the public found out the bailout was in trillions not billions; and that there were no requirements attached to the bailout money – the banks could use it for any purpose.
The Big Bank Bailout
Mike Collins ,
CONTRIBUTOR
I write about manufacturing and government policies
Opinions expressed by Forbes Contributors are their own.
Most people think that the big bank bailout was the $700 billion that the treasury department used to save the banks during the financial crash in September of 2008. But this is a long way from the truth because the bailout is still ongoing. The Special Inspector General for TARP summary of the bailout says that the total commitment of government is $16.8 trillion dollars with the $4.6 trillion already paid out. Yes, it was trillions not billions and the banks are now larger and still too big to fail. But it isn’t just the government bailout money that tells the story of the bailout. This is a story about lies, cheating, and a multi-faceted corruption which was often criminal.
• Rating agencies- Rating agencies like Standard and Poor’s are paid by the banks (which is a conflict of interest) and have a huge influence on the ratings of securities. During the housing bubble ratings agencies continued to give triple AAA ratings to toxic mortgages. The justice department wants $5 billion in restitution from Standard and Poor’s for its part in falsifying ratings.
• Money laundering – It has been proven that the American Division of the HSBC bank did money laundering for Mexican drug cartels to the tune of $881 billion according to the Justice Department. The penalty to this bank for blatant corruption was $1.9 billion and the New York Times laments that HSBC was too big to indict. Nobody goes to jail at a time when an unemployed black person gets 10 years for robbing a minute mart.
• Betting Against – Both JP Morgan Chase and Goldman Sachs worked with hedge funds to bet against the toxic mortgages after the crash had started. They made money by selling short on the financial catastrophe they had created. JP Morgan was fined $296.9 million and Goldman Sachs was fined $550 million for actions
• Insider Trading –The jailed billionaire Raj Rajartmn made nearly $One million a minute by getting inside information from Goldman Schs. The New York attorney has fingered 70 hedge funds but the prosecution is very slow.
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The operating principles of the big banks is a cesspool of greed, ethics and criminal intent and they give a very bad name to free market capitalism. During the housing bubble Wall street was considered the heart and soul of free market capitalism, but when they were in danger of total collapse they fell on their knees as socialists, begging the government and tax payers to bail them out
Many people have asked why the government bailed them out. Isn’t capitalism designed to get rid of the weak and the failed; so why didn’t we just let them fail? The answer was that they were too big to fail and allowing them to fail could have created a worldwide depression. . In fact, in a meeting with Congress on September 18th, 2008. Treasury Secretary Paulson told the members that $5.5 trillion in wealth could disappear by 2pm of that day. In a meeting with Senator Sherrod Brown, Secretary Paulson and Federal Reserve Chairman Ben Bernanke said, “we need $700 billion and we need it in 3 days.”
So how did this all happen?
1933 – The Glass –Stiegel Act regulated interest rates, established deposit insurance, and erected a wall between commercial and investment banking by restricting the former from engaging in non-banking activities like securities and insurance.
1978 – A successful legal challenge to the state usury laws and the massive promotion of credit cards by the banks led to dramatic growth of credit card debt by consumers.
1979 – Pension regulation was loosened which created a new market for speculation and the capital to feed it.
1980 – Investors fled conventional interest bearing accounts to alternatives such as money market, venture capital and hedge funds which were lightly regulated.
1982- Congress passed the Garn-St. Germaine Depository Institution Act which deregulated the Savings and Loan industry. This led to speculation with other people’s money and a crisis which would cost the taxpayer $201 billion. The deregulation of interest rates at conventional banks also led to elimination of bank net-worth, accounting standards, and loan to value ratio requirements.
1999-Republican Phil Gramm successfully led the effort that repealed most of the Glass-Stiegel Act, which was a depression era law that kept Commercial Banking and Investment separated.
2000- Only a year later Gramm inserted the new Commodity Futures Modernization Act into a must pass budget bill that rocketed through the Congress. One part of this bill would prohibit the regulation of Derivatives which allowed finance gurus to leverage and speculate with other people’s money. By using derivatives, credit default swaps and other unregulated financial instruments the big banks were able to chop up and resell loans and mortgages as repackaged securities or derivatives. The new securitization became globalized and eventually affected the world economy
After the creation of new financial tools (like credit default swaps and derivatives) as well as more access to everybody’s money; the banks began to do high risk gambling just like a big casino. The new financial tools were backed by the government so that taxpayers would get hung with the bill.
2007 – The speculation and lack of effective regulation eventually led to the crash of 2007 and The Great Recession. The industry is not afraid to do it again because they know no one goes to jail and the government will bail them out.
Why didn’t more people know that the bailout had climbed into the trillions?
In an article Secrets and Lies of the Bailout, Matt Taibbi says “It was all a lie – one of the biggest and most elaborate falsehoods ever sold to the American people. We were told that the taxpayer was stepping in – only temporarily, mind you – to prop up the economy and save the world from financial catastrophe. What we actually ended up doing was the exact opposite: committing American taxpayers to permanent, blind support of an ungovernable, unregulatable, hyper concentrated new financial system that exacerbates the greed and inequality that caused the crash, and forces Wall Street banks like Goldman Sachs and Citigroup to increase risk rather than reduce it.
After the original $700 billion bailout, the ongoing bailout was kept very secret because Chairman Ben Bernanke, argued that revealing borrower details would create a stigma — investors and counterparties would shun firms that used the central bank as lender of last resort. In fact, $7.7 trillion of the secret emergency lending was only disclosed to the public after Congress forced a one-time audit of the Federal Reserve in November of 2011. After the audit the public found out the bailout was in trillions not billions; and that there were no requirements attached to the bailout money – the banks could use it for any purpose.
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How Much Do Welfare Programs Cost the U.S.? More Than You Ever Thought
Spencer Platt/Getty Images
There’s a lot of push and pull between legislators and government officials as to just how much the government should get involved in public assistance. There are numerous welfare and social safety net programs, helping millions of families with housing and food assistance, child care, and education. But one of the biggest knocks against these programs is that they are costly, and at a time when government spending is under the microscope, these programs are in the cross hairs of deficit hawks everywhere.
Thanks to the results of a study from the University of California at Berkeley, we now have a more accurate idea of exactly how much funding these programs require. Many have hostile attitudes toward SNAP, unemployment insurance, and other programs, and if you’re going strictly off the price tag, it does look like there’s room to be concerned.
The total? $152.8 billion annually.
The study specifically looks at the relationship between working families — that is, “those that have at least one family member who works 27 or more weeks per year and 10 or more hours per week” — and the overarching effect of low wages. The findings show that the majority of families that are receiving government assistance in the form of one or more welfare programs are members of these families.
“Stagnating wages and decreased benefits are a problem not only for low-wage workers who increasingly cannot make ends meet, but also for the federal government as well as the 50 state governments that finance the public assistance programs many of these workers and their families turn to,” UC researchers Ken Jacobs, Ian Perry, and Jenifer MacGillvary write. “Nearly three-quarters (73%) of enrollees in America’s major public support programs are members of working families; the taxpayers bear a significant portion of the hidden costs of low-wage work in America.”
At the heart of the issue, the research finds, is the perpetual issue of stagnating wages and low-paying jobs.
Nearly $153 billion in public expenditures per year is nothing to sneeze at, and people should rightfully be concerned about the high price tag of these social programs. The problem is that the people who use these programs are in need, especially after many people were beaten back, in an economic sense, by the Great Recession.
Though many legislators conjure up images of lazy, parasitic do-nothings when discussing the costs of these programs, this study shows that that is an incorrect assessment of those receiving welfare — in fact, nearly three-quarters of them are working, and simply can’t bring in enough income to make ends meet. Now, there could be an endless debate as to whether a lot of these people should or could have made better decisions, or if they could go back to school for retraining, but that doesn’t help solve the immediate issue at hand, which is that there are millions of working families that need help.
But again, that help is coming at a rather monstrous price. For the government, and taxpayers concerned about possible abuse of these programs, what is there to do?
As you might have guessed, the Berkeley researchers suggest that the private sector — meaning employers — pick up the slack in the form of higher wages and better benefits for workers. That, they say, would allow the government to use taxpayer dollars to address other issues.
“Higher wages and increases in employer-provided health insurance would result in significant Medicaid savings that states and the federal government could apply to other programs and priorities,” the researchers write. “Overall, higher wages and employer-provided health care would lower both state and federal public assistance costs, and allow all levels of government to better target how their tax dollars are used.”
Of course, how we actually get to the point where employers are willing to extend those gratuities to employees is a different matter completely. It could involve instituting higher minimum wage laws, or simply waiting for the labor market to naturally readjust. Both of those approaches have potential downfalls, however. And getting legislators to agree on any kind of sound, agreeable strategy would be incredibly optimistic. For example, look at how far the Obama administration’s attempt to raise the minimum wage to $10.10 per hour went.
If anything, the Berkeley study gives us some insight as to not only how much welfare programs are costing American taxpayers, but also where, exactly, that money is going — with the majority headed to families who need it, and are still suffering at the hands of stagnant wage growth.
How Much Do Welfare Programs Cost the U.S.? More Than You Ever Thought
- June 05, 2015
Spencer Platt/Getty Images
There’s a lot of push and pull between legislators and government officials as to just how much the government should get involved in public assistance. There are numerous welfare and social safety net programs, helping millions of families with housing and food assistance, child care, and education. But one of the biggest knocks against these programs is that they are costly, and at a time when government spending is under the microscope, these programs are in the cross hairs of deficit hawks everywhere.
Thanks to the results of a study from the University of California at Berkeley, we now have a more accurate idea of exactly how much funding these programs require. Many have hostile attitudes toward SNAP, unemployment insurance, and other programs, and if you’re going strictly off the price tag, it does look like there’s room to be concerned.
The total? $152.8 billion annually.
The study specifically looks at the relationship between working families — that is, “those that have at least one family member who works 27 or more weeks per year and 10 or more hours per week” — and the overarching effect of low wages. The findings show that the majority of families that are receiving government assistance in the form of one or more welfare programs are members of these families.
“Stagnating wages and decreased benefits are a problem not only for low-wage workers who increasingly cannot make ends meet, but also for the federal government as well as the 50 state governments that finance the public assistance programs many of these workers and their families turn to,” UC researchers Ken Jacobs, Ian Perry, and Jenifer MacGillvary write. “Nearly three-quarters (73%) of enrollees in America’s major public support programs are members of working families; the taxpayers bear a significant portion of the hidden costs of low-wage work in America.”
At the heart of the issue, the research finds, is the perpetual issue of stagnating wages and low-paying jobs.
Nearly $153 billion in public expenditures per year is nothing to sneeze at, and people should rightfully be concerned about the high price tag of these social programs. The problem is that the people who use these programs are in need, especially after many people were beaten back, in an economic sense, by the Great Recession.
Though many legislators conjure up images of lazy, parasitic do-nothings when discussing the costs of these programs, this study shows that that is an incorrect assessment of those receiving welfare — in fact, nearly three-quarters of them are working, and simply can’t bring in enough income to make ends meet. Now, there could be an endless debate as to whether a lot of these people should or could have made better decisions, or if they could go back to school for retraining, but that doesn’t help solve the immediate issue at hand, which is that there are millions of working families that need help.
But again, that help is coming at a rather monstrous price. For the government, and taxpayers concerned about possible abuse of these programs, what is there to do?
As you might have guessed, the Berkeley researchers suggest that the private sector — meaning employers — pick up the slack in the form of higher wages and better benefits for workers. That, they say, would allow the government to use taxpayer dollars to address other issues.
“Higher wages and increases in employer-provided health insurance would result in significant Medicaid savings that states and the federal government could apply to other programs and priorities,” the researchers write. “Overall, higher wages and employer-provided health care would lower both state and federal public assistance costs, and allow all levels of government to better target how their tax dollars are used.”
Of course, how we actually get to the point where employers are willing to extend those gratuities to employees is a different matter completely. It could involve instituting higher minimum wage laws, or simply waiting for the labor market to naturally readjust. Both of those approaches have potential downfalls, however. And getting legislators to agree on any kind of sound, agreeable strategy would be incredibly optimistic. For example, look at how far the Obama administration’s attempt to raise the minimum wage to $10.10 per hour went.
If anything, the Berkeley study gives us some insight as to not only how much welfare programs are costing American taxpayers, but also where, exactly, that money is going — with the majority headed to families who need it, and are still suffering at the hands of stagnant wage growth.
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