Posted on 09/24/2011 7:11:09 PM PDT by SeekAndFind
uh..we are right back in 2008..
the federal reserve is out of bullets
Control the world's money, exploit the greed of humanity in this broken earth, and destroy America's sovereignty.
mind boggling.
Well, no one took the toxic assets off the books.
No one dismantled the Community reinvestment act.
No one addressed Fanny, Freddie, Barney, and Chris Dodd.
Obama Geitner and Ben Bernack dug us in deeper.
We are screwed.
Those banks need to be allowed to fail ASAP. And then take a few trillion fiat dollars that the FED has printed since 08, put it all in some field in Louisiana and have a giant Marshmallow roast.
we are in a depression and we will be in a more severe depression soon. the question is, can we save our future, our dollar and let the economy pick back up on its own naturally.
Banks are certainly interesting entities.
When people realize that Herman Cain was chairman of a Federal Reserve Branch, they’ll sober on him.
*I kid!*
$250 Trillion is 5 times world GDP, all in funny paper invented by banks to please their shareholders. I’m guessing maybe 1% of this number is in real assets such as cash or real estate. How can this even be legal?
Ping.
In addition to bilateral netting (which I acknowledge is not a fail-proof safety net as pointed out in the article), you also have to dissect the multi-trillion dollar figures thrown around. 80% of this total exposure is in the form of plain vanilla Interest Rate Swaps.
In a vanilla Interest Rate Swap, the 2 parties involved in a transaction are only exchanging fixed interest payments for floating interest payments on an agreed-upon notional.
For example: 2 parties may engage in a Swap transaction on a $100million notional amount. They are not exchanging the entire $100million. They are only exchanging interest payments on that $100 million on a monthly, quarterly, semi-annual or annual basis (whatever they agree to), so the true exposure is nowhere near the $100 million notional amount of the swap.
That being said, things are not looking too stable. It is very likely that at least one European bank will fail, which could set off a chain reaction in the US with some of our big banks which are hanging by a thread.
“How can this even be legal?”
Because Wall Street lobbied Congress to make sure that derivatives aren’t regulated. They wanted and got the Commodities Futures Modernization Act of 2000.
This law played a major role in fueling the financial crisis.
These institutions are still selling credit default swaps. If you look at BIS (Bank of International Settlement) they report the globe has written over 1.25 Quadrillion dollars of notional value of CDEs. If these 4 banks are called upon to perform by their counterparty in the CDE there will be no stopping the meltdown. It will make Sept 16,2008 look like a walk in the park. I, personally, do not believe the central bankers and governments can ‘fix’ this problem. I do not think they can control letting the gas out of this pressure cooker. It will blow and we are all going down. Think of it as 1000 AIGs going down all at the same time. It is going to get very, very bad.
All of this stuff is too confusing to me. Guess I’ll go see what’s on TV.
...of possible interest *PING*.
Perhaps a country club assessment from every man, woman and child in America., payable to these five banks. With future dues as needed.
>>>In a vanilla Interest Rate Swap, the 2 parties involved in a transaction are only exchanging fixed interest payments for floating interest payments on an agreed-upon notional.
Wouldn’t that mean that if we see interest rates quickly rise up to Carter levels (18 - 20 %), a borrower who chose floating rates may suffer so much that he might have to file bankruptcy?
Also, wouldn’t it be common for one company to always be on one side of the transaction (always borrowing, or always lending), instead of lending and borrowing over the same term (thus offsetting risk)?
It seems that many of the financial fiascos revolved around counter party risk (one side can’t pay the higher rates via agreed monthly balancing). One side is financially ruined by rapid increases in interest rates. Bernacke has set us up for a rapid rise in interest rates at some (unknown) point in the near future because he has created the HUGE expansion of adjusted monetary base that is seeping into money circulating in the economy (M-2). And the with the HUGE creation of federal and personal mortgage debt, largely by the Democrats, that provides the fodder for the derivatives.
If so, then the derivative risk is not reduced by netting.
Because of this repeating counter-party risk (regardless of the modernity of the form), derivatives must be banned from banks and other governmental parties. It’s not that their too stupid (they often are), it’s that IT’S NOT THEIR MONEY at risk. This kind of risk should only be taken on by private companies.
Nailed it.
Gross notional, what a useless number. If you bet $10 on the Cubs game today, your total risk is $10.
Based on a "security" with a notional value of about $1.3 billion.
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