Posted on 05/12/2012 10:44:24 AM PDT by SeekAndFind
Money laundering
In my simple mind and humble opinion:
The derivatives market should collapse.
We will all suffer though for the sins and profit of the few.
Derivatives produce nothing. The market has all become about gambling and not about value So much business has become about smoke and mirrors and much much less about adding value through manufacturing or invention or technology applications.
When a 38 year old can amass 3.8 billion after leaving a failed Enron by simply trading paper and taking a risk doing that... nothing is gained by anyone but him. Sure, he may have made people money along the way. I’ll bet though that most of the time he was on both sides of the trade and profited either way.
NO VALUE WAS PRODUCED. This is the business equivalent of spilling your seed on the ground.
You eventually have another AIG event. One which cannot be staunched. Then AIG makes a claim against its counterparts and then that counterpart against its counterpart....and on and on. If it cannot be stopped everything unwinds. It is true that JPM may or may not be the counterparty to other demand of performance but if they are and cannot satisfy the counterparty claim they are screwed, their investors are screwed and the payor of last resort (the taxpayer) under the careful direction of Obama, Geitner, and the ben bernanke will print towards infinity....and with that the Republic will have failed. Right now it is a slow-motion trainwreck. If that accellerates with a dozen JPM-like events, at some point there are not enough fingers to put in the dike.
Many of those derivatives offset each other. I agree the notational value is too large but absolute exposure is far lower.
Another point in the article about the SEC (and FINRA,unmentioned) sleeping. They were no doubt. Without question. Now they have the sharp knives out and will attempt to blow up the smallest infraction. They are measuring success there now by fines and jail terms and not a lack of scandal.
A million in the business is insignificant. Something along the lines of a percentage of a firms capital or an absolute number like 50mm. You get a bad day in the market with a billion dollar position and you can lose million just on lower valuations. Unrealized as it were.
It was George W. Bush who decided to bail the Wall Street banks out in 2008 instead of forcing them into bankruptcy. Instead of bailing out the banks and their executives, the government should have bailed out the depositors up to the FDIC limit. Let the shareholders, executive, and shareholders take it on the chin. The New York banking cabal would have evaporated and the conservative regional banks such as BB&T would have survived and rebuilt the system. We wouldn’t have the trillion dollar deficits or the trillions of dollars of money printing that is destroying the currency and the economy.
Yes Bush abdicated to his Secretary of the Treasury Paulson (former Goldman Sachs Chairman) and Ben Bernanke (Bush’s appointment to Fed Chairman). The Republicans in the House tried to stop this massive payoff to irresponsible special interests but were brought to heel by Bush and McCain. Bush rewarded the irresponsible and by passing TARP set the stage for Obama’s irresponsible deficit spending spree. Not that Bush hadn’t doubled the national debt himself during his 8 years. He never could find that veto pen when it came to spending bills.
Paul O’Neill, Bush’s first Secretary of the Treasury tried to institute budgetary reforms and rein in some of the irresponsible behavior of the banking community. O’Neill was sacked for his efforts. John Snow (a railroad man) who followed O’Neill was eased out to make room for Goldman Sachs Chairman Henry Paulson. Thanks to Bush the fox was literally running the henhouse when the 2008 financial crisis occurred and Bush failed to take away the keys during the moment of crisis. It is sad, given a choice between the citizens who elected him and the crony capitalists of Wall Street, Bush chose to bail out the financiers and hand the check to Main Street.
Firing every trader who ever loses $1 million will not prevent an AIG event.
Brilliant idea! Instead of $700 billion for TARP and getting the bank portion entirely paid back, we could have spent $700 billion, with nothing paid back, and a crushing depression. Brilliant!
Let the shareholders, executive, and shareholders take it on the chin.
Yeah, because those groups didn't already take it on the chin, you want the rest of the country to take it over the head, with a brick.
We wouldn’t have the trillion dollar deficits or the trillions of dollars of money printing that is destroying the currency and the economy.
We'd be wishing for a $1.5 trillion deficit.
The Republicans in the House tried to stop this massive payoff to irresponsible special interests
Yeah, but enough about Fannie, Freddie and the auto makers.
The nasty financiers repaid the bailout. Main street still owes the banks.
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.
Additionally; If JPM does one side of a swap with Bank "A" and the other side of a swap with Bank "B", with both swaps having a notional amount of $100 million each, the net exposure is essentially "0" since the swaps offset one another. However; these transactions will be reported in the media as "$200 million in outstanding derivatives exposure".
Let's not become like our enemies on the left. They would love nothing more than to use this mark-to-market, paper loss (not a realized loss) as an excuse to let the government run wild and take control of the entire banking industry "for our own good".
Besides - is it the job of the government to ensure that investment banks don't incur trading losses? As long as the banks don't come back looking for a bailout after such a loss, this is simply a consequence of being in a business were risk is taken.
The outrage at banks being bailed out should be directed towards the government who authorizes the bailouts. You make a big bet and it goes against you? Eat the loss.
I agree with you.
“The Goldman Sack”
That sounds like a good play to me. I personally would like to give them all a golden parachute without the ripcord.
I would hope they paid off TARP. When the Fed prints and loans you money at less than 1% and you then loan it back to the Treasury for 3% you are making a 2% margin at zero risk. The Federal Reserve, the Treasury, and Congress colluded to give the banks the money they used to pay off TARP. Unfortunately for Main Street the game continues allowing the banks to make record profits and Main Street to pay in the form of energy and food price inflation as well as a devalued currency.
The fact they know the government and taxpayer are backstopping them allows the banks to continue gambling with derivatives far beyond the value of the assets they hold on their balance sheets.
Main Street is also continuing to pay for the Fannie and Freddie write downs. GM also continues to draw on the government account for its working capital.
Sounds like a great deal! How many trillions are the banks borrowing for this arb?
As far as risk free, you obviously don't understand interest rate risk. Or yield curve risk.
Sounds like Anti-Business, Big-Government, LibTard talk to me. Yes, that's sarcasm.
These are great, thanks!.
I very much understand interest rate risk and yield curve risk.
The article with the link I’m providing below speaks to the sweet deal the banks are getting. One particular salient quote:
“The Fed’s low-rate policy “has been a plan to buy time for the banks to take free money and invest it, and make some kind of spread, and work their way out of the hole they were in,” said Mark MacQueen, a partner and money manager in Austin, Texas, at Sage Advisory Services Ltd., which oversees $10 billion, in a telephone interview on March 6. “Banks are trying to clean up and improve the appearance of their balance sheets and buying Treasuries accomplishes this.”
This is a rigged game with the big boys on Wall Street still being protected by the government and the taxpayer with the Fed keeping interest rates low. Meanwhile the average seasoned citizen who saved for 40 years gets 1% on CD’s. At current artificially depressed rates where’s the risk premium for the Main Street investor?
Not based on your belief that borrowing overnight at 0.75% to buy Treasuries is a risk free arb.
The 5 year Treasury now yields 0.73%. Exactly how far out do you want to go to hit this "risk free" sweet spot you feel is out there?
And if this is such a good trade, how much are the banks borrowing from the Fed to put this trade on? Give me some concrete numbers for once. Thanks.
I stand corrected on Treasury rates. The spread is much narrower now than it was in 2008.
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