Skip to comments.The REAL Reason Ben Bernanke Leaves a Paperweight on the “Print” Button When His Finger Gets Tired
Posted on 02/07/2011 1:08:03 PM PST by FromLori
Weve been over the numerous BS excuses that US Dollar destroyer extraordinaire Ben Bernanke has made for QE enough times that today Id rather simply focus on the REAL reason he continues to funnel TRILLIONS of Dollars into the Wall Street Banks.
Ive written this analysis before. But given the enormity of what it entails, its worth repeating. The following paragraphs are the REAL reason Bernanke does what he does no matter what any other media outlet, book, investment expert, or guru tell you.
Bernanke is printing money and funneling it into the Wall Street banks for one reason and one reason only. That reason is: DERIVATIVES.
According to the Office of the Comptroller of the Currencys Quarterly Report on Bank Trading and Derivatives Activities for the Second Quarter 2010 (most recent), the notional value of derivatives held by U.S. commercial banks is around $223.4 TRILLION.
Five banks account for 95% of this. Can you guess which five?
Looks a lot like a list of the banks that Ben Bernanke has focused on bailing out/ backstopping/ funneling cash since the Financial Crisis began doesnt it? When you consider the insane level of risk exposure here, you can see why the TRILLIONS hes funneled into these institutions has failed to bring them even to pre-Lehman bankruptcy levels.
Ben Bernanke is a stooge and a fraud, but he is at least partially honest in his explanations of why he wants to keep printing money. The reason is to try to keep interest rates low. Granted hes failing miserably at this, but at least he understands the goal.
Of course, Bernanke tells the public and Congress that the reason we need low interest rates is to support housing prices. He doesnt mention that $188 TRILLION of the $223 TRILLION in notional value of derivatives sitting on the Big Banks balance sheets is related to interest rates.
Yes, $188 TRILLION. Thats thirteen times the USs entire GDP and nearly four times WORLD GDP.
Now, of course, not ALL of this money is at risk, since the same derivatives can be traded/ spread out dozens of ways by different banks as a means of dispersing risk.
However, given the amount of money at stake, if even 4% of this money is at risk and 10% of that 4% goes wrong, youve wiped out ALL of the equity at the top five banks.
Put another way, Bank of America, JP Morgan, Goldman, and Citibank would CEASE to exist.
If you think that Im making this up or that Bernanke doesnt know about this, consider that his predecessor, Alan Greenspan, knew as early as 1999 that the derivative market, if forced into the open and through a public clearing house would implode the market. This is DOCUMENTED. And you better believe Greenspan told Bernanke this.
In this light all of Bernankes monetary policies and efforts are focused on doing one thing and one thing only: trying to shore up the overleveraged, derivative-riddled balance sheets of the Too Big to Fails.
The fact that the bank executives taking this money and using it to pay themselves and their employees record bonuses only confirms that these folks have NO interest in taking care of shareholders or their businesses. Theyre just going to take the money and run for as long as this scheme works.
I dont know when this will come unraveled. But it WILL. At some point the $600+ TRILLION behemoth that is the derivatives market will implode again. When it does, no amount of money printing will save the Too Bloated To Exist banks balance sheets.
At that point, its game over for Wall Street and the Fed.
Lori, Link doesn’t work but the article sounds accurate.
But I thought he was supposed to be a genius at preventing great depressions?
Are derivatives insurance policies?
In bailing them, he’d rather destroy everyone else.
Let them all fail. Sure, it will be difficult, but the alternative is even worse.
FOOD, GUNS & AMMO, EXTRA CLOTHING, TOOLS, SILVER, GOLD (Get ‘em while you still can)
Oh I wonder why sorry here is the link again
Idiotic article. “Derivatives” are zero sum. They are economic non-events because the same money remains in the overall economy.
Some genius his printing is hurting the rest of us with inflation and it’s killing savers he is also helping to cover up.
‘Toxic’ Assets Still Lurking at Banks
“During the financial crisis, investors fretted over “toxic,” hard-to-value assets that banks were carrying. Those fears have faded as bank profits have rebounded, loan delinquencies have declined, and bank stocks have soared 25% in the past five months.
Some banks have yet to reckon with all their “toxic” assets, among them mortgage-backed securities, whose values took a hit when the housing market cratered. Above, construction on a home in Phoenix.
But banks still hold plenty of the bad assets that once spooked investors: mortgage-backed securities, collateralized debt obligations and other risky instruments. Their potential impact concerns some accounting and banking observers.
They can be. They are any financial instrument that is based on another financial instrument. Options, futures, futures options, credit default swaps, hedge trades, repackaged cash flows from mortgages marketed as bonds, are all "derivatives".
They often utilize a great deal of leverage, though not always.
So they bet one way and then Bernake has to deliver. Hmmm. We are screwed. I bet food will double again. Wonder what the end game is? War?
I hope nobody is paying you for your understanding of exotics.
It always is.
Debt Deflation on Steroids.
A lot of this is pure hype garbage! Let's see, I am a bank. I have 1000 short soybean contracts and 1000 long soybean contracts on my books. OH MY GOD! A NOTIONAL VALUE OF 2000 contracts X 5000 bushels/contract X the current price of soybeans. THAT IS A BAZILLION!
No not really, the bank is flat, the contracts offset each other.
$223.4 Trillion owed to banks - $223.4 Trillion owed to other banks = $0
Housing prices have continued to fall in many locations after FASB switched to mark to myth back in APR 09 to stabilize the financial sector. The argument made at the time was housing prices had overshot to the downside and didn't reflect true value.
Yes but it’s terrible what it is doing to the rest of us how many times and how many ways do we have to end up paying.
You so funny!
Indeed. That's called "zero-sum." Economic non-events...but in contrast to your factual explanation above, some people online want hype! DISASTER! NEWS! SCOOP!
It's the "I'm bored, alone, and want to get my adrenaline-rush on-line" syndrome.
Thanks you saved me the time. And these numbers aren’t the worst of it.
Incorrect. Zero Sum means that the *same* money stays in the economy. Moving the same money between Buyer A and Insurer B is Zero Sum because no wealth was added or lost, just moved.
In contrast, if Insurer B defaults, then no money moved, and the same money still exists in the overall economy (because no wealth was added or lost, or in that case even moved).
In fact, "not having the assets" or defaulting on a contract is the same as if no derivative was ever purchased.
That's why derivatives are economic non-events: they are Zero Sum.