Skip to comments.The Fed Audit
Posted on 07/21/2011 7:12:32 PM PDT by VideoDoctor
The first top-to-bottom audit of the Federal Reserve uncovered eye-popping new details about how the U.S. provided a whopping $16 trillion in secret loans to bail out American and foreign banks and businesses during the worst economic crisis since the Great Depression. An amendment by Sen. Bernie Sanders to the Wall Street reform law passed one year ago this week directed the Government Accountability Office to conduct the study.
"As a result of this audit, we now know that the Federal Reserve provided more than $16 trillion in total financial assistance to some of the largest financial institutions and corporations in the United States and throughout the world," said Sanders. "This is a clear case of socialism for the rich and rugged, you're-on-your-own individualism for everyone else."
(Excerpt) Read more at sanders.senate.gov ...
The $16T is for interest payments on credit derivatives and credit default swaps with no actual bailouts in the form of debt reductions. The process has to be repeated to...infinity. As the value of the supposed collateral is suspected or known to have decreased, the interest payments go up. The world’s tax bases are completely inadequate for the interest payments. The unwinding of unimaginable amounts of credit derivatives is in progress with unmanageable rollovers. The Bank of Int’l Settlements, a non-regulatory advisory bank estb. in 1930, receives voluntarily supplied reports from central nation-state banks on the volume and assumed notional values of credit derivatives. Two years ago they were reporting approx. $1.26 Quadrillion of derivatives, using the risk exposure of 5 year rollover periods (short term rollovers for long term debt. To lessen the psychologial and financial impact of Quadrillions, the reporting period was reduced to a 2.5 year interval which produced estimates of $700-600T in derivative exposure. Today, there are more derivatives as ever, subprime mortgages are still being issued in the US, and it is estimated that a 5 year rollover/risk period of derivatives is now about $1.5 Quadrillion. The world’s GDP and wotld tax bases cannot support the interest liability of these derivatives as they unwind. Tip of the iceberg, INDEED.
Our 5 biggest financial institutions have $223T in credit derivative assets (US comptroller data 2010). Now, if we audit the actual gold held by the US, the Fed Reserve (not audited since 1955), we might get an idea of how much the banks are overleveraged and what basis we have for underwriting the national debts with our gold. We talk of national debt as about $15T, while the IMF, of which the US is the largest voting shareholder of about 17%, considers the national debt as actually over $200T with outstanding social liabilities included. The IMF has issued a statement that it considers the US....bankrupt.
The 5 biggest financial institutions in the US (Morgan Stanley, BofA, JPMorgan, Citibank, GOldman Sachs) hold 93% of the US credit derivatives ($223T as reported by the Comptrollers Office in 2010), and, added to the IMF national debt figure, totals $223T plus $202T = $425T. Mind boggling.
Kotlikoff’s piece on the $200T national debt:
Boston University economist Laurence Kotlikoff says U.S. government debt is not $13.5-trillion (U.S.), which is 60 per cent of current gross domestic product, as global investors and American taxpayers think, but rather 14-fold higher: $200-trillion 840 per cent of current GDP. Lets get real, Prof. Kotlikoff says. The U.S. is bankrupt.
Writing in the September issue of Finance and Development, a journal of the International Monetary Fund, Prof. Kotlikoff says the IMF itself has quietly confirmed that the U.S. is in terrible fiscal trouble far worse than the Washington-based lender of last resort has previously acknowledged. The U.S. fiscal gap is huge, the IMF asserted in a June report. Closing the fiscal gap requires a permanent annual fiscal adjustment equal to about 14 per cent of U.S. GDP.
This sum is equal to all current U.S. federal taxes combined. The consequences of the IMFs fiscal fix, a doubling of federal taxes in perpetuity, would be appalling and possibly worse than appalling.
Prof. Kotlikoff says: The IMF is saying that, to close this fiscal gap [by taxation], would require an immediate and permanent doubling of our personal income taxes, our corporate taxes and all other federal taxes.
Americas fiscal gap is enormous so massive that closing it appears impossible without immediate and radical reforms to its health care, tax and Social Security systems as well as military and other discretionary spending cuts.
He cites earlier calculations by the Congressional Budget Office (CBO) that concluded that the United States would need to increase tax revenue by 12 percentage points of GDP to bring revenue into line with spending commitments. But the CBO calculations assumed that the growth of government programs (including Medicare) would be cut by one-third in the short term and by two-thirds in the long term. This assumption, Prof. Kotlikoff notes, is politically implausible if not politically impossible.
One way or another, the fiscal gap must be closed. If not, the countrys spending will forever exceed its revenue growth, and no ones real debt can increase faster than his real income forever.
Prof. Kotlikoff uses fiscal gap, not the accumulation of deficits, to define public debt. The fiscal gap is the difference between a governments projected revenue (expressed in todays dollar value) and its projected spending (also expressed in todays dollar value). By this measure, the United States is in worse shape than Greece.
Prof. Kotlikoff is a noted economist. He is a research associate at the U.S. National Bureau of Economic Research. He is a former senior economist with then-president Ronald Reagans Council of Economic Advisers. He has served as a consultant with governments around the world. He is the author (or co-author) of 14 books: Jimmy Stewart Is Dead (2010), his most recent book, explains his recommendations for reform.
He says the U.S. cannot end its fiscal crisis by increasing taxes. He opposes further stimulus spending because it will simply increase the debt. But he does suggest reforms that would help most of which would require a significant withering away of the state. He proposes that the government give every person an annual voucher for health care, provided that the total cost not exceed 10 per cent of GDP. (U.S. health care now consumes 16 per cent of GDP.) He suggests the replacement of all current federal taxes with a single consumption tax of 18 per cent. He calls for government-sponsored personal retirement accounts, with the government making contributions only for the poor, the unemployed and people with disabilities.
Without drastic reform, Prof. Kotlikoff says, the only alternative would be a massive printing of money by the U.S. Treasury and hyperinflation.
As former president Bill Clinton once prematurely said, the era of big government is over. In the coming years, the U.S. will almost certainly be compelled to deconstruct its welfare state.
Prof. Kotlikoff doesnt trust government accounting, or government regulation. The official vocabulary (deficit, debt, transfer payment, tax, borrowing), he says, is vulnerable to official manipulation and off-the-books deceit. He calls it Enron accounting. He also calls it a lie. Here is an economist who speaks plainly, as the legendary straight-shooting film star Jimmy Stewart did for an earlier generation.
But Prof. Kotlikoffs economic genre isnt the Western. Its the horror story and scarier, one reviewer of his book suggests, than Stephen King.
The $1.2Quadrillion credit derivative estimate from a couple of years ago:
Big Risk: $1.2 Quadrillion Derivatives Market Dwarfs World GDP
By PETER COHAN Posted 10:45 AM 06/09/10 Economy, Investing, Investing Basics
Comments: 4 Print Text Size A A A
Big Risk: $1.2 Quadrillion Derivatives Market Dwarfs World’s GDP
One of the biggest risks to the world’s financial health is the $1.2 quadrillion derivatives market. It’s complex, it’s unregulated, and it ought to be of concern to world leaders that its notional value is 20 times the size of the world economy. But traders rule the roost — and as much as risk managers and regulators might want to limit that risk, they lack the power or knowledge to do so.
A quadrillion is a big number: 1,000 times a trillion. Yet according to one of the world’s leading derivatives experts, Paul Wilmott, who holds a doctorate in applied mathematics from Oxford University (and whose speaking voice sounds eerily like John Lennon’s), $1.2 quadrillion is the so-called notional value of the worldwide derivatives market. To put that in perspective, the world’s annual gross domestic product is between $50 trillion and $60 trillion.
To understand the concept of “notional value,” it’s useful to have an example. Let’s say you borrow $1 million to buy an apartment and the interest rate on that loan gets reset every six months. Meanwhile, you turn around and rent that apartment out at a monthly fixed rate. If all your expenses including interest are less than the rent, you make money. But if the interest and expenses get bigger than the rent, you lose.
You might be able to hedge this risk of a spike in interest rates by swapping that variable rate of interest for a fixed one. To do that you’d need to find a counterparty who has an asset with a fixed rate of return who believed that interest rates were going to fall and was willing to swap his fixed rate for your variable one.
The actual cash amount of the interest rates swaps might be 1% of the $1 million debt, while that $1 million is the “notional” amount. Applying that same 1% to the $1.2 quadrillion derivatives market would leave a cash amount of the derivatives market of $12 trillion — far smaller, but still 20% of the world economy.
Getting a Handle on Derivatives Risk
How big is the risk to the world economy from these derivatives? According to Wilmott, it’s impossible to know unless you understand the details of the derivatives contracts. But since they’re unregulated and likely to remain so, it is hard to gauge the risk.
But Wilmott gives an example of an over-the-counter “customized” derivative that could be very risky indeed, and could also put its practitioners in a position of what he called “moral hazard.” Suppose Bank 1 (B1) and Bank 2 (B2) decide to hedge against the risk that Bank 3 (B3) and Bank 4 (B4) might fail to repay their debt to B1 and B2. To guard against that, B1 and B2 might hedge the risk through derivatives.
In so doing, B1 and B2 might buy a credit default swap (CDS) on B3 and B4 debt. The CDS would pay B1 and B2 if B3 and B4 failed to repay their loan. B1 and B2 might also bet on the decline in shares of B3 and B4 through a short sale.
At that point, any action that B1 and B2 might take to boost the odds that B3 and B4 might default would increase the value of their derivatives. That possibility might tempt B1 and B2 to take actions that would boost the odds of failure for B3 and B4. As I wrote back in September 2008 on DailyFinance’s sister site, BloggingStocks, this kind of behavior — in which hedge funds pulled their money out of banks whose stock they were shorting — may have contributed to the failures of Bear Stearns and Lehman Brothers.
It’s also the sort of conduct that makes it extremely difficult to estimate the risk of the derivatives market.
How Positive Feedback Loops Crash Markets
Another kind of market conduct that makes markets volatile is what Wilmott calls positive and negative feedback loops. These relatively bland-sounding terms mask some really scary behavior for investors who are not clued into it. Wilmott argues that a positive feedback loop contributed to the 22.6% crash in the Dow back in October 1987.
In the 1980s, a firm run by some former academics came up with the idea of portfolio insurance.
Their idea was that if investors are worried about their assets losing value, they can buy puts — the option to sell their investments at pre-determined prices. They can sell everything — which would be embarrassing if the market then started to rise — or they could sell a fixed proportion of their portfolio depending on the percentage decline in a particular stock market index.
This latter idea is portfolio insurance. If the Dow, for example, fell 3%; it might suggest that investors should sell 20% of their portfolio. And if the Dow fell 20%, it would indicate that investors should sell 100% of their portfolio.
That positive feedback loop — in which a stock price decline leads to more selling — boosts market volatility. Portfolio insurance causes more investors to sell as the market declines by, say 3%, which causes an even deeper plunge in the value of investors’ holdings. And that deeper decline leads to more selling. Before you know it, many investors are selling everything.
The portfolio insurance firm started off with $5 billion, but as its reputation spread, it ended up managing $50 billion. In 1987, that was a lot of money. So when that positive feedback loop got going, it took the Dow down 22.6% in a day.
The big problem back then was the absence of a sufficient number of traders using a negative feedback loop strategy. With a negative feedback loop, a trader would sell stocks as they rose and buy them as they declined. With a negative feedback loop strategy, volatility would be far lower.
Unfortunately, data on how much money has been going into negative and positive feedback loop strategies is not available. Therefore, it’s hard to know how the positive feedback loops have gained such a hold on the market.
But it is not hard to imagine that if a particular investor made huge amounts of money following a positive feedback loop strategy, other investors would hear about it and copy it. Moreover, the way traders get compensated suggests that it’s better for them to take more and more risk to replicate what their peers are doing.
Traders Make More Money By Following the Pack
There is a clear economic incentive for traders to follow what their peers are doing. According to Wilmott, to understand why, it helps to imagine a simplified example of a trading floor. Picture yourself as a new college graduate joining a bank’s trading floor with 100 traders. Those 100 traders each trade $10 million: They “win” if a coin toss lands on heads and “lose” if it lands on tails. But now imagine you’ve come up with a magic coin that has a 75% chance of landing on heads — you can make a better bet than the other 100 traders with their 50-50 coin.
You might think that the best strategy for you would be to bet your $10 million on that magic coin. But you’d be wrong. According to Wilmott, if the magic coin lands on a head but the other 100 traders flip tails, the bank loses $1 billion while you get a relatively paltry $10 million.
The best possible outcome for you is a 37.5% chance that everyone makes money (the 75% chance of you tossing heads multiplied by the 50% chance of the other traders getting a head). If instead, you use the same coin as everyone else on the floor, the probability of everyone getting a bonus rises to 50%.
When Traders Say ‘Jump,’ Risk Managers Ask ‘How High?’
Traders are a huge source of profit on Wall Street these days and they have an incentive to bet together and to bet big. According to Wilmott, traders get a bonus based on the one-year profits of those on their trading floor. If the trading floor makes big money, all the traders get a big bonus. And if it loses money, they get no bonus — but at least they don’t have to repay their capital providers for the losses.
Given that bonus structure, a trader is always better off risking $1 billion than $1 million. So if the trader, who is the king of the hill at the bank, asks a lowly risk manager to analyze how much risk the trader is taking, that risk manager is on the spot. If the risk manager comes back with a risk level that limits how big a bet the trader can take, the trader will demand that the risk manager recalculate the risk level lower so the trader can take the bigger bet.
Traders also manipulate their bonuses by assuming the existence of trading profits before they are actually realized. This happens when traders get involved with derivatives that will not unwind for 20 years.
Although the profits or losses on that trade have not been realized at the end of the first year, the bank will make an assumption about whether that trade made or lost money each year. Given the power traders wield, they can make the number come out positive so they can receive a hefty bonus — even though it is too early to tell what the real outcome of the trade will be.
How Trader Incentives Caused the CDO Bubble
Wilmott imagines that this greater incentive to follow the pack is what happened when many traders were piling into collateralized debt obligations. In Wilmott’s view, CDO risk managers who had analyzed a future scenario in which housing prices fell and interest rates rose would have concluded that the CDOs would become worthless under that scenario. He imagines that when notified of that possible outcome, CDO traders would have demanded that the risk managers shred that nasty scenario so they could keep trading more CDOs.
Incidentally, the traders who profited by going against the CDO crowd were lone wolves whose compensation did not depend on following the trading floor pack. This reinforces the idea that big bank compensation policies drive dangerous behavior that boosts market volatility.
What You Don’t Understand, You Can’t Properly Regulate
Wilmott believes that derivatives represent a risk of unknown proportions. But unless there is a change to trader compensation policies — one which would force traders to put their compensation at risk for the life of the derivative — then this risk could remain difficult to manage.
Unfortunately, he thinks that regulators aren’t in a good position to assess the risks of derivatives because they don’t understand them. Wilmott offers training in risk management. While traders and risk managers at banks and hedge funds have taken his course, regulators so far have not.
And if regulators don’t understand the risks in derivatives, chances are great that Congress does not understand them either.
See full article from DailyFinance: http://srph.it/99t8PV
Est. of world-wide derivatives at $1.36quadrillion:
The 5 biggest banks in the US have, among them, $293T in derivatives...the interest rollovers are about $13 trillion...the banks only are capitalized to the tune of $6T...there is a shortfall of $7 trillion. They are insolvent. The derivatives are in level 3 on the bank books which are not defined as marketable, or reliably valuable. Their real value is achieved by mark-to-market sale...say 10 cents on the dollar if they are lucky. The $700 - $1.36Q worldwide derivatives are valueless for liquidation, unless your are a very rich and friendly...Martian willing to help take an equity position in the posessions of relatively ignorant Earthlings.
By Thomas Kostigen, MarketWatch
SANTA MONICA, Calif. (MarketWatch) — There’s a $700 trillion elephant in the room and it’s time we found out how much it really weighs on the economy.
Derivative contracts total about three-quarters of a quadrillion dollars in “notional” amounts, according to the Bank for International Settlements. These contracts are tallied in notional values because no one really can say how much they are worth.
But valuing them correctly is exactly what we should be doing because these comprise the viral disease that has infected the financial markets and the economies of the world.
Try as we might to salvage the residential real estate market, it’s at best worth $23 trillion in the U.S. We’re struggling to save the stock market, but that’s valued at less than $15 trillion. And we hope to keep the entire U.S. economy from collapsing, yet gross domestic product stands at $14.2 trillion.
Compare any of these to the derivatives market and you can easily see that we are just closing the windows as a tsunami crashes to shore. The total value of all the stock markets in the world amounts to less than $50 trillion, according to the World Federation of Exchanges.
To be sure, the derivatives market is international. But much of the trouble we’re in began with contracts “derived” from the values associated with U.S. residential real estate market. These contracts were engineered based on the various assumptions tied to those values.
Few know what derivatives are worth. I spoke with one derivatives trader who manages billions of dollars and she said she couldn’t even value her portfolio because “no one knows anymore who is on the other side of the trade.”
Derivatives pricing, simply put, is determined by what someone else is willing to pay for the contract. The value is based on an artificial scenario that “X” will be worth “Y” if “Z” happens. Strip away the fantasy, however, and the reality of the situation is akin to a game of musical chairs — without any chairs.
So now the music has finally stopped.
That’s why stabilizing the housing market will do little to take the sting out of the snapback we are going through on Wall Street. Once people’s mortgages were sold off to secondary buyers, and then all sorts of crazy types of derivative securities were devised based on those, and those securities were in turn traded on down the line, there is now little if any relevance to the real estate values on which they were pegged.
We need to identify and determine the real value of derivatives before we give banks and institutions a pass-go with more tax dollars. Otherwise, homeowners will suffer as banks patch up the holes left in their balance sheets by the derivatives gone poof; new credit won’t be extended until the raff of the old credit is put behind.
It isn’t the housing market devaluation, or the sub-prime mortgage market defaults that have us in real trouble. Those are nice fakes to sway attention away from the place where greed truly flourished — trading phony instruments to the tune of $700 trillion.
Let’s figure how to get out from under that. Then maybe the capital will begin to flow again through the markets. Right now, this elephant isn’t just in the room, it’s sitting on us.
Thomas M. Kostigen is the author of You Are Here: Exposing the Vital Link Between What We Do and What That Does to Our Planet (HarperOne).
I have posted the immediate preceeding posts to help define the real size of the liability envelope the planet is encased in with reference in particular to the US envelope. The media, the Congress have not educated the public as to what is transpiring, or why to any adequate degree.
Thank you for posting that.
and also to you for an answer to this mess ignored by the MSM.
Another eye opener by the Mogambo Guru...note the approx Trillion of dollars in actual circulation...very small:
There are $1.36 quadrillion in notional derivateves estimated by the BIS, and, they can confirm by voluntary accounting only $6-700 trillion of them.
“If you want a way to understand leverage, remember there is only $927.6 billion in actual US coins and paper money in existence. Thanks to the insanity of derivatives like massive fractional-reserve banking (where the fraction of deposits that are held in reserve against about $12 trillion in US bank loans and leases, and another $12 trillion in deposits, steadily ran less than the mere pittance of $40 billion for over a decade, thanks to that bastard Alan Greenspan at the Federal Reserve at the time. And bank reserves are still only $65 billion under Bernanke!), this little bit of cash money was morphed into $17 trillion or so in the stock market, plus another $14 trillion or so in the bond market, plus a housing stock valued at $17 trillion or so, plus a couple of hundred trillion dollars in bizarre derivatives here and there.
In short, this piddly $927.6 billion in actual cash has been multiplied thousands of times over, so that people could go into debt to pay for all these things and so, so many more. And all of this in a $14 trillion GDP!
So you can see that derivatives dwarf everything else. The true size of the total of derivatives outstanding is understandably hard to compute, and that is why it was interesting that the Bank for International Settlements (BIS) calculates that there are about $620 trillion of derivatives floating around the world, and some estimates from others have gone as high as the incomprehensible $200 quadrillion, all of which seems Too, Too Bizarre (TTB) for words since global GDP the sum total of all the goods and services produced by the Whole Freaking World (WFW) in an entire year is only around $60 trillion!
But the BISs estimate of $620 trillion in derivatives means that there are over $10 in derivatives for every $1 of global economic activity, which is like one guy at the roulette table betting $1 while 5 guys around him are each betting each other $2 on whether the guy wins or loses!
I say this without fully understanding anything, which is OK with me since I am kind of stupid and would probably get it all wrong, anyway, but I feel very confident in my universal condemnation and disgust with the whole mess, mostly since I never heard of anybody saying, I got rich from derivatives! and, in fact, the opposite is manifestly true.
But this financial insanity is just a small, small part of the Sheer Economic Insanity (SEI) of the Federal Reserve creating So Freaking Much Money (SFMM), and as to the implications, I join with The International Forecaster in saying that if people truly understood the implications, they would be buying gold and silver by the truckload, along with their related shares, which together comprise your only salvation at this point.
I know what you are thinking. You are thinking to yourself, Well, maybe they are both just saying that because The International Forecaster is as stupid and crazy as that Mogambo lowlife idiot!
Well, I doubt that, especially since I never heard my wife yell at them for being idiots, or heard her say how the only real idiot around here is her for putting up with them all these years, or go into one of those episodes where she ends up crying out, Oh, death, where is thy sting? about something they did, or didnt do, but should have or shouldnt have, depending.
Well, questions of my mental capacity aside, to buttress our joint opinion about gold, they note that inflation in prices is showing up in imports, as The import price index reached 0.9% in April compared to 0.5% in March, which is bad enough inflation in prices to give you the shakes, but, worse, Over the year, the import price index registered 11.1% in April. Yow!
And if the horror of 11.1% inflation in prices, or the looming horror of disastrous hyperinflation in prices thanks to the central banks of the world creating So Freaking Much Money (SFMM) is not enough to scare you into getting into your car to drive like a maniac in a screaming frenzy to buy more gold, zooming down the street and even onto the sidewalk when you have to (Honk! Honk! Outta my way, morons!), then remember that the Treasury says they only have 260 million ounces of gold (and this is assuming that all the gold is still there, which I dont believe for a second), which, at the ludicrously low price of $1,230 an ounce, is worth only $319 billion!
Thus, all the gold in Fort Knox is worth, at these low prices, less than a fifth of one years deficit-spending in the Obama budget! Wow!” the Mogambo Guru
[It isnt the housing market devaluation, or the sub-prime mortgage market defaults that have us in real trouble. ]
Correct. They are symptomatic visible festering boils on the buttocks of a financial infrastructure that, beneath the increasingly putrid surface, is deliberately amoral and systemically corrupt to the core.
It’s time to flush the A$$paper along with the criminally minded NyLon turds who created it.
DEFAULT - and then throw the bastards in Jail.
Before we run off the cliff, remember the source of this article:
“Senator Bernie Sanders Website”
I have no doubt the problem is worse than admitted by those in DC. But do you really believe anything that Bernie Sanders promotes?
The Consumer Fanatical “Protection” Bureau (How Soviet) is actually a form of financial RECEIVERSHIP of the entire population as a labor and wealth source to be mined to full extraction by the Fed Reserve with the abdication of the COngress. Paulson pointed a gun to the head of the US in 2008, got $700B and control of the country at the same time for the Fed Reserve and its financially related banks. All credit derivative instruments were developed while Paulson was at Goldma Sachs.
It is the Fed Reserve and the 5 biggest (insolvent) banks that should be forced into bankruptcy and in the meanwhile its financial institutions placed in RECIVERSHIP...not the people of the US, all 311 million of them, who are required to guarantee the credit deriv. interest payments related to the $5T of Fannie and Freddies fraudulent mortgage backed derivatives which are not actually mortgage backed at all as the notes and titles, and country registrations are fraudulently ...missing...hence robosigners, and 11yr deceased notary stamps on tens of thousands of mortgage transfers. The COnsumer Financial Protection Bureau is a big black bag out of which no citizen will escape. All micro transactions in all bank accounts and credit card accounts will be monitored, data gathered, reported to the IRS and many other executive agencies. It is breathtakin in scope what has been empowered in the CFPB. There will be NO so called middle class, small business recovery once the CFPB is instituted as all financial behavior will be dictated by the Executive branch of govt. with no Congressional accountability as the Dodd Frank law is written now. Without a Rep. Senate at the present time, it may be too late to stop this fait accompli. THe Fed is bankrupt and we are being bagged up as a securitizable labor force to be leveraged as we pay off bank debts.
THe audit of the Fed and related issues is the topic. Bernie Saunders is simply using focused facts re the Fed Audit to advance his personal positions. THat takes away nothing from the Fed Audit itself, something of interest to the whole country without any legitimization by socialist Saunders.
Same ol Same ol...
“COMMERCE BETWEEN MASTER AND SLAVE IS DESPOTISM”
“Meet the New Boss, same as the Old Ba’al”
Where the heck have you been all my life, and how did you type all that so quickly?!
Thank you for one of the most informative, amusing and scary series of posts I can ever recall.
If I understand the gist of your insights, we are rapidly approaching a point of major economic restructuring, wherein we will find that a human life is worth hedging for about a thousand calories, give or take a few bites.
I've been on the phone for over three hours.
Your posts enlightened me beyond anything that the article stated.
I have a much broader perspective of the matter and to put it simply... the scope of this really takes your breath away.
Thanks. Your effort is much appreciated.
I thought he was saying that some headway is finally being made as to looking inside the Fed and what they've done secretly to this point..
Explain to me how this concentration of exposure has evolved. I have read about CDS instruments and assumed it was much more widely distributed among banks. Are those banks totally controlled by the Fed? Are they simply markers for Fed activity?
I know several local banks who are the opposite of what the "Global" banks are. Solid, cautious, respectable and responsible. But the currency is exchanged the same, so is there any protection through them from what is happening?
This is obviously a planned destruction or it is an incredibly power drunk sailor doubling his bet.
The Fed Reserve System is composed today of approximately 8,800 banks in the US and overseas. It services about $7T in accounts which is “insured” by the FDIC with historically about $50B or less available for defaults. The banks themselves, collectively, are the owners of the Federal Reserve, a private and up to now unaudited organization. Another class of banks in the US are state chartered banks, with no connection to the Federal Reserve System.
The biggest banks in the system were the favored and natural banks to do vast business the world over via Wall Street when the Congress allowed banks to get into the securities selling business with the largest investment firms, which had been prevented soon after the Great Depression had materialized in the thirties. In the case of mortgage backed securities, the repeal of the Glass-Steagal Act in the very early nineties by the Clinton administration, allowed the banks to get into the securities busns specifically for the sale by banks of mortgage backed securities bundled into tranches of credit derivatives, causing the rise of “insurance” policies of credit default swaps, themselves almost completely void of adequate reserves in case of payout as with the MB credit derivatives. The rest is history.
Two good books to read in regard to JPMorgan and the Fed Reserve formation in 1913 are Quigleys’ “Tragedy and Hope” and another, “The Creature from Jekyll Island”..the latest edition is up thru 2008.