Skip to comments.When The Derivatives Market Crashes (And It Will) U.S. Taxpayers Will Be On The Hook
Posted on 06/01/2012 9:28:47 AM PDT by Lorianne
Recently, JP Morgan made national headlines when it announced that it was going to take a 2 billion dollar loss from derivatives trades gone bad. Well, it turns out that JP Morgan did not tell us the whole truth. As you will see later in this article, most analysts are estimating that the losses will eventually be far larger than 2 billion dollars.
But no matter how bad things get for JP Morgan, it will not be allowed to fail. JP Morgan is the largest bank in the United States, so it is essentially the "granddaddy" of the too big to fail banks. If JP Morgan gets to the point where it is about to collapse, the U.S. government and the Federal Reserve will rush in to save it. Because of this "security blanket", banks such as JP Morgan feel free to take outrageous risks. Today, JP Morgan has more exposure to derivatives than anyone else in the world. If they win, they win big. If they lose, U.S. taxpayers will be on the hook. Not only that, but thanks to Dodd-Frank, U.S. taxpayers are on the hook for bailing out the major derivatives clearinghouses if there is ever a major derivatives crisis. So when the derivatives market crashes (and it will) you and I will be left holding a gigantic bill.
Derivatives almost caused the complete collapse of insurance giant AIG back in 2008. But instead of learning our lessons, the derivatives bubble has gotten even larger since that time.
(Excerpt) Read more at world.hawaiinewsdaily.com ...
These guys don’t have any real knowledge, that’s why they’re journalists and not hedge fund managers.
The JPM trade was designed to hedge exposure to corporate bonds. Sure enough, while their derivative position went down, their bond portfolio went up. But they took too large a derivative position, and distorted the market, so they overshot their hedge. However, the total loss is likely to be less than $2 billion, not more.
Furthermore, JPM has shareholder capital of $190 billion, and earns $5 billion a quarter from operations. They can easily afford to absorb this loss, and hopefully they will reform and cut back on risk-taking.
Forcing banks to buy "Sovereign Debt"
is more Toxic than derivatives.
If JPM knows what it is doing and can absorb their losses on their own, then why do they need government provisions to cover them?
I have no interest in what JMP does or how it handles their business ... I only care that taxpayers are not on the hook for any losses.
Total ‘value’ of world derivative market $1.2 Quadrillion. That's around a $400K debt for every person alive today.
I’m fully capable of appreciating exactly how “investment banks” and investment banking” appear to hurt the country.
I’m waiting to find out just exactly what it is they do for all of us. Right here. Right now.
And just exactly why it is “they’re to big to fail”....