International Bankers Dump All Derivative Losses Into Public’s Lap

The numbers we see in the derivatives markets are astronomical.  And the bail outs are also astronomical.  And potential future losses that are being charged to the public are nearly infinite.  And JPM wants Obama’s top aid to join them at board meetings, thus coordinating the White House totally with JPM.  And the economy is now ‘growing’ again but this is due nearly entirely by having our national debt balloon.


CIT May Get $3 Billion Rescue From Bondholders (Update1) –

CIT Group Inc., the 101-year-old commercial finance company seeking to ward off bankruptcy, agreed to a $3 billion loan for 2.5 years from a group of its bondholders, according to people familiar with the situation.


CIT will pay interest of 10 percentage points more than the three-month London interbank offered rate, said the people, who declined to be identified because the negotiations are private. Libor, a lending benchmark, is 0.51 percentage point. The board agreed to the financing yesterday, and CIT plans to announce the agreement as soon as today, one of the people said.


The funds would give CIT a chance to restructure its debt outside of bankruptcy, said the second person, who also declined to be identified because the talks are confidential. CIT will attempt a cash tender offer for its bonds in August as part of a broader recapitalization, the person said.


This was a game of ‘chicken’.  The investors holding CIT stocks wanted the government to insure the company so they wouldn’t have to recapitalize CIT, themselves.  They wanted the same service JP Morgan and Goldman Sacks got last September.  But their bluff was called.  Perhaps this signals the end of the major bail outs of the lenders.  The danger of bailing out one major operation means all others will want the same service.


Of course, the rotten smell that assails our nostrils is the fact that previous bail outs helped GS and JPM.  While rivals were dumped into the trash can of history.


U.S. Bailout Costs May Reach $23.7 Trillion, TARP Inspector Says –

U.S. taxpayers may be on the hook for as much as $23.7 trillion to bail out financial companies, according to Neil Barofsky, special inspector general for the Treasury’s Troubled Asset Relief Program.


Barofsky made the estimate in testimony prepared for a congressional hearing tomorrow.


Over and over again, many of us wondered exactly how immense the bail outs really were.  If this testimony is correct, it is rapidly approaching the value of the derivative contracts (the capitalized part which is 10% of the size of the monster which is around $550 trillion).  As I suspected a year ago, we are the guarantors of the entire losses of the Derivatives Beast.  This is because the big 5 banks hold 90% of these contracts and about 90% of Congress and the Presidency.


This political control was gained via spending vast sums of money not just on campaign funds but also hiring anyone working inside of the Treasury or Federal Reserve and letting all other workers know there were great rewards if one is cooperative and careful.  Also, the noxious ‘paid speeches’ offered to all retired politicians, especially ex-Presidents, means the top bankers have turned all our ‘representatives’ as well as regulators into employees of these businesses.


This is why it is hyper-important to clean up these paths of corruption.  Foisting the entire mess of the derivatives bets, bets that were unregulated and paralegal, is a crime.  Namely, this is TREASON.  Destroying our economic future so the top international bankers can recapitalize themselves and protect themselves from derivative bets gone sour: this is a fundamental betrayal of our nation.


We see how Iceland has to recapitalize its banks this same way.  Since the parties who made the bets and created the entire, disgusting derivatives mess, we must outlaw this business.  We own it, we can kill it.  Since these guys didn’t run it properly and screwed up everything and palmed it all off onto us, then we must strangle it…and them.  This is no way to do business.


The same people who made this mess are getting record profits and are passing out record bonuses right on the heels of sticking us with $24 trillion in liabilities!  Hang them all.


U.S. Economy: Leading Index Shows Recession May Be Nearing End –

The index of U.S. leading indicators rose in June for a third consecutive month, reinforcing signs the economy may be emerging from the worst recession in five decades.


The Conference Board’s gauge of the economic outlook for the next three to six months increased 0.7 percent, more than forecast, after a revised 1.3 percent gain in May, the New York- based research group said today. It is the first time the index has climbed for three months in a row since 2004.


We have to have some sort of ‘economy’.  Selling our debts to China has gotten so bad, China now holds 20% of all US public debts, nearly a trillion worth.  California finally passed a budget.  Unlike JPM and GS, no one in DC is much interested in bailing out the Sunshine State.  Perhaps California’s governor is waiting for a major earthquake event?   Maps of Recent Earthquake Activity in California-Nevada

Picture 14

The middle of the San Andreas Fault is nearly totally silent while the northern and southern ends are shimmering and shaking like crazy.  A bad sign.  And Mammoth Lake, a dangerous volcanic caldera, began shaking harder and harder this week, too.  Tremendous pressure is at work.  I figure, this looming disaster will be viewed as an opportunity to have money flood into California to fix everything the earthquakes will break.


This is the ‘broken window’ theory.  Only, when windows are broken, and one must buy the replacement window from the Chinese, Japanese or German manufacturers, this means we simply get more debts while trying to restore a lost status quo.  This won’t fix what has broken in our economic system any more than recapitalizing the top 5 derivative banks has fixed our banking system.


White House chief of staff declines JPMorgan invite –

U.S. President Barack Obama’s chief of staff, Rahm Emanuel, has declined an invitation to attend a board meeting of JPMorgan Chase & Co, a White House official said on Sunday.


The New York Times reported over the weekend that Emanuel, the president’s top aide, had agreed to attend the meeting, which was to be held in Washington on Monday, pending a review by the White House counsel….


A visit by Emanuel, who told the Times he shared a bond with Dimon since both men rebuilt their respective careers after rough patches, could have been interpreted as favoritism to one financial institution as the Obama administration revamps regulation for the entire banking industry.


JP Morgan has to pull hard, eh?  Emanuel is entirely out of line, if he attends board meetings of JPM.  This illustrates how ingrown our political system is.  Obviously, Obama’s top aid is a tool working for JPM.  He should resign.  But won’t, of course.


JPMorgan, U.S. Lenders Lean on Investment Banking for Profits –

Bank of America Corp., JPMorgan Chase & Co. and Citigroup Inc., the three biggest U.S. lenders, reported a total of $10.2 billion in profits for the second quarter that relied on investment banking and asset sales to counter growing losses on consumer loans.


Goldman Sachs Group Inc., which gets almost none of its revenue from retail consumer banking, had a record quarter, reporting earnings of $3.44 billion.


Nine months after accepting more than $200 billion in government rescue funds aimed at preventing a collapse of the financial system, U.S. banks are girding for more losses from mortgages, credit cards and other businesses linked to consumers, while their underwriting and trading units generate revenue at or near all-time highs.


“Capital-markets businesses are going very well right now, and Goldman Sachs is the best of the best,” said Paul Miller, an analyst with FBR Capital Markets in Arlington, Virginia. “But the consumer is still struggling out there and anybody with a lot of consumer exposure is struggling along with it.”


Profit at JPMorgan, the second-biggest U.S. bank, was $2.72 billion, or 28 cents a share, and increased for the first time since 2007 on record fees from trading and stock and bond underwriting. The bank ranks No. 1 in underwriting stocks globally and in managing bonds sold in the U.S., according to data compiled by Bloomberg.


More proof, these banking giants should have been chopped up last September.


Paris Derivatives Jobs Burn as Market Rues BNP, SocGen Exotics –

The derivatives market shrank for the first time in the second half of 2008, according to the Bank for International Settlements in Basel, Switzerland. Derivatives are contracts whose value is derived from stocks, bonds, loans, currencies and commodities, or linked to specific events such as changes in interest rates or the weather.


Positions in over-the-counter equity-derivative instruments declined 36 percent to $6.5 trillion, and credit-default swap contracts, which protect investors against losses on bonds and loans, fell 27 percent to cover a notional $41.9 trillion of debt, the BIS said in May. Interest-rate derivatives, the largest part of the market, dropped 8.6 percent in the second half to $418.7 trillion outstanding, the report said.


Trading and selling equity derivatives accounted for about 40 percent of Societe Generale’s investment banking revenue in 2006 and 2007, excluding writedowns, and almost a quarter of BNP Paribas’s, according to a June 10 report from JPMorgan Chase & Co. analyst Kian Abouhossein in London….


Societe Generale generated about $3 billion from equity derivatives last year, down 20 percent from 2007, followed by BNP Paribas, with $2.26 billion in revenue, excluding so-called exceptional losses, according to the June 10 report. New York- based Goldman Sachs Group Inc. had $4.4 billion of equity- derivatives revenue in 2008, up 18 percent from a year earlier.


Goldman Sachs, the biggest U.S. securities firm until it converted to a bank last year, probably will make more revenue from equity derivatives than the French banks in 2009 and 2010, Abouhossein wrote in his report.


Take my word for this: there are a host of derivative bets placed on a very specific event: the rupturing of the middle section of the San Andreas.  Not to mention, El Nino.  Note that this article has the full notation for the derivatives: $480+ trillion. This number is just beyond belief.  Obviously, all the screwed up banks that got bailed out and recapitalized by the public, make most of their profits from the derivatives games.  This is all so stupid. Obviously, seeing derivatives contracts as cash cows, these gnomes milked them day and night and this is why it ballooned to such an immense size.


And believe me, they want it to balloon even more.  These people have no shame.

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12 responses to “International Bankers Dump All Derivative Losses Into Public’s Lap

  1. payAttention

    ‘The index of U.S. leading indicators rose in June for a third consecutive month, reinforcing signs the economy may be emerging from the worst recession in five decades. We have to have some sort of an economy.’

    No. I alerted everyone this morning that the LEI went up for one reason, the spread between the short and long term interest rates. Ok? That counts as stimulus. I further explained clearly that the non defense capital goods, which is much more important, went down badly. The LEI is a lie, just like their labor statistics.

    The CIT refinancing is a joke. Libor plus ten percent, ok so they are paying ten and a half? Show me a business that can make money with that borrowing cost, that is legal. Where are they going to get money to pay it down, this is not a bridge loan until we get gdp cranking at four percent again. This is Pimco sucking marrow.

    And maybe you can try to show the NYT a little respect, since they reported on the little tete a tete.

    ‘“Capital-markets businesses are going very well right now, and Goldman Sachs is the best of the best,” said Paul Miller, an analyst with FBR Capital Markets in Arlington, Virginia. ”

    Looking to jump ship Paul? ΩΩΩΩΩΩΩΩΩΩΩΩΩ. Everyone knows they are front running every trade on the NYSE and pre selling Treasuries from non stop auctions to bucket shops like yours.

    ELAINE: I seldom censor stuff but Pay Attention has crossed a line here. Do avoid personal sexual insults, please. 😦

  2. trailin' pete

    hahaha…tell us what you really think…

  3. charlottemom

    And yet derivatives are rarely if ever spoken about by MSM.

    CNBC interview of TARP inspector general this morning was downright hostile. Short version “how dare you provide cumulative data on the bailouts!” “How irresponsible to provide any meaningful context about TARP!” “People will analysize this info in ways we cannot control.”

    The truth is, for most people, they have little interest in evaluating any of these monetary policies. 30% of adult population barely has 8th grade math competence.

    I believe that things must get worse for Americas to react in some type of “tipping point” fashion. This corruption, waste, greed and stupidity must continue to transpire until things become soo insufferable.

    American, like a hard-core addict, must hit rock bottom, before rehabilitation. We’re obviously not at rock bottom, instead thinking we can resume to “normal” from where our recession/depression-like intervention has obviously failed.

  4. emsnews

    Pay Attention, if you read all my stuff here, you will see that I often discuss interest rate spreads. The bigger the spread between the ‘official’ rate set by the goons at the Federal Reserves and the ‘real’ rate means banks get a free ride courtesy of the Fed. This means fatter profits on lending.

    They get a ZIRP system while borrowers get to pay the 4-6% system.

    These spreads always lead to BUBBLES. Which are bad.

  5. Wow – that was a fast edit. I saw a name. What I do with that…..



  6. well you know it is gonna suck if the full payment price of all these derivatives is called in the event of some sort of huge natural disaster…..

    then we will see who pays UP!

    I’m interested.

  7. adammateyko

    do you think that 23.7 trillion is enough to clean up the ..maybe 5% of 500 trillion of derivatives “imbalance”… like a reset of the financial game? Thats my guesstimate.

    Lets see thats… 100 000$ per capita US pop. or on world basis over 6 bn souls, 4000$. A world mortgage.. who will foreclose on that one??

  8. Yeah – the derivatives are literally in “fantasy-land”. Ironically, they will be “the tool” to bust up old-style economic thinking that no longer makes any sense. Assuming that is any of us are alive to sense it happening.

    Time is of the essence…..

  9. H.N.

    Just wanted to say that I read you on a daily basis. Don’t stop.
    Thanks. Really.


    Ohh… one more thing. I saw that Jim Sinclair was commenting on your website.
    Kina spooky, as you two are my first choice of daily read nowadays.
    It’s feels like having Beatrix Kiddo (that would be you) and Gandalf (erhmm..) in my team in a street fight 🙂

  10. nah

    banking and capitalism make sense… all the derivatives are so goofy you can actually say the banks are betting on a catastrophy in california which is already in crisis to profit on every death knell in this country… and i have to actually consider how that could be done, debt default, interest rates, notational home values, bank defaults… and Yes The Can
    keep the liquidity away from us, suffocate on your own debt

  11. actually the likelihood of some catostrophy releasing the beast increases as each day goes by in which the citizens of the US of A have to suffer under the imperial ambitions of many in DC.

    Time for something better.

  12. Lets kill the beast in one fell swooping time of transition couping. (could be done in about six months probably).

    I’d propose that we use a silver knife in honor of Geronimo, but that is just my free opinion.

    OK, so this beast is a mathamatical construct and the kids who created it are running amok. Calm them down first. Next find out who has been taking advantage of the kids and to put it simply “make them pay”.

    Make them pay for the pain they have inflicted upon innocence. Justified retribution is my term for it.

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