Bailed Out Bank Trillion Dollar Derivative Exposure

Posted on April 11, 2009. Filed under: Blogroll, Economics, Employment, Investments, Law, Links, Politics, Rants, Regulations, Resources, Security, Taxes, Video | Tags: , , , , , , , , , , , , , , , , |

 

red_socialism

“…Over 93.7% ($188 Trillion) of this gross exposure was held by only four bank s, J. P. Morgan Chase, Bank of America, Citibank and Goldman Sachs.  One institution, J. P. Morgan Chase, accounted for $87 Trillion of the total exposure or approximately 140% of Gross World Product. …”

~OCC’s Quarterly Report on Bank Trading and Derivatives Activities: Fourth Quarter 2008

While President Obama is in firing mode, how about asking all his campaign contributors to resign as board members and executives of banks that bet trillions of dollars on mortage derivative securities and are now being bailed out by the American people to cover their massive losses from derivative securities trading.

The loss exposure from these derivative  securities, mainly credit default swaps, is over a trillion dollars!

Time for the Federal Government to stop the bailouts, fire the management of these banks, and close this mess down.

Enough is enough.

Wall Street made billions of dollars on this business and should bear the losses.

The American people and the Federal Government should not bail these greedy, arrogant, stupid bastards out.

If the Federal Govenment continues to bailout these bastards, we know who the bought and paid for corrupt politicians are of both political parties.

The American people will be coming after them soon.

Massive theft of the American people  are high crimes–crimes of the century!

Join the Second American Revolution

 

Second American Revolution–Tea Party Celebrations–Washington Fair–July 4, 2009–An Open Invitation To The American People

American People’s Plan = 6 Month Tax Holiday + FairTax = Real Hope + Real Change!–Millions To March On Washington D.C. Saturday, July 4, 2009!

Ban Bailouts–Stop Inflation Now (SIN)–Stop Socialism of Losses!

 

  Please Spread The Message of Liberty

 

Background Articles and Videos

OCC Reports Fourth Quarter Bank Trading Loss

“…The report also noted that:

  • Derivatives contracts are concentrated in a small number of institutions. The largest five banks hold 96 percent of the total notional amount of derivatives, while the largest 25 banks hold nearly 100 percent.
  • Credit default swaps are the dominant product in the credit derivatives market, representing 98 percent of total credit derivatives.
  • The number of commercial banks holding derivatives increased by 33 in the quarter to 1,010.

A copy of the OCC’s Quarterly Report on Bank Trading and Derivatives Activities: Fourth Quarter 2008 is available on the OCC’s Web site at: http://www.occ.gov/ftp/release/2009-34a.pdf.  

http://www.occ.treas.gov/ftp/release/2009-34.htm 

 

How Much Risk is the Treasury Really Assuming from the Financial Institutions?

Posted by John Slater on April 7, 2009

“…Last week the Comptroller of the Currency – Administrator of National Banks issued its quarterly report on Bank Trading and Derivatives Activities – Fourth Quarter 2008.  In reviewing the report, several things become quickly apparent.

1.    Derivatives Trading is a really big business; the notional amount of all derivatives positions at all U. S. commercial banks and trust companies that participate in this business was slightly more than $200 Trillion on December 31, 2008.  That’s more than three times Gross World Product which the CIA estimates to have been a little over $62 Trillion in 2008.

2.    Over 93.7% ($188 Trillion) of this gross exposure was held by only four bank s, J. P. Morgan Chase, Bank of America, Citibank and Goldman Sachs.  One institution, J. P. Morgan Chase, accounted for $87 Trillion of the total exposure or approximately 140% of Gross World Product.

3.    While the bulk of the exposure ($181 Trillion) was in the “traditional” derivatives markets, interest rate and FOREX swaps, almost $16 Trillion was in Credit Default Swaps, up from $1 Trillion in such transactions five years earlier.

4.    What had once been a very profitable business for the major banks, turned decidedly sour in 2008, with net reported trading losses of $836 million for the year as compared with profits of $5.5 Billion in 2007 and $18.8 Billion in 2006.  Drilling down to the details, Credit Default Swaps generated losses for the banks in 2008 of $12.6 Billion, more than offsetting gains for the year in Interest Rate and Foreign Exchange trading. …”

“…The OCC report provides a lengthy explanation as to why the notional amounts dramatically overstate the risk posed to the system by these contracts.  First, the real credit exposure is not the notional amount of the contract, but the amount that the market has moved from the strike price of the swap: i.e. the net amount the counterparty would be obligated to pay to true up the contract based on current market conditions.  This is referred to as the Gross Positive Value (GPV) of the contracts.  Since this GPV is in effect an unsecured claim against another financial institution, it represents a credit risk to the holder of the claims.  At yearend total GPV held by U. S. commercial banks was $7.1 Trillion.  Actual credit exposure was much lower, however, as the holders have the legal right to set off this exposure against certain of their counter exposures to the obligor institutions (Gross Negative Fair Values).

The netted credit exposure was estimated to be only $800 billion.  Added to this was Potential Future Exposure of $782 Billion based upon the amount by which the contracts could move in favor of the obligee banks to generate a Total Credit Exposure of $1.58 Trillion.  For the top five derivatives trading banks (the four above plus the U. S. operations of HSBC) total credit exposure averaged 489% of the institutions’ Risk Based Capital at the end of the fourth quarter.  At one bank, Goldman Sachs, credit exposure was more than 1000% of Risk Based Capital.  To be fair this calculation does not take into account pledged collateral backing a portion of the credit risks, which the OCC estimates as typical averaging 30-40% of the exposure amounts, so actual credit exposure was presumably somewhat lower. …”

http://mergers.com/toughtimes/2009/how-much-risk-is-the-treasury-really-assuming-from-the-financial-institutions/

How Much Risk is the Treasury Really Assuming from the Financial Institutions? (Part 2)

“… Our previous post raised the question of just how much risk is being assumed by the U. S. Treasury with its apparent implied guaranty of the unsecured obligations of the major financial institutions.  We asked whether the $188 Trillion (notional amount) of derivatives transactions on the books of four major banks (J. P. Morgan Chase, Bank of America, Citibank and Goldman Sachs) could potentially pose risks not fully understood by the banks or their regulators. 

In evaluating the potential risks inherent in the derivatives positions of the banks (and more particularly at the risks of the Credit Default Swaps (“CDS”)), it is necessary to look at the one situation where similar risks have been converted to real losses: i.e. AIG Financial Products (AIG FP).   Chris Whalen of Institutional Risk Analytics has done so in depth in a recent article posted here. 

Mr. Whalen paints a picture of financial instruments created for the purpose of enabling financial as well as non-financial companies to falsify their earnings through the issuance of insurance contracts calculated to remove certain assets and liabilities from companies’ books and by doing so to bring them into compliance with regulatory capital requirements or shift earnings and losses between reporting period, with the presumed intent of manipulating the equity prices of the counterparties.  He further asserts that these ostensibly “economic” transactions were converted to blatant fraud through side letters never disclosed to company management, auditors or regulators that absolved the writers of these contracts from responsibility for honoring their commitments.  These activities are further described as the essence of the SEC’s charges against AIG in a Complaint brought against AIG in 2004. …”

http://seekingalpha.com/instablog/274498-john-slater/358-how-much-risk-is-the-treasury-really-assuming-from-the-financial-institutions-part-2

Will Credit Defaul Swaps Worsen Our Financial Problems? Pt1

 

Will Credit Defaul Swaps Worsen Our Financial Problems? Pt2

 

The Real Estate and Credit Meltdown: How Did We Get Here and Where Do We Go?

 

 

 

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