Derivatives - At the root of this crisis?

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Re: Derivatives - At the root of this crisis?

Postby Pixel8r » Sat Dec 08, 2012 11:53 pm » Safari 6.0.2 Safari 6.0.2  Mac OS X Mac OS X  Screen Resolution: 1680 x 1050 1680 x 1050

I thought bubb said derivatives weren't a problem, strange how the IMF has come up with another acronym, “Too-Interconnected-To-Fail” (TITF). :shh:

IMF Working Paper

Systemic Risk from Global Financial Derivatives: A Network Analysis of Contagion and Its Mitigation with Super-Spreader Tax

Financial network analysis is used to provide firm level bottom-up holistic visualizations of interconnections of financial obligations in global OTC derivatives markets. This helps to identify Systemically Important Financial Intermediaries (SIFIs), analyse the nature of contagion propagation, and also monitor and design ways of increasing robustness in the network. Based on 2009 FDIC and individually collected firm level data covering gross notional, gross positive (negative) fair value and the netted derivatives assets and liabilities for 202 financial firms which includes 20 SIFIs, the bilateral flows are empirically calibrated to reflect data-based constraints. This produces a tiered network with a distinct highly clustered central core of 12 SIFIs that account for 78 percent of all bilateral exposures and a large number of financial intermediaries (FIs) on the periphery. The topology of the network results in the “Too-Interconnected-To-Fail” (TITF) phenomenon in that the failure of any member of the central tier will bring down other members with the contagion coming to an abrupt end when the ‘super-spreaders’ have demised. As these SIFIs account for the bulk of capital in the system, ipso facto no bank among the top tier can be allowed to fail, highlighting the untenable implicit socialized guarantees needed for these markets to operate at their current levels. Systemic risk costs of highly connected SIFIs nodes are not priced into their holding of capital or collateral. An eigenvector centrality based ‘super-spreader’ tax has been designed and tested for its capacity to reduce the potential socialized losses from failure of SIFIs...
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Re: Derivatives - At the root of this crisis?

Postby fexx » Sun Dec 09, 2012 10:56 pm » Safari 6.0.2 Safari 6.0.2  Mac OS X Mac OS X  Screen Resolution: 1440 x 900 1440 x 900

Excellent, Pix!

The global derivatives markets in the post Lehman period, despite considerable compression of bilateral positions, are unstable and they can bring about catastrophic failure. Quite simply, a threat of failure to any of the SIFIs is an immediate threat to the others. The network topology where the very high percentage of exposures is concentrated among a few highly interconnected banks implies that they will stand and fall together.
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Re: Derivatives - At the root of this crisis?

Postby Pixel8r » Wed Apr 10, 2013 2:39 pm » Safari 6.0.3 Safari 6.0.3  Mac OS X Mac OS X  Screen Resolution: 1920 x 1200 1920 x 1200

Winner Takes All: The Super-Priority Status Of Derivatives

By Ellen Brown

Cyprus-style confiscation of depositor funds has been called the "new normal." Bail-in policies are appearing in multiple countries directing failing TBTF banks to convert the funds of "unsecured creditors" into capital, and those creditors, it turns out, include ordinary depositors. Even "secured" creditors, including state and local governments, may be at risk. Derivatives have "super-priority" status in bankruptcy, and Dodd-Frank precludes further taxpayer bailouts. In a big derivatives bust, there may be no collateral left for the creditors who are next in line.

Shock waves went around the world when the IMF, the EU, and the ECB not only approved but mandated the confiscation of depositor funds to "bail in" two bankrupt banks in Cyprus. A "bail-in" is a quantum leap beyond a bailout. When governments are no longer willing to use taxpayer money to bail out banks that have gambled away their capital, the banks are now being instructed to "recapitalize" themselves by confiscating the funds of their creditors, turning debt into equity, or stock, and the "creditors" include the depositors who put their money in the bank thinking it was a secure place to store their savings.

The Cyprus bail-in was not a one-off emergency measure but was consistent with similar policies already in the works for the U.S., U.K., EU, Canada, New Zealand, and Australia, as detailed in my earlier articles here and here. "Too big to fail" now trumps all. Rather than banks being put into bankruptcy to salvage the deposits of their customers, the customers will be put into bankruptcy to save the banks...
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Re: Derivatives - At the root of this crisis?

Postby Pixel8r » Sun Dec 29, 2013 11:22 am » Safari 7.0.1 Safari 7.0.1  Mac OS X Mac OS X  Screen Resolution: 1680 x 1050 1680 x 1050

Current derivative exposure listed for the top four banks in this article;

Too Big To Fail Banks Are Taking Over As Number Of U.S. Banks Falls To All-Time Record Low

JPMorgan Chase
Total Assets: $1,947,794,000,000 (nearly 1.95 trillion dollars)
Total Exposure To Derivatives: $71,289,673,000,000 (more than 71 trillion dollars)
Citibank
Total Assets: $1,319,359,000,000 (a bit more than 1.3 trillion dollars)
Total Exposure To Derivatives: $60,398,289,000,000 (more than 60 trillion dollars)
Bank Of America
Total Assets: $1,429,737,000,000 (a bit more than 1.4 trillion dollars)
Total Exposure To Derivatives: $42,670,269,000,000 (more than 42 trillion dollars)
Goldman Sachs
Total Assets: $113,064,000,000 (just a shade over 113 billion dollars – yes, you read that correctly)
Total Exposure To Derivatives: $43,135,021,000,000 (more than 43 trillion dollars)

Please don't just gloss over those huge numbers. Let them sink in for a moment. Goldman Sachs has total assets worth approximately 113 billion dollars (billion with a little "b"), but they have more than 43 TRILLON dollars of total exposure to derivatives. That means that the total exposure that Goldman Sachs has to derivatives contracts is more than 381 times greater than their total assets...
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Re: Derivatives - At the root of this crisis?

Postby Pixel8r » Sun Mar 09, 2014 10:31 am » Safari 7.0.1 Safari 7.0.1  Mac OS X Mac OS X  Screen Resolution: 1680 x 1050 1680 x 1050

Some thing came out this week which clearly shows the scale of the derivative problem and how worried the CB's are about the next crisis. To me this seems laughable, isn't the point of derivative contracts to hedge risk? If certain banks are allowed to suspend default causes it doesn't cure the problem, it just moves it down the chain as we at always told exposure should only be looked at in a net way.

BOE Seeks Derivatives Pact to Prevent a Repeat of Lehman Cascade

The Bank of England is seeking a global pact among banks to suspend default clauses in some derivatives contracts during a crisis, in a bid to ward off bank death spirals that cascade through the financial system.

The U.K. central bank wants lenders and the International Swaps and Derivatives Association Inc., an industry group, to agree to temporarily halt claims on banks that become insolvent and need intervention, Andrew Gracie, executive director of the BOE’s special resolution unit, said in an interview...
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Re: Derivatives - At the root of this crisis?

Postby Pixel8r » Tue Mar 25, 2014 6:04 pm » Safari Mobile 7.0 Safari Mobile 7.0  iPad iPad  Screen Resolution: 768 x 1024 768 x 1024

Bix Weir has some interesting comment about the Volcker rule going active next Tuesday.

If you were wondering why the Big Banks were fighting so hard against The Volcker Rule over the past 5 years you are about to find out. As of Tuesday, April 1, 2014, the rule goes into effect.

OCC: Volcker Rule: Final Regulations
http://www.occ.gov/news-issuances/bulle ... 014-9.html
Highlights The final regulations

prohibit banks from engaging in short-term proprietary trading of certain securities, derivatives commodity futures, and options on these instruments for their own accounts.
impose limits on banks' investments in, and other relationships with, hedge funds and private equity funds.
provide exemptions for certain activities, including market making-related activities, underwriting, risk-mitigating hedging, trading in government obligations, insurance company activities, and organizing and offering hedge funds and private equity funds.
clarify that certain activities are not prohibited, including acting as agent, broker, or custodian.
scale compliance requirements based on the size of the bank and the scope of the activities. Larger banks are required to establish detailed compliance programs and their chief executive officers must attest to the OCC that the bank's programs are reasonably designed to achieve compliance with the final regulations. Smaller banks engaged in modest activities are subject to a simplified compliance program.
END

*Note: The banks don't have to be fully compliant until July 2015 so expect a wild shakeout between now and then as they try to rid themselves of TRILLIONS of DOLLARS worth of non-compliant derivatives. It won't take that long as big banks have a tendency to EAT THEIR OWN when it comes to their own survival!

So what do all these restriction do?

Well, history has shown that you can't have an unbacked fiat monetary system without controlling the prices of some key commodities and monetary instruments. Gold, silver, oil and the USD are the main ones. That's where market rigging with computers and derivatives came into play in the 1970's. That is why the top 5 banks (JPM, Citi, BofA, Goldman & Morgan Stanley) hold over $295 TRILLION in derivatives! It is the ONLY reason that the unbacked system is still viable. This unbacked system has lasted over 40 years after breaking all ties with gold...an unprecedented record in monetary history and only made possible by the computer market rigging programs written in the 1960's by Alan Greenspan.

Greenspan's Golden Secret
http://www.roadtoroota.com/public/190.cfm

Ultimately, the game must end as it was always the plan to run the unbacked system as long and hard as possible before returning to a true Gold Standard.

That time has come.

May the Road you choose be the Right Road.

Bix Weir
www.RoadtoRoota.com
"Money is Gold, and nothing else"
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Re: Derivatives - At the root of this crisis?

Postby Pixel8r » Fri Jul 25, 2014 9:37 pm » Safari 7.0.4 Safari 7.0.4  Mac OS X Mac OS X  Screen Resolution: 1680 x 1050 1680 x 1050

Jim Willie breaks down the role derivatives have taken in creating this ongoing crisis in this long but worth it article;

Derivatives: Abuse, Props, Risks

By: Jim Willie CB

The topic of financial derivatives is a huge can of worms. The subject has arisen in the financial press much more in the last few years since the global financial crisis turned critical and became a clear case of grand struggle to prevent a veritable collapse. In a loose sense, the derivatives are the scotch tape, bailing wire, band-aids, and chewing gum holding the system together, the glue and adhesive, with rose colored glasses used with a large amount of deception. Another analogy preferred for usage by the Jackass is the floating fabricated foundation laden with vaporous illicit toxic fabric, the phony platform on which insolvent structures lie. That the big banks do not serve well as credit engines or investment crucibles is no surprise. They are insolvent, and their derivative foundation is fractured. It is very difficult to explain how the derivatives serve as foundation. Imagine a spinning wheel, spinning very fast, except that the flat disk has almost zero mass. It spins so fast that it appears to serve as a platform which can support weight. Its floor is mentioned more than seen. It is fake, an illusion...
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Re: Derivatives - At the root of this crisis?

Postby Pixel8r » Fri Dec 12, 2014 6:19 pm » Safari 8.0.1 Safari 8.0.1  Mac OS X Mac OS X  Screen Resolution: 2560 x 1440 2560 x 1440

Presenting The $303 Trillion In Derivatives That US Taxpayers Are Now On The Hook For

Courtesy of the Cronybus(sic) last minute passage, government was provided a quid-pro-quo $1.1 trillion spending allowance with Wall Street's blessing in exchange for assuring banks that taxpayers would be on the hook for yet another bailout, as a result of the swaps push-out provision, after incorporating explicit Citigroup language that allows financial institutions to trade certain financial derivatives from subsidiaries that are insured by the Federal Deposit Insurance Corp, explicitly putting taxpayers on the hook for losses caused by these contracts. Recall:


Exhibit A: US banks are the proud owners of $303 trillion in derivatives (and spare us the whole "but.. but... net exposure" cluelessness - read here why that is absolutely irrelevant when even one counterpaty fails):
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Re: Derivatives - At the root of this crisis?

Postby Pixel8r » Tue Mar 29, 2016 3:01 pm » Safari 9.0.3 Safari 9.0.3  Mac OS X Mac OS X  Screen Resolution: 2560 x 1440 2560 x 1440

Financial Armageddon Approaches: U.S. Banks Have 247 Trillion Dollars Of Exposure To Derivatives

Did you know that there are 5 “too big to fail” banks in the United States that each have exposure to derivatives contracts that is in excess of 30 trillion dollars? Overall, the biggest U.S. banks collectively have more than 247 trillion dollars of exposure to derivatives contracts. That is an amount of money that is more than 13 times the size of the U.S. national debt, and it is a ticking time bomb that could set off financial Armageddon at any moment. Globally, the notional value of all outstanding derivatives contracts is a staggering 552.9 trillion dollars according to the Bank for International Settlements. The bankers assure us that these financial instruments are far less risky than they sound, and that they have spread the risk around enough so that there is no way they could bring the entire system down. But that is the thing about risk – you can try to spread it around as many ways as you can, but you can never eliminate it. And when this derivatives bubble finally implodes, there won’t be enough money on the entire planet to fix it.

A lot of readers may be tempted to quit reading right now, because “derivatives” is a term that sounds quite complicated. And yes, the details of these arrangements can be immensely complicated, but the concept is quite simple. Here is a good definition of “derivatives” that comes from Investopedia…

A derivative is a security with a price that is dependent upon or derived from one or more underlying assets. The derivative itself is a contract between two or more parties based upon the asset or assets. Its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes.


Too big to fail carries on getting bigger...

Since the last financial crisis, the big banks in this country have become even more reckless. And that is a huge problem, because our economy is even more dependent on them than we were the last time around. At this point, the four largest banks in the U.S. are approximately 40 percent larger than they were back in 2008. The five largest banks account for approximately 42 percent of all loans in this country, and the six largest banks account for approximately 67 percent of all assets in our financial system.
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Re: Derivatives - At the root of this crisis?

Postby Pixel8r » Thu Aug 15, 2019 10:21 pm » Safari 12.1.2 Safari 12.1.2  Mac OS X Mac OS X  Screen Resolution: 2560 x 1440 2560 x 1440

Watch on youtube.com
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