Adding to last night’s BBC spot of Mr. Rastani’s truth-telling, we have yet another experienced market trader telling the full-monty of truth:
Here is a piece from ZeroHedge.com that hopefully will make you all understand, once and for all, that this ain’t the 1930′s, and that there is absolutely no way in hell that this Republic is going to make it to November 2012.
Five Banks Account For 96% Of The $250 Trillion In Outstanding US Derivative Exposure; Is Morgan Stanley Sitting On An FX Derivative Time Bomb?
Summary: The five largest banks in the U.S. (JP Morgan Chase, Citibank, Bank of America, Goldman Sachs and HSBC) are carrying $238 TRILLION dollars in derivative exposure. JP Morgan alone is carrying $78 TRILLION in derivative exposure BY ITSELF.
Okay, what the hell is derivative exposure? What this is referring to are over-the-counter non-exchange traded forward delivery (or “futures”) contracts of various kinds. I am a futures broker, but I only execute futures contracts on the futures exchanges, namely the Chicago Mercantile Exchange and the New York Mercantile Exchange. About ten years ago a new “novelty” emerged in the futures business – the so-called “over-the-counter” contracts. There was a kid in the office I worked in who got wind of this and had all kinds of stars in his eyes about making a killing off of these “OTC” contracts because the brokers’ commissions were not a flat fee but a percent of the contract value. Here’s the problem with OTC contracts: there is no exchange standing between the buyer and seller as a guarantor.
In my business, when a customer executes a trade on a futures or options contract, it makes no difference who the other guy is on the other side of the trade, be it executed electronically or in the pit. None of us have to worry for a second about the counterparty on our executions because the EXCHANGE ITSELF stands between ALL transactions as the ultimate guarantor. The exchange then enforces the financial requirement rules with the Clearing Houses, the Clearing Houses enforce the financial requirement rules with the brokers, and the brokers enforce the financial requirement rules with the customers. That is the chain of financial responsibility. So, even if a customer bugs out and fails to financially perform on a contract, the contract WILL BE MADE GOOD by extracting the money from the broker, then the Clearing House and finally the Exchange. This massive enforcement buffering is what gives the system integrity.
OTC contracts have no exchange. They are a flipping free-for-all. If someone bugs out on a contract, the poop hits the fan. The counterparty has their pants around their ankles and the broker is caught in the middle. That’s why when that kid in my office years ago got all starry-eyed, I thought to myself, “I wouldn’t do that OTC crap if you put a gun to my head – no matter what the commissions were. It would be Russian Roulette. Eventually someone would default and it would financially destroy the broker instantly, and perhaps the counterparty as well.”
Let’s take my business – cattle futures. One contract is 40,000 pounds of live cattle. The spot contract settled at $119.725 per hundred pounds today. So, 40,000 pounds X $1.19725 (shift the decimal) = $47,890 total value of the contract. Since this is an exchange traded instrument, the customer doesn’t really don’t have to worry about default and can go ahead and book that $47,890 today, and it will be offset at a later time, and the net of the entry and exit will be the P&L. The contract isn’t going to default, so the derivative exposure is limited.
Okay. These banks are carrying these OTC futures contracts with NO exchange to guarantee anything. And they are carrying these contracts largely WITH EACH OTHER. So JP Morgan might be the long and Goldman Sachs, or some insolvent bank in Europe is the short on the other side. If these banks default, which is now a mathematical certainty because they are not only insolvent, but insolvent multiple times over and there isn’t enough money in the world to bail them out, there is going to be a cascading default on all of these OTC contracts.
Now look at the value and exposure of these OTC derivatives again: the top 5 banks in the US alone have exposure of $238 TRILLION dollars.
The total GDP of the United States is $14.5 Trillion.
The total GDP of China is $6 Trillion.
The total land mass on earth is 36.8 billion acres. If every acre of land on earth was “sold” for $6467 per acre, that would total $238 Trillion.
JP Morgan BY ITSELF has derivative exposure equal to over FIVE TIMES the value of the entire US GDP.
And no, there will not be a 1:1 offsetting in a collapse, because the collapse will be asymmetrical, and the bankrupt party will first pursue FULL payment on its “longs” (think of these as accounts receivables) while its “shorts” (accounts payable) will only pay out 20 cents on the dollar OR LESS. In other words, these entities will tear each other apart in a mad dogfight and this dogfight will take the entire world down with it.
TWO HUNDRED AND THIRTY-EIGHT TRILLION DOLLARS.
AND THAT IS JUST FIVE BANKS.
AND THE MASSIVELY CORRUPT AND INCOMPETENT SECURITIES REGULATORS, BOTH GOVERNMENTAL AND PRIVATE, SAT BY AND WATCHED THIS HAPPEN. That is what happens when you let a group of criminals run a bureaucracy of affirmative action hires to “audit” the financial industry. Scroll down and read my post titled “There Must Be A Reckoning.”
It’s over. There is no coming back from this. The only thing that can happen is a total and complete collapse of EVERYTHING we now know, and humanity starts from scratch. And if you think that this collapse is going to play out without one hell of a big hot war, you are sadly, sadly mistaken.
Ann Barnhardt – Barnhardt Capital Management, Inc.
I’m going to add to what Ann has explained so well:
By the end of 2007, all the Too-Big-to-Fail (TBTF) banks were writing these things hand-over-fist because they already knew they were in doo-doo. All this did was put massive leverage into the system…..debt, leveraged upon debt, with no asset value behind much of it. And here is where it gets truly ugly for my conservative friends who refuse to look at Wall Street as the criminals they are: THEY DID THIS KNOWING FULL WELL THE MAJORITY OF THE DERIVATIVES THEY WERE CREATING WERE FRAUDULENT AND BACKED BY NOTHING. How do I know this? A myriad of lawsuits filed all over the country with a literal shitton of depositions on discovery. These are not lawsuits filed by merely disgruntled foreclosure victims; these are lawsuits filed by large insurance companies like Allstate and MetLife, and even The Federal Housing Finance Agency (FHFH) because they all realized far too late that they’d been sold worthless crap. This is not to mention how adamantly the TBTFs have lobbied against any whiff of the idea of forcing these things onto an exchange where they would be made transparent. That’s pretty much a tipoff that they’re hiding something very bad. If the used car salesman won’t let you look under the hood, you can be pretty sure there’s something there you won’t like much.
The idea Wall Street had here with creating these fraudulent pieces of toxic waste was that if even a fraction of these ‘paid out’ for them, they could ‘save themselves.’ Unfortunately this doesn’t work when Wall Street runs out of suckers; you know, pension plans, insurance companies, retail investors and other places they could sell these things to without anyone understanding what they were buying. Most importantly, when they ran out of suckers they could put into home loans they couldn’t afford, this was the beginning of the end and the whole scheme began to unravel.
Even better, our government not only looked the other way when they were made aware of what was going on, they began to aid and abet the criminal activity….because the TBTFs convinced the government that ‘economic meltdown could be avoided’ if they were just given time for the ‘asset values to come back.’ THIS whole game was facilitated by none-other than Hank Paulson. You know, ‘Mr-I-Have-A-Bazooka.’
Our entire global economy is a giant Ponzi Scheme. Makes Social Security look like a rounding error. This also gives one a better perspective on the stock market movements. (Yeah, 400 point Dow Jones Industrial ranges in a day is a ‘stable market’.) What the market is now is merely the TBTF banks chasing government cheese. Where is the next bailout coming from? Wherever they THINK it is (and since they push for it, they have a good idea), they front run it and pile in, using HFT to try to position better than the next TBTF. Who is going to get the next ‘exemption from the law’? Wherever they think THAT is coming next, again, they go ‘all-in’ – thus providing the massive swings in the market with both bonds (treasuries and corporate debt) and stocks. Any idea that there is ANYTHING left of a ‘free-market’ is a LIE. Wake up and smell the Ponzi conservatives, and stop defending the criminals with your cries of ‘it’s anti-capitalist to protest against Wall Street.’ It’s not about your neighbor getting a free house, it’s about massive, global, legalized financial rape.
Wall Street a/k/a the Too-Big-To-Fails are chasing corruption. They’re chasing legalized theft sanctioned by our government and you can watch it in real-time every day….just pull up a stock chart. Any stock chart.
Have a nice day.
Perhaps now you will start screaming STOP THE LOOTING & START PROSECUTING!