Home » Posts tagged 'derivatives' (Page 4)
Tag Archives: derivatives
Swimming with the Sharks: Goldman Sachs, School Districts, and Capital Appreciation Bonds
Swimming with the Sharks: Goldman Sachs, School Districts, and Capital Appreciation Bonds
Remember when Goldman Sachs – dubbed by Matt Taibbi the Vampire Squid – sold derivatives to Greece so the government could conceal its debt, then bet against that debt, driving it up? It seems that the ubiquitous investment bank has also put the squeeze on California and its school districts. Not that Goldman was alone in this; but the unscrupulous practices of the bank once called the undisputed king of the municipal bond business epitomize the culture of greed that has ensnared students and future generations in unrepayable debt.
In 2008, after collecting millions of dollars in fees to help California sell its bonds, Goldman urged its bigger clients to place investment bets against those bonds, in order to profit from a financial crisis that was sparked in the first place by irresponsible Wall Street speculation. Alarmed California officials warned that these short sales would jeopardize the state’s bond rating and drive up interest rates. But that result also served Goldman, which had sold credit default swaps on the bonds, since the price of the swaps rose along with the risk of default.
In 2009, the lenders’ lobbying group than proposed and promoted AB1388, a California bill eliminating the debt ceiling requirement on long-term debt for school districts. After it passed, bankers traveled all over the state pushing something called “capital appreciation bonds” (CABs) as a tool to vault over legal debt limits. (Think Greece again.) Also called payday loans for school districts, CABs have now been issued by more than 400 California districts, some with repayment obligations of up to 20 times the principal advanced (or 2000%).
…click on the above link to read the rest of the article…
Is Citi The Next AIG: 70 Trillion Reasons Why Citigroup And Congress Scrambled To Pass The Swaps “Push-Out” Rule
Is Citi The Next AIG: 70 Trillion Reasons Why Citigroup And Congress Scrambled To Pass The Swaps “Push-Out” Rule
Earlier today, when we were conducting a routine check with the Office of the Currency Comptroller’s on the total notional amount of derivatives held at the Big 4 banks in the context of the “JPMorgan break up” story, we found something stunning: using the latest, just released Q3 OCC data, JPMorgan is no longer America’s undisputed derivatives king. Well, it still is at the HoldCo level, where it is number one in terms of notional derivatives with $65.5 trillion, but when one steps a level lower, namely the FDIC-insured commercial bank (the National Association or N.A.) level, something quite disturbing emerges. This:
As the chart above, which references Table 1 in the Q3 OCC report, shows Citigroup, or rather its FDIC-insuredCitibank National Association entity, just surpassed JPM and is now the biggest single holder of total derivatives in the US. Furthermore, as the charts below show, while every other bank was derisking its balance sheet, Citi not only increased its total derivative holdings by $1 trillion in Q2, but by a whopping, and perhaps even record, $9 trillion in the just concluded third quarter to $70.2 trillion!
…click on the above link to read the rest of the article…
If Wishes Were Loaves and Fishes | KUNSTLER
If Wishes Were Loaves and Fishes | KUNSTLER.
Janet Yellen and her Federal Reserve board of augurers might as well have spilled a bucket of goat entrails down the steps of the mysterious Eccles Building as they parsed, sliced, and diced the ramifications in altering their prior declaration of “a considerable period” (that is, before raising interest rates), vis-à-vis the simpler new imperative, “patience,” with its moral overburden of public censure aimed at those too eager for clarity — that is to say, the assurance that the Fed will not pull the plug on their life-support drip of funny money for the racketeering operation that banking has become.
The vapid pronouncement of “patience” provoked delirium in the markets, with record advances to new oxygen-thin heights. Behind all this ceremonial hugger-mugger lurks the dark suspicion that the Federal Reserve has no idea what’s actually going on, and no idea what it’s doing. And in the absence of any such ideas, Ms. Yellen and her collegial eminences have engineered a very elaborate rationale for doing nothing.
The truth is, they have already done enough. They have succeeded via their dial-tweaking interventions in destroying the agency of markets so that nobody can tell the difference anymore between prices and wishes. Coincidentally, it is that most wishful time of the year, especially among the professional money managers polishing their clients’ portfolios as the carols are sung and the champagne corks pop. Ms. Yellen should have put on a Santa Claus suit when she ventured out to meet the media last week.
The Global Bankers’ Coup: Bail-In and the Shadowy Financial Stability Board | WEB OF DEBT BLOG
The Global Bankers’ Coup: Bail-In and the Shadowy Financial Stability Board | WEB OF DEBT BLOG.
On December 11, 2014, the US House passed a bill repealing the Dodd-Frank requirement that risky derivatives be pushed into big-bank subsidiaries, leaving our deposits and pensions exposed to massive derivatives losses. The bill was vigorously challenged by Senator Elizabeth Warren; but the tide turned when Jamie Dimon, CEO of JPMorganChase, stepped into the ring. Perhaps what prompted his intervention was the unanticipated $40 drop in the price of oil. As financial blogger Michael Snyder points out, that drop could trigger a derivatives payout that could bankrupt the biggest banks. And if the G20’s new “bail-in” rules are formalized, depositors and pensioners could be on the hook.
The new bail-in rules were discussed in my last post here. They are edicts of the Financial Stability Board (FSB), an unelected body of central bankers and finance ministers headquartered in the Bank for International Settlements in Basel, Switzerland. Where did the FSB get these sweeping powers, and is its mandate legally enforceable?
Those questions were addressed in an article I wrote in June 2009, two months after the FSB was formed, titled “Big Brother in Basel: BIS Financial Stability Board Undermines National Sovereignty.” It linked the strange boot shape of the BIS to a line from Orwell’s 1984: “a boot stamping on a human face—forever.” The concerns raised there seem to be materializing, so I’m republishing the bulk of that article here. We need to be paying attention, lest the bail-in juggernaut steamroll over us unchallenged.
Three Conditions and Three Warning Signs | Mind on Money
Three Conditions and Three Warning Signs | Mind on Money.
How to Tell if the Next Financial Crisis is Upon Us.
In the last post, it was suggested that the rapid collapse in oil prices might have set up a repeat of the 2008 financial crisis. Before we all run for the bunkers and the freeze-dried food, we should know the conditions needed for a crisis to happen, and the signposts we’ll see if the crisis gets going.
For a sector correction to become a meltdown, and for that to turn into a global crisis, several preconditions need to be in place.
The first condition is a serious market sector correction.
According to some participants in the market for energy company bonds and loans, such a correction is already underway and heading toward a meltdown (the second condition). Others are more sanguine, and expect a recovery soon.
That smaller energy companies have issued more junk-rated debt than their relative size in the economy isn’t under debate. Of a total junk bond market estimated around $1.2 trillion, about 18% ($216 billion, according to a Bloomberg estimate) has been issued by energy-related companies. Yet those companies represent a far smaller share of the economy or stock market capitalization among the universe of junk-rated companies.
…click on the above link to read the rest of the article…
Russia Warns May Send Troops To Ukraine After Congress Unanimously Votes To Give Lethal Aid To Kiev | Zero Hedge
While the market, and America’s media, was focusing over the passage of the Cromnibus, and whether Wall Street would dump a few hundred trillion in derivatives on the laps of US taxpayers once again (it did), quietly and unanimously both houses passed The Ukraine Freedom Support Act of 2014, which authorizes “providing lethal assistance to Ukraine’s military” as well as sweeping sanctions on Russia’s energy sector.
The measure mandates sanctions against Rosoboronexport, the state agency that promotes Russia’s defense exports and arms trade. It also would require sanctions on OAO Gazprom (GAZP), the world’s largest extractor of natural gas, if the state-controlled company withholds supplies to other European nations (yes, the US is now in the pre-emptive punishment business, and is enforcing sanctions on a “what if” basis).
But while one may debate if additional sanctions will do much to impact a Russian economy which is already impaired due to the plunging ruble, the clear escalation is that unlike previously, when the US limited itself – at least on paper – to non-lethal assistance to the Ukraine, now the US is finally preparing to send in weapons, and potentially “military advisors” as well. We say “on paper”, because in late November hacked US documents revealed the extent of secret US “Lethal Aid” for the Ukraine army. And since America’s under-the-table support for Ukraine’s insolvent armed forces has been revealed, there is little point in pretending to keep a moral upper hand (especially in light of recent “other” revelations involving the US, most notably its intelligence services).
…click on the above link to read the rest of the article…
H.R. 4681 Passes Congress – Justin Amash Calls It: “One of the Most Egregious Sections of Law I’ve Encountered During My Time as a Representative” | Liberty Blitzkrieg
Decency, security, and liberty alike demand that government officials shall be subjected to the same rules of conduct that are commands to the citizen. In a government of laws, existence of the government will be imperiled if it fails to observe the law scrupulously. Our government is the potent, the omnipresent teacher. For good or for ill, it teaches the whole people by its example. Crime is contagious. If the government becomes a lawbreaker, it breeds contempt for law; it invites every man to become a law unto himself; it invites anarchy. To declare that in the administration of the criminal law the end justifies the means — to declare that the government may commit crimes in order to secure the conviction of a private criminal — would bring terrible retribution. Against that pernicious doctrine this court should resolutely set its face.
– Louis Brandeis, Supreme Court Justice, in 1928
While most Americans are busy Christmas shopping and making preparations for trips to see family, Congress remains hard at work doing what it does best. Giving gifts to Wall Street and trampling on citizens’ civil liberties.
I knew the plebs were about to be royally screwed a week ago when I published the post: Wall Street Moves to Put Taxpayers on the Hook for Derivatives Trades. The piece concluded with the following:
Remember what Wall Street wants, Wall Street gets. Have a great weekend chumps.
Naturally, Wall Street got what it wanted. In fact, this provision was so important to the financial oligarchs that Jaime Dimon called around to encourage our (Wall Street’s) representatives to support it. TheWashington Post reports that:
…click on the above link to read the rest of the article…
Presenting The $303 Trillion In Derivatives That US Taxpayers Are Now On The Hook For | Zero Hedge
Presenting The $303 Trillion In Derivatives That US Taxpayers Are Now On The Hook For | Zero Hedge.
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:
Five years after the Wall Street coup of 2008, it appears the U.S. House of Representatives is as bought and paid for as ever. We heard about the Citigroup crafted legislation currently being pushed through Congress back in May when Mother Jones reported on it. Fortunately, they included the following image in their article:
Unsurprisingly, the main backer of the bill is notorious Wall Street lackey Jim Himes (D-Conn.), a former Goldman Sachs employee who has discovered lobbyist payoffs can be just as lucrative as a career in financial services.
We say explicitly, of course, because taxpayers have always been on the hook implicitlyfor the next Wall Street meltdown.
Why?
…click on the above link to read the rest of the article…
House Votes On The $1.1 Trillion Cromnibus Bill: Live Webcast | Zero Hedge
House Votes On The $1.1 Trillion Cromnibus Bill: Live Webcast | Zero Hedge.
As is widely known by now, in a largely token vote, since it has the blessing of the White House, in a few moments the House will vote on H.R. 83, the bill containing $1.1 trillion in appropriations to fund the government through 2015, aka the “Cromnibus”. As noted previously, among the provisions in the bill is Citi-directed watering down of Dodd-Frank by way of a Swap “push-out” provision, which as we explained over the weekend, would put taxpayers on the hook for derivative losses as it “would allow financial institutions to trade certain financial derivatives from subsidiaries that are insured by the Federal Deposit Insurance Corp. — potentially putting taxpayers on the hook for losses caused by the risky contracts.”
Then again, since we are talking about some $303 trillion in US-based derivatives (at just the top 25 US holding companies alone), the bottom line is that it really doesn’t matter where the swaps are housed or traded from: if and when these goes bad, it doesn’t matter if they are located in a FDIC-insured shell or somewhere else: the entire system will collapse all over again, unless it gets yet another multi-trillion Fed, as in taxpayer, bailout.
…click on the above link to read the rest of the article…
Wall Street Moves to Put Taxpayers on the Hook for Derivatives Trades | Liberty Blitzkrieg
Wall Street Moves to Put Taxpayers on the Hook for Derivatives Trades | Liberty Blitzkrieg.
Wall Street has for some time attempted to put taxpayers on the hook for its derivatives trades. I highlighted this a year ago in the post: Citigroup Written Legislation Moves Through the House of Representatives. Here’s an excerpt:
Five years after the Wall Street coup of 2008, it appears the U.S. House of Representatives is as bought and paid for as ever. We heard about the Citigroup crafted legislation currently being pushed through Congress back in May when Mother Jones reported on it. Fortunately, they included the following image in their article:
Unsurprisingly, the main backer of the bill is notorious Wall Street lackey Jim Himes (D-Conn.), a former Goldman Sachs employee who has discovered lobbyist payoffs can be just as lucrative as a career in financial services. The last time Mr. Himes made an appearance on these pages was in March 2013 in my piece: Congress Moves to DEREGULATE Wall Street.
…click on the above link to read the rest of the article…
Plummeting Oil Prices Could Destroy The Banks That Are Holding Trillions In Commodity Derivatives
Plummeting Oil Prices Could Destroy The Banks That Are Holding Trillions In Commodity Derivatives.
Could rapidly falling oil prices trigger a nightmare scenario for the commodity derivatives market? The big Wall Street banks did not expect plunging home prices to cause a mortgage-backed securities implosion back in 2008, and their models did not anticipate a decline in the price of oil by more than 40 dollars in less than six months this time either. If the price of oil stays at this level or goes down even more, someone out there is going to have to absorb some absolutely massive losses. In some cases, the losses will be absorbed by oil producers, but many of the big players in the industry have already locked in high prices for their oil next year through derivatives contracts. The companies enter into these derivatives contracts for a couple of reasons. Number one, many lenders do not want to give them any money unless they can show that they have locked in a price for their oil that is higher than the cost of production. Secondly, derivatives contracts protect the profits of oil producers from dramatic swings in the marketplace. These dramatic swings rarely happen, but when they do they can be absolutely crippling. So the oil companies that have locked in high prices for their oil in 2015 and 2016 are feeling pretty good right about now. But who is on the other end of those contracts? In many cases, it is the big Wall Street banks, and if the price of oil does not rebound substantially they could be facing absolutely colossal losses.
It has been estimated that the six largest “too big to fail” banks control$3.9 trillion in commodity derivatives contracts. And a very large chunk of that amount is made up of oil derivatives.
…click on the above link to read the rest of the article…
