Bernanke Says U.S. May Need More Than Approved $700 Billion to Fix Banks

[Purveyor]

Source: Bloomberg

By Craig Torres and Scott Lanman

March 3 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke said policy makers may need to expand aid to the banking system beyond the $700 billion already approved and take other aggressive measures even at the cost of soaring fiscal deficits.

“Without a reasonable degree of financial stability, a sustainable recovery will not occur,” the Fed chairman said today in testimony prepared for the Senate Budget Committee. “Although progress has been made on the financial front since last fall, more needs to be done.”

Bernanke’s comments suggest he sees a role for bigger federal outlays as the Obama administration seeks congressional approval for a budget of $3.55 trillion for the fiscal year beginning in October. President Barack Obama has already signed into a law a $787 billion economic stimulus package of tax cuts and government spending.

Obama’s first budget seeks standby authority for as much as $750 billion in new aid to the financial industry. Whether those funds will be needed “depends on the results of the current supervisory assessment of banks” and the evolution of the economy, Bernanke said.

Bernanke said policy makers would have “preferred to avoid” what is likely to be the largest ratio of federal debt compared with gross domestic product since the end of World War II, and he urged lawmakers not to lose sight of fiscal discipline.

Read more: http://www.bloomberg.com/apps/news?pid=20601087&sid=aabXQOXBRk8E&refer=home

[mike_c]

1. "...he urged lawmakers not to lose sight of fiscal discipline."

WTF? Pot, meet kettle! :rofl:

[aquart]

2. Perhaps it's time to fix Bernanke.

Because that ass clearly doesn't know wtf he is doing.

[conspirator]

33. Bernanke is printer happy. Nothing like good old money made from thin air

to erode the savings of the middle class and pay for more wars.

[CatholicEdHead]

3. How much will be enough?

The $87 Trillion that JP Morgan has in derivatives right now? How many Trillions do we throw at this mess?

[avaistheone1]

5. There never will be enough; This Wall Street mess is a bottomless pit.

[superconnected]

21. Bernanke said it well this morning, he called it an orchestrated recession.

Then he acted like that meant it has to hit market after market. Ah but the truth shone through.

I doubt Bernanke is any less crooked than the crooks orchestrating this. And that bottomless pit mess you see is only greed grabbing the dollars in a bottomless pit of crying they don't have enough money.

[Alcibiades]

16. $87 trillion? I have to ask:

As someone who has spent a lifetime expecting the inevitable and imminent collapse of the entire capitalist economic edifice, where can I find info on this? I know why the media are not covering this, but that's a slightly bigger number than I've seen so far.

WTF? What do we do? Just zero out everything and start from scratch?
:scared:

[Earth Bound Misfit]

19. Here you go--you're not gonna like this...

http://www.occ.treas.gov/ftp/release/2008-152a.pdf

Comptroller of the Currency
Administrator of National Banks

OCC’s Quarterly Report on Bank Trading and Derivatives Activities
Third Quarter 2008

Executive Summary

• U.S. commercial banks reported $6.0 billion of trading revenues in cash and derivative instruments in the third quarter of 2008, compared to $1.6 billion in the second quarter of 2008 and a $2.2 billion average over the past eight quarters.

• Net current credit exposure increased 7% from the second quarter to $435 billion, a level 73% more than the $252 billion exposure of a year ago.

• The notional value of derivatives held by U.S. commercial banks decreased $6.3 trillion in the third quarter, or 3%, to $175.8 trillion.


snip

Derivatives activity in the U.S. banking system is dominated by a small group of large financial institutions. Five large commercial banks represent 97% of the total industry notional amount and 87% of industry net current credit exposure.

• Derivative contracts remain concentrated in interest rate products, which comprise 78% of total
derivative notional values. The notional value of credit derivative contracts increased by 4% during the quarter to $16.1 trillion. Credit default swaps comprise 99% of credit derivatives.

http://nbcharts.blogspot.com/2009/01/derivative-exposure-revisited.html

The Premiums charged on these Derivatives (Insurance Policies) were artificially low and the banks who wrote them wrote far too many, in an effort to increase their revenue and earnings (Congress was urged to allow this by none other that Hank Paulson when he ran Goldman Sachs and testified before Congress). These banks used massive leverage and Enron-like accounting tricks (off balance sheet entities like SIVs to hide losses) to allow themselves the ability to sell many times more insurance than they could afford to sell and still remain solvent, if the economy ever went into recession. So when the economy did slow and those Bonds did default, the Banks who wrote the Derivatives did not have enough capital to pay off all the insurance claims.

snip

The game all along has been to corral the smaller banks with derivative exposure into the larger banks with derivative exposure. Once the derivatives were in the hands of a few players, these remaining banks would sit down with the Fed and cross their derivative and bond positions to try and remove as much risk out of the system they could.

snip

What they did was lie to the public to keep them buying stock. This allowed the over-leveraged Institutions in the know (Hedge Funds and Pensions Plans) to sell their over-priced crap to an unsuspecting Public. The Regulators have been on the side of the crooks and regulating the propaganda, because those in government believe that if they don’t prop up asset prices, then there will be riots in the streets. I’m not making this stuff up.

http://www.marketwatch.com/news/story/derivatives-new-ticking-time-bomb/story.aspx?guid=%7BB9E54A5D-4796-4D0D-AC9E-D9124B59D436%7D
Derivatives bubble explodes five times bigger in five years

Wall Street didn't listen to Buffett. Derivatives grew into a massive bubble, from about $100 trillion to $516 trillion by 2007. The new derivatives bubble was fueled by five key economic and political trends:

Sarbanes-Oxley increased corporate disclosures and government oversight

Federal Reserve's cheap money policies created the subprime-housing boom

War budgets burdened the U.S. Treasury and future entitlements programs

Trade deficits with China and others destroyed the value of the U.S. dollar

Oil and commodity rich nations demanding equity payments rather than debt

In short, despite Buffett's clear warnings, a massive new derivatives bubble is driving the domestic and global economies, a bubble that continues growing today parallel with the subprime-credit meltdown triggering a bear-recession.

Data on the five-fold growth of derivatives to $516 trillion in five years comes from the most recent survey by the Bank of International Settlements, the world's clearinghouse for central banks in Basel, Switzerland. The BIS is like the cashier's window at a racetrack or casino, where you'd place a bet or cash in chips, except on a massive scale: BIS is where the U.S. settles trade imbalances with Saudi Arabia for all that oil we guzzle and gives China IOUs for the tainted drugs and lead-based toys we buy.

To grasp how significant this five-fold bubble increase is, let's put that $516 trillion in the context of some other domestic and international monetary data:

U.S. annual gross domestic product is about $15 trillion
U.S. money supply is also about $15 trillion
Current proposed U.S. federal budget is $3 trillion
U.S. government's maximum legal debt is $9 trillion
U.S. mutual fund companies manage about $12 trillion
World's GDPs for all nations is approximately $50 trillion
Unfunded Social Security and Medicare benefits $50 trillion to $65 trillion
Total value of the world's real estate is estimated at about $75 trillion
Total value of world's stock and bond markets is more than $100 trillion
BIS valuation of world's derivatives back in 2002 was about $100 trillion
BIS 2007 valuation of the world's derivatives is now a whopping $516 trillion

[Alcibiades]

25. Thanks

Looks like we need to wipe it all out and seize all assets of all banks, yesterday.

[slipslidingaway]

22. Notional value vs. actual or cash value...

is one reason the numbers are different, also certain types of derivatives (example credit default swaps) are sometimes broken down and then some articles quote the derivatives position of US institutions.

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=103&topic_id=351988&mesg_id=351988

There are a few posts in this thread, but back in September 2008 I thought the 700 billion bailout number was interesting and posted about it at the time.

:shrug:


This article is from March 2008.

http://contraryinvestor.com/2008archives/momar08.htm

"...Trajectory, growth, rhythm and magnitude of global credit derivatives expansion is quite like the character we observed above for the US banking system proper. In three short years, global CDS exposure has increased roughly nine-fold. We're talking about close to $45 trillion of credit derivatives on a notional basis.

[Alcibiades]

24. Thanks, bookmarked

I did like the one comment about how they are underplaying the amount of money involved because they have not found a way to blame it on consumers. As we've seen, they would love to blame the failings of these ivy league graduates on low income minorities uppity enough to want to buy homes.

[slipslidingaway]

27. You're welcome, thought this was interesting as well...

"...Because like so many derivative vehicles these days, it's no longer about creating a specific insurance product, per se, but rather it has become about “trading” and ever expanding array of leveraged financial vehicles. None other than Fitch puts out periodic reports that cover their interpretation of the character of the CDS market. The latest hit the Street in the summer of 2007. Specifically in the report, Fitch states the following:


"However, while continuing to use CDS as a hedging vehicle, banks increasingly cite ‘trading’ as the leading rationale for employing credit derivatives. As a result, these aggregate results hide significant variation in the position of individual banks, with many actually reporting positions which show them to be major sellers of protection"

[SOS]

29. Re credit default insurance (swaps)

Perhaps the buyers of these swaps should be treated like the people of New Orleans.
New Orleans residents paid their premiums for hurricane insurance, but found out after Katrina that only wind damage was covered, not water.
People lost their homes and got $1,000 for the amount ascribed to "wind" rather than "water".

When Citi goes under, tell 'em it was water damage.

[slipslidingaway]

30. Instead the people of New Orleans are contributing to these

bailouts, I like your idea.

:)

Be nice to see a list of who is on the other side of these trades, although I doubt we'll see it on the Treasury site.

:(

[Alcibiades]

31. love it!

It was well known that this would only be a problem if there was a global economic collapse. Well guess what?

[slipslidingaway]

28. FWIW, I put this in the personal finance forum...

as it is easy to find things over there.

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=327x817

[No Elephants]

4. Shocked. I thought sure the first package Paulson and Hankypanky put before Congress

while Dummya was still in office would do the whole trick.

Reality: We probably cannot even afford the paper to print the money this is going to take. They went about it wrong. Our grandchildren were screwn before the first bailout. I don't know how many generations of our descendants we are going to screw before this ends.

[2Design]

6. NOOOOOOOOO - they used it for parties and bonuses and other waste

no they need to learn how to handle money or get out of the buiness

[Autumn]

7. Fuck that , they need

to deal with the consequences. They made the choices and they need to deal with it. Not the tax payer.

[LiberalFighter]

8. I"m wondering as Federal Reserve Chair doesn't he have any oversight

over the banks and how they conduct business? Or at the least, identify problem banks?

[Dappleganger]

9. He should pull it out of his ass...

because we all know that's where his solutions have come from since the beginning of this mess.

[Romulox]

10. You'd have to be a child to be fooled by this schtick. They KNEW they were coming back to the till.

[4dsc]

11. NOT ONE MORE DIME!!!

Fucking let them fail!! Let the FDIC take them over and sell their remaining assets..

[JFKfanforever]

26. Absolutely...

But anyone who has ever seriously taken on the private banking
cartel known as "The Fed" has ended up.... well,
shall we say, either destroyed or dead.

[AzDar]

12. Hey, Ben --- Don't rationalize...NATIONALIZE!

:patriot:

[stillcool]

13. I like that!

[LovableScamp]

14. I picked this up off Huffington Post.. comments section... great post .. cant take credit

The four biggest one-day drops in the stock market happened under Bush:

- 777.68 (9/29/08)
- 733.08 (10/15/08)
- 684.81 (9/17/01)
- 679.95 (12/01/08)

Under Bush, the Dow dropped in just over a year a record 6,215 points (nearly as much as the Dow's total value today of 6,763.29!)

DOW ON 10/9/07 UNDER BUSH = 14,164.53
DOW ON 1/20/09 UNDER BUSH = 7, 949.09
LOST IN 15 MONTHS OF BUSH = 6,215.44

If Obama and his agenda (which hasn't even been implemented yet) qualify as failures for the 1,185 points the Dow's lost since he became President, Bush and the Republicans are 5 times the failures.

And it's IMPOSSIBLE for the Dow to lose anywhere near the amount lost under Bush so by your measurements, Obama is already locked in to having a more successful presidency than Bush and the Republicans.

Unfortunately troIIs, the rest of us aren't participating in your ridiculous amnesia act. Bush sent our economy into a nose dive over 8 years of corruption and de-regulation and Obama only took over the wheel to try and pull us out.

Do you really expect people to believe that the destruction Bush did to our economy was magically reset to zero when he left office? Such denial, no wonder your party looks more like the World Wrestling Federation than a viable political party.

[Amonester]

15. It will fail again, again, again, and again.

At this rate, it would be less costly to just erase the total debt of the entire world.

A world where nobody owes anything to anyone.

Just sweep the whole mess clean and start over.

One world. One currency. One NEW currency.

[Odin2005]

17. NATIONALIZE THEM!!! n/t.

[defendandprotect]

18. Nationalize the banks --- !!!

[Zorra]

20. Nationalize the banks! n/t

[unkachuck]

23. are the bookies....

....at the Federal Reserve making this stuff up as they go along? Or are they really just covering the bad bets of their fellow bookies at the wall street casinos and the New York banking parlors?

"Without a reasonable degree of financial stability, a sustainable recovery will not occur,..."

....yes, but we want financial stability and sustainable recovery at an affordable price....and that's not going to happen with the bookies in charge....

....we must flush the gamblers on wall street from our economy, let the crooked bankers and banks fail, take over the remaining assets and create a brand new national banking system for the American people:

>> The First National Bank of the United States <<

....because we and the world don't have 600 trillion dollars to invest in making the old capitalism solvent again....if we try, we'll be forever enslaved, for generations to come, to the same fascist criminals that brought us this crisis....

[defendandprotect]

32. What we need is less Federal Reserve Bank and less welfare for capitalists -- !!!