JPMorgan Chase: $88 trillion in derivatives...

[Junkdrawer]

...

Today five US banks according to data in the just-released Federal Office of Comptroller of the Currency’s Quarterly Report on Bank Trading and Derivatives Activity, hold 96% of all US bank derivatives positions in terms of nominal values, and an eye-popping 81% of the total net credit risk exposure in event of default.

The five are, in declining order of importance: JPMorgan Chase which holds a staggering $88 trillion in derivatives (€66 trillion!). Morgan Chase is followed by Bank of America with $38 trillion in derivatives, and Citibank with $32 trillion. Number four in the derivatives sweepstakes is Goldman Sachs with a ‘mere’ $30 trillion in derivatives. Number five, the merged Wells Fargo -Wachovia Bank, drops dramatically in size to $5 trillion. Number six, Britain’s HSBC Bank USA has $3.7 trillion.

After that the size of US bank exposure to these explosive off-balance-sheet unregulated derivative obligations falls off dramatically. Just to underscore the magnitude, trillion is written 1,000,000,000,000. Continuing to pour taxpayer money into these five banks without changing their operating system, is tantamount to treating an alcoholic with unlimited free booze.

....

http://www.engdahl.oilgeopolitics.net/Financial_Tsunami/Geithner_Secret/geithner_secret.html


Here's the referenced Federal Office of Comptroller of the Currency’s Quarterly Report on Bank Trading and Derivatives Activity:

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

[madrchsod]

1. obama needs to "fire" the top executives

give the banks 60 days and if they have`t made a restructuring plan he likes it`s bankruptcy.

there`s not enough money in the world to pay off the derivatives

[Junkdrawer]

3. Thus far. Geithner & Summers have subsidized derivative payoffs at 100%....

of face value.

When Alt-A resets hit hard later this year, that could prove, well, expensive...

[amandabeech]

51. Yes, and they tried to keep it secret. Like with AIG.

It contradicts Obama's stated commitment to transparency.

[ddeclue]

4. When you steal 600 dollars you can just disappear - when you steal 600 million they WILL find you

Well, when you steal $600, you can just disappear. When you steal 600 million, they will find you, unless they think you're already dead."

- Hans Gruber, Die Hard, 1989


"These days the buck stops nowhere
No one takes the blame
But evil is still evil
In anybodys name
If dirt were dollars
We'd all be in the black"

- Don Henley "If Dirt Were Dollars", The End of the Innocence, 1989



<rant> For those complaining that it's not appropriate for AIG to turn over the names of those execs who pulled down the 165 million in bonus money paid for by the taxpayers:

If you have the nerve to take that kind of money from the taxpayers as a "bonus" we deserve to know just who the hell you are - let's face it if the tax payers didn't totally bail out your sorry asses to the tune of tens of billions of our hard earned dollars after you ran your company into the ground with ..I don't know the word.. I don't think simple greed covers it... avarice ... yes perhaps avarice has a better "mortal sin" quality to it then there would be no bonus money because you would be fired and AIG would be in receivership.

What is legal isn't always moral.

Deep down you knew that - you knew that to bless these investments and insure them and help repackage them was deeply immoral - possibly even illegal - but you did it anyways because you are the Masters of the Universe and we're just your playtoys.

You screwed us all over - everybody gets to lose their job and their house and the economy is in the tank for years to come - but hey you've got yours and that's all that matters to you isn't it?

Now you expect pity and are shocked that the outraged taxpayers and investors are busy searching their barns for their pitchforks and the tar and feathers?

All I can say to you is ...welcome to the NFL ... if you're gonna take that kind of money to screw the rest of us over.. you're gonna have to take the heat and stop complaining to the very people you screwed about it already.

</rant>

[davekriss]

25. The only remedy to this theft...

...this moral and egregious theft (if not legal theft)...is a horrendously punitive wealth tax that prevents these idiots and their spawn from benefitting from the debacle they engineered. What's to stop us? O, wait, we no longer live in a representational democracy. The majority of Senators and Congressmen represent ... them ... not us. (What was I thinking?)


:(


Just wait, in a couple of years they will be telling us how "we" can no longer afford social security and medicare, that we'll have to tighten our belts, starve, die.

(We're just so many "useless eaters" and "cannon fodder" to them, words purportedly uttered by Kissinger and GHWB back in the day.)

The illusion of freedom in America will continue as long as it's profitable to continue the illusion. At the point where the illusion becomes too expensive to maintain, they will just take down the scenery, they will pull back the curtains, they will move the tables and chairs out of the way, and you will see the brick wall at the back of the theatre.
-- Frank Zappa, 1977

[RB TexLa]

2. That is part of the business of banking. One would expect banks to hold derivative contacts.

[Junkdrawer]

6. I guess the real question is....How much of that is between banks....

and how much is bets made with hedge funds?

[Jim Sagle]

12. Only since Glass-Steagall repeal. And it's a fucked up situation.

[RB TexLa]

17. Have you volunteered to have your mortgage and credit cards put back to 1980's rates?

Don't want to pay 13% on your home loan? That's all part of the "good ole days," you want to bring back. If people can't afford to pay that for their home, "fuck 'em" huh?

[Jim Sagle]

30. The current structure is unsupportable and unconscionable.

You're in a hole. Why don't you stop digging?

[RB TexLa]

31. I'm not inside of any hole.

[marketcrazy1]

32. I would LOVE to bring back 1980`s finance

and pay 13 percent on my mortgage, considering that in 1980 the median home price was around 65/75 thousand and you HAD to be able to afford the payment and PROVE IT plus put down 20 percent of YOUR money. no DPA bullshit. it was called RESPONSIBLE lending where your bank HELD your mortgage to maturity and did not try to bundle it up and sell it off to "investors" so yes lets bring back the 80`s with REALISTIC home prices. in those days credit default swaps DID NOT EXIST! neither did CDO`s or interest rate swaps or countless other "miracles" of financial engineering!! in those days insurance companies sold INSURANCE!! real insurance not complicated derivatives "disguised" as insurance!!. bring it on baby!! sure we had bubbles in those days but when THEY burst it did not threaten the financial stability of the entire fucking planet!!! so yes, I do indeed wish for the "good ole days"!!!!

[druidity33]

61. You EFFIN' TELL EM MC1!

Freakin idjits, sayin shit when they don't even know what they're freakin' tawkin' 'bout...


no sarcasm here, just remembering that in the 80's i wuz on LawnggUYland... or Long Island in the 80's.


:)


Aside from Reagan there some parts of the 80's that were pretty sweet!

[girl gone mad]

34. False assertions.

Mortgage rates are linked to the Fed funds rate. Securitization merely allowed reckless lending to unqualified borrowers to occur at those rates.

Higher interest rates are associated with lower housing prices so higher interest rates do not negatively impact overall "affordability". It's a wash, though this scenario often benefits the buyer in the long term. You can always refinance at a lower rate, but you can't reduce the purchase price after settlement.

[specimenfred1984]

36. How about we go back to 1861 and let the South go?

America doesn't need a bunch of stupid hicks to pay for, the South should secede again and this time we can just let them go.

[RB TexLa]

37. I'd rather we kick their ass again and then buy their land out from under them the way my family

did in the late 1860's. :)

[gmoney]

5. Ooh, perhaps I should look at switching my accounts to my credit union...

I've been meaning to anyway...

[rucky]

7. what are they deriving?

Credit default swaps?

[Junkdrawer]

11. among others....It's hard to get true numbers. Take AIG....

A NYT article said "definitively" that AIG's total CDS exposure was $450 billion....

Then, at the hearings last week, it was set at $2.7 trillion, with $1.1 trillion already "unwound".

My sense is that the numbers are bigger than the banks want us to know...

[TayTay]

8. What happens if you cancel the insurance policies here

and refuse to honor the debt should a derivative come due? (Insurance policies get canceled for ordinary people all the time.)

[Junkdrawer]

13. I'm guessing the numbers are so huge and interdependent between the big banks...

that you can't just kill one bank. The whole system may need to be nationalized.

Here's the end of the article...

This is what Wall Street and Geithner are frantically trying to prevent. The problem is concentrated in these five large banks. The financial cancer must be isolated and contained by Federal agency in order for the host, the real economy, to return to healthy function.

This is what must be put into bankruptcy receivership, or nationalization. Every hour the Obama Administration delays that, and refuses to demand full independent government audit of the true solvency or insolvency of these five or so banks, inevitably costs to the US and to the world economy will snowball as derivatives losses explode. That is pre-programmed as worsening economic recession mean corporate bankruptcies are rising, home mortgage defaults are exploding, unemployment is shooting up. This is a situation that is deliberately being allowed to run out of (responsible Government) control by Treasury Secretary Geithner, Summers and ultimately the President, whether or not he has taken the time to grasp what is at stake.

Once the five problem banks have been put into isolation by the FDIC and the Treasury, the Administration must introduce legislation to immediately repeal the Larry Summers bank deregulation including restore Glass-Steagall and repeal the Commodity Futures Modernization Act of 2000 that allowed the present criminal abuse of the banking trust. Then serious financial reform can begin to be discussed, starting with steps to ‘federalize’ the Federal Reserve and take the power of money out of the hands of private bankers such as JP Morgan Chase, Citibank or Goldman Sachs.

[bluestateguy]

9. Does that much money even exist?

BTW, how much money does exist in the world?

[Stephanie]

14. Not that much

http://www.dailykos.com/story/2008/9/21/9322/74248/245/602838

How big did this market become? Here's business correspondent Bob Moon and host Kai Ryssdal on American Public Media's Marketplace from back in the spring.

BOB MOON: OK, I'm about to unload some numbers on you here, so I'll speak slowly so you can follow this.

The value of the entire U.S. Treasuries market: $4.5 trillion.

The value of the entire mortgage market: $7 trillion.

The size of the U.S. stock market: $22 trillion.

OK, you ready?

The size of the credit default swap market last year: $45 trillion.

KAI RYSSDAL: That's a lot of money, Bob.

As in three times the whole US gross domestic product, Bob. And the truth is that Moon probably underestimated. The unregulated and poorly reported credit default swaps may have actually passed $70 trillion last year, or about $5 trillion more than the GDP of the entire world.

[floridablue]

10. I still have trouble understanding how derivatives work ???????

Any help would be appreciated.

[Stephanie]

15. help >

http://www.rollingstone.com/politics/story/26793903/the_big_takeover/2

[Junkdrawer]

16. Great educational series: The Wizards of Money...

Check out Episode 11 ("House Lever-Edge at the Derivatives Casino")...

http://www.antiscia.com/wizardsofmoney

My thread on it from the weekend....

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=389&topic_id=5354144&mesg_id=5354144

[glitch]

29. Awesome series!

How excellent of you to post about it.

[Junkdrawer]

42. Anyone know what ever became of "Smithy"?

What an amazing woman...

[glitch]

47. I don't. She was such an excellent teacher in that series, I hope she does more of it. nt

[Junkdrawer]

48. BTW: The weekend thread said 2004 - it was actually 2001-2002....

and yet you listen and you'd swear a really hip expert was commenting on today's events...

I'm slack jawed in admiration of her intelligence.

[glitch]

49. I would love to hear what she has to say today! nt

[Orwellian_Ghost]

63. Yes

Required listening.

I happened upon that series by Smithy from of all things a local station here in the sticks.

A local DJ would play all sorts of interesting programs late Sunday night Monday AM probably when the programmers allowed or ignored such things in this land of extreme media censorship.

Thanks for the thread.

[SoCalDem]

45. You borrow $10K from your Mom & Dad to pay medical expenses

+ $15K borrowed from Auntie & Uncle & go buy a new car.. then you move & don't tell anyone where you live:evilgrin:

It's theft, deception & lies..

[BzaDem]

18. The notational value of derivatives is not that relevant.

Right now, if Company A bet 1 trillion dollars that company C would fail, and they also bet 1 trillion dollars that company C would not fail, that would count as 2 trillion dollars. But in reality, it is 0 dollars, because company C cannot both fail and not fail at the same time. The real value is how much a company could be exposed to if an actual real-world scenario happens, and that is what we don't know.

[Junkdrawer]

19. What worries me is that many CDSs can be taken against a single mortgage backed security...

and there's a WHOLE lot of Alt-A resets due later this year...



It was a fairly safe bet that "Liar Loans" and "Optional Payment Loans" would default when they reset. So I'm thinking that may be where a lot of the betting money was laid...

[unc70]

41. Pay off those loans (refinance) and value of CDSs is now zero

If the CDSs are mortgage-backed, then pay off the mortgages at 100% calling it a refinance. That then makes CMO/CDO have 100% face value and no risk. Like magic, all those extra naked CDSs have a value of 0, absolutely nothing.

While this might sound expensive, it would be limited by the value of the bad loans, but would be much less than that eventually.

It has to be at full value, otherwise you get all the messiness of valuations, multiple CDSs multiplying exposure, etc.

So for the cost of paying the first CDS (usually held by the owner of the CDO), you are left with an old-style mortgage and housing problem.

There are some extra issues because they started putting CDSs into other CDOs.

[snot]

43. Excuse me, but isn't that backwards?

It should count as zero dollars only if company C COULD fail AND not fail. Since it can only do one or the other, not both, the liability is in reality at least 1 trillion . . . isn't it?

[Statistical]

55. No. Either or.

Say you are running a betting game. Odd or Even.

I place a bet for $10 on Odd.
Another customer places a bet for $10 on Even.

Say bet is even money (no house advantage)

What is the max you can lose?
$0.

If it is odd.
You pay me = $-10
You collect from other player = $+10

If it is even
You collect from me = $10
You pay other player = -$10

Either way odd or even (company fails/company doesn't fail) your NET exposure is $0.

So while a bank may had say $x trillion in exposure. The NET exposure is much lower. How much lower? Who knows. A single bank may carry bets on both sides of a scenario w/ multiple counterparties. It is not possible for bank to fail/payout of all of them because many can not happen at the same time.

So the situation is bad but not as bad as the headline makes it look.

This leads to winding down the transactions:
One way to wind down out scenario above (odd/even)
if for you to put me in contact w/ the other bettor.
If it is odd he will pay me directly. If it is even I will pay him directly.
You can now take that $20 in action off your books.

[Marie26]

20. Total GDP of the United States: $14.3 trillion, Total GDP of the WORLD: $78.3 trillion

So basically JP Morgan has derivatives worth more than the gross domestic product of the entire world?

[Junkdrawer]

21. OK, so we'll have to work up a payment plan....

:evilgrin:

[Marie26]

24. LOL

Of a few hundred years...

[live love laugh]

38. That's fucked up. FUBAR nt

[Octafish]

22. Don't you worry. As long as it's not made in Detroit...

...or the U.S.A., but it's on the books of Wall Street, Uncle Sam will find the money.

It's ironic, in a way. The Americans who used to be well-paid, making stuff, no longer have any money.

I'm sure the well-connected Wall Street types will do their part and open their wallets. America's ownership class is known around the world for its generosity, I've heard say.

[Junkdrawer]

23. $88 trillion will put a dent into even the Rockefeller fortune...

I'm guessing...

[Octafish]

26. With the multiplier at 20, I'd guess the BFEE managed to loot $4.4 trillion.

In all seriousness and not counting government waste.

The real trillions -- as opposed to the near-infinite "obligations" foisted upon the U.S. taxpayer -- have gone into offshore accounts stuffed with:

1. Money saved by buying Congress and the associated big-time tax cuts.
2. Money made through fiscal policy benefitting connected cronies.
3. Money made by war for the needs of the military industrial complex.
4. Money made through the Wall Street pyramid scheme.
5. Money made through international arms and drugs trafficking.

There's more -- for them. There's zip for us, as in "We the People."

[glitch]

27. K & R this thread and especially this post. nt

[maxsolomon]

56. uncle sam will PRINT the money

eventually it won't be worth jack.

[SOS]

57. War 'n Wall Street

If War 'n Wall Street say they need a few trillion, the Congress allocates the money overnight.
For universal health care, college education and unemployment benefits, however, there's just no money available.

For the money being flushed down the toilet on Wall Street and in Iraq, we could have European-style social security in this country.

[Junkdrawer]

60. You see, social spending is a different kind of money....

"Reluctant" Money as in "I could have that money, so I'm reluctant to give it to the citizenry."

[slipslidingaway]

28. Some graphs here...

this is from March 08, they always do a review of the quarterly report.

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


Food for thought...Did we bail out Bear Stearns or JPM?

http://www.contraryinvestor.com/2008archives/moapril08.htm

"...Of course the truth simply had to be that if Bear had filed bankruptcy and the credit default swaps written against their bonds/debt/asset positions had been triggered, the credit default swap liabilities in the market would have been well north of a $6 billion hit to whomever had written those Bear specific CDS contracts. Well north. And that simply could not have been allowed to happen. By the way, just as an item of curiosity, JP Morgan has exposure to over 55% of the total banking system credit default swaps outstanding. Are we connecting the dots clearly enough for you?..."



http://www.pbs.org/moyers/journal/03272009/watch2.html

"....WILLIAM GREIDER: Unfortunately, Secretary Geithner, has a record- which we know about. When he was President of the New York Federal Reserve Bank. And he was at the table, in many of the bailout transactions. First Bear Stearns then A.I.G. and others. And this is, again, not my opinion, but people on Wall Street talk about it all the time. He got spun around again and again by the big Wall Street players. The bailout of Bear Stearns was really about protecting J.P. Morgan Chase.

The story was told backwards in the press, basically, because it's a story the government told that J.P. Morgan came in to buy Bear Stearns at the behest of the government. But in fact, if Bear Stearns had gone down, J.P. Morgan Chase was vulnerable itself to a wave of derivative crashing crisis. When they bailed out A.I.G., the chief executive of Goldman Sachs was in the room. Why was he in the room? Well, because he had big exposure to- through derivatives, to A.I.G. So, when they pump money into A.I.G., it sends the same dollars out and buys back these derivative contracts at par value, not even discounted, to the banks and others who hold them..."

[slipslidingaway]

33. Notional values and actual dollar values...

links here...

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=103&topic_id=351988&mesg_id=352021

"....Let's get one thing straight, one must draw a clear distinction between notional values and actual dollar values. The whole premise of derivatives transactions is that a few real dollars can be spent to control a large amount of notional dollars. Hence the leverage..."

[TayTay]

46. Aren't these the payout numbers for when the bets go bad?

The $88 trillion is not "real" money in the sense that it comes due only when the assets insured default? As I understand it, one defaulted mortgage can result in insurance payouts of up to 30 times the value of that mortgage.

So, this is a hyperinflated look at what is owed, and even then, if we were to deal with the defaults at the core of this, it would be even less.

Is this view valid at all?

[unc70]

50. Exactly! "Refinance" and payoff in full underlying loans, CDS value is zero

Using the mortgage based securities as an example, you could payoff all the loans fully, make the MBS/CDO chain ve fully valued, and instantly make the CDS have not value. All for the price of the paying the first CDS that is likely held by the CDO owner.

It gets more complicated because of the terms of some CDS and because there are other types of items in CDOs. It often appears that these were deliberately constructed to fail and thus trigger much larger gains through the multiple CDSs.

[Junkdrawer]

52. "constructed to fail" - believe me, that thought has occured to me...

many times as I come to understand the full detail of all this...

[unc70]

54. They designed CDOs to fail after paying high yields, returning investment to some

The simplest mortage backed securities (MBS) pass through proportionally interest and principal from the mortgages. When they build Collateralized mortgage obligations (CMOs), a sane issuer in the past would overcollateralize to allow for a level of defaults, usually retaining the final tranch in case fewer default.

Some of the CMOs now might pay good interest and all principal to the first tranch which completes before the problem loans start failing, very high interest stream but no principal to the last tranch, and interest and risk to investors of the middle tranches who only receive principal after first tranch. If the originator retains final tranch, they get cash flow to leverage by buying CSOs.

And it only gets worse.

[slipslidingaway]

62. I'm not exactly sure, this is from the OCC site....

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

page 4

"A bank’s net current credit exposure across all counterparties will therefore be the sum of the gross positive fair
values for counterparties lacking legally certain bilateral netting arrangements (this may be due to the use of
non-standardized documentation or jurisdiction considerations) and the bilaterally netted current credit
exposure for counterparties with legal certainty regarding the enforceability of netting agreements."


page 6

"Notionals

Changes in notional volumes are generally reasonable reflections of business activity, and therefore can provide
insight into revenue and operational issues. However, the notional amount of derivatives contracts does not
provide a useful measure of either market or credit risks."

[kentuck]

35. Can these numbers be for real ??

Up to this point, I had read that the total in the CDS's was $55 trillion. Now we are told that JPMorgan Chase holds $88 trillion dollars worth of this junk? If this is the case, why would anyone give them a penny? It would just be wasted. This is unbelievable!

[slipslidingaway]

64. CDS are one component of all derivatives...

see the chart on page 7.

And page 23 shows the breakdown for JPM

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


The interest rate contracts actually make up the bulk of all derivatives at 82%, I've always wondered what would trigger some of those contracts???

[Wednesdays]

39. K&R

:kick:

[leftofthedial]

40. Damn! There must be *some* way to bust a union or two while pretending

to hold these crooks accountable!

[SoCalDem]

44. Gee what a surprise... The "created" vapor-"securities"

"sold" it all around the globe for "real" money, which they kept for themselves, and just kept adding it to the bottom of their "toxic asset" list...:puke:

[Joe Fields]

53. I'm not a criminal prosecutor, but I say investigate and prosecute the hell

out of the top executives and derivatives traders of all five of these banks.

[MrPerson]

58. There isn't that much money in the world.

[femrap]

59. Finance has become such a large part

of the US Economy that all the Fed and Treasury can do is poor more money onto the fire. The sub-prime mess is small compared to the Derivative Mess. The fact that grown adults, who are paid a phenomenal amount of money, sit around and think up ways to rip off other people/institutions/municipalities, etc is amazing to me. These 'financial products' produce NOTHING!

When will We The People demand a stop to this insanity. WASF.

These 'financial products' have to stop. Wanna play with money? Go to Vegas or your nearest gambling boat.

No one in the Administration is being honest about these Derivatives....Obama better be honest now so he can blame it on W. Fucking banksters.

[annabanana]

65. huh!.. what a coincidence.. JPMC just took over the servicing of all

Federal credit cards... (for travel & office purchases & stuff)