We were discussing the financial issues elsewhere here around the riots in UK. No one believed my numbers that there was paper out there several times the net value of the entire planet.
Well, here's the numbers for *US* banks, alone. Was I kidding?
The latest quarterly report from the Office Of the Currency Comptroller is out and as usual it presents in a crisp, clear and very much glaring format the fact that the top 4 banks in the US now account for a massively disproportionate amount of the derivative risk in the financial system. Specifically, of the $250 trillion in gross notional amount of derivative contracts outstanding (consisting of Interest Rate, FX, Equity Contracts, Commodity and CDS) among the Top 25 commercial banks (a number that swells to $333 trillion when looking at the Top 25 Bank Holding Companies), a mere 5 banks (and really 4) account for 95.9% of all derivative exposure (HSBC replaced Wells as the Top 5th bank, which at $3.9 trillion in derivative exposure is a distant place from #4 Goldman with $47.7 trillion). The top 4 banks: JPM with $78.1 trillion in exposure, Citi with $56 trillion, Bank of America with $53 trillion and Goldman with $48 trillion, account for 94.4% of total exposure. As historically has been the case, the bulk of consolidated exposure is in Interest Rate swaps ($204.6 trillion), followed by FX ($26.5TR), CDS ($15.2 trillion), and Equity and Commodity with $1.6 and $1.4 trillion, respectively. And that's your definition of Too Big To Fail right there: the biggest banks are not only getting bigger, but their risk exposure is now at a new all time high and up $5.3 trillion from Q1 as they have to risk ever more in the derivatives market to generate that incremental penny of return.
And here's the link to the government report.
http://www.zerohedge.com/news/five-bank ... ting-fx-deYes, it's really that bad. And there's no simple solution. Declaring all this junk null and void would create other issues...it's not a simple problem with a simple solution other than just making all this ability to write "bad paper" illegal going forward, and maybe hanging a bunch of bankers on the nearest lamposts till it goes away. You can't just declare contract law "all gone" you know, there are other repercussions of that as in causing immediate failures elsewhere. And would that mean the guys who sold this paper have to give the money they got for it back? They don't have it, at any rate.
Each and every one of us must remember to thank our bought, utterly corrupt governments for allowing this to exist in the first place. Yes, they knew, and yes, they knew the implications, but they took the bribes...er, campaign contributions, and looked the other way. And now, they feel fine about sending you the bill. You didn't share the profits when things were going well, but...you're holding the bag, no matter where on earth you live and under which government. No place won't be affected when this tower of paper burns.
Posted: Fri Aug 26, 2011 10:39 am