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- Uncivilized Investing
- Investing in Gold as World Economies Falter
- Bracing for a Greek Exit
- Currencies Try to Rebound Today
- Superior Biotechnology Leads to Superior Drugs
- The Delusion of Regulating Risk
- Talk of a Greek Exit Gets Louder
- Doug Casey on Taxes and Freedom, Part II
- Is Facebook the Rusty Hinge of the Stock Market?
US Debt Eclipses Economic Output
The United States has joined the rogues gallery of nations whose debt has exceeded its annual economic output, or gross domestic product (GDP).
The U.S. national debt has broken $15.033 trillion, higher than the $15.032 trillion gross domestic product, meaning as of now, the country’s debts are higher than its annual output, according to usdebtclock.org, citing government data.
Five Banks Account For 96% Of The $250 Trillion In Outstanding US Derivative Exposure
Is Morgan Stanley Sitting On An FX Derivative Time Bomb?
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.
Banks made billions on secret Federal Reserve loans
The Federal Reserve and the big banks fought for more than two years to keep details of the largest bailout in U.S. history a secret. Now, the rest of the world can see what it was missing.
The Fed didn’t tell anyone which banks were in trouble so deep they required emergency loans of a combined $1.2 trillion on Dec. 5, 2008, their single neediest day.
Bankers didn’t mention that they took tens of billions of dollars at the same time they were assuring investors their firms were healthy. And no one calculated until now that banks reaped an estimated $13 billion of income by taking advantage of the Fed’s below-market interest rates, Bloomberg Markets magazine reports in its January issue.
Saved by the 2007-2010 bailout, bankers lobbied against government regulations, a job made easier by the Fed, which never disclosed the details of the rescue to lawmakers even as Congress doled out more money and debated new rules aimed at preventing the next collapse.
While Fed officials say that almost all the loans were repaid without losses, details that emerge from 29,000 pages of Fed documents obtained under the Freedom of Information Act and central bank records of more than 21,000 transactions suggest taxpayers paid a price beyond dollars as the secret funding helped preserve a broken status quo and enabled the biggest banks to grow even bigger.
Dwarfed TARP loans
The size of the bailout came to light after Bloomberg LP, the parent of Bloomberg News, won a court battle against the Fed and a group of the biggest banks called Clearing House Association LLC. The amount of money the central bank parceled out dwarfed the Treasury Department’s better-known $700 billion Troubled Asset Relief Program, or TARP.
Few people were aware of this, partly because bankers didn’t disclose the extent of their borrowing.
JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon told shareholders in March 2010 that his bank used the Fed’s Term Auction Facility “at the request of the Federal Reserve to help motivate others to use the system.”
He didn’t say that the bank’s total TAF borrowings were almost twice its cash holdings or that its peak borrowing of $48 billion came more than a year after the program’s creation.
On Nov. 26, 2008, Bank of America’s then-CEO Kenneth Lewis wrote to shareholders that he headed “one of the strongest and most stable major banks in the world.” He didn’t say that Bank of America owed the Fed $86 billion that day. Bank of America’s borrowing peaked at $91.4 billion in February 2009.
Spokesmen for JPMorgan and Bank of America declined to comment.
Secret Fed Loans Gave Banks $13 Billion
The Federal Reserve and the big banks fought for more than two years to keep details of the largest bailout in U.S. history a secret. Now, the rest of the world can see what it was missing.
The Fed didn’t tell anyone which banks were in trouble so deep they required a combined $1.2 trillion on Dec. 5, 2008, their single neediest day. Bankers didn’t mention that they took tens of billions of dollars in emergency loans at the same time they were assuring investors their firms were healthy. And no one calculated until now that banks reaped an estimated $13 billion of income by taking advantage of the Fed’s below-market rates, Bloomberg Markets magazine reports in its January issue.
Saved by the bailout, bankers lobbied against government regulations, a job made easier by the Fed, which never disclosed the details of the rescue to lawmakers even as Congress doled out more money and debated new rules aimed at preventing the next collapse.
A fresh narrative of the financial crisis of 2007 to 2009 emerges from 29,000 pages of Fed documents obtained under the Freedom of Information Act and central bank records of more than 21,000 transactions. While Fed officials say that almost all of the loans were repaid and there have been no losses, details suggest taxpayers paid a price beyond dollars as the secret funding helped preserve a broken status quo and enabled the biggest banks to grow even bigger.
Congress Uses Chimps To Monkey Around With Budget
While Congress has talked a good game about reducing the deficit, it still uses a variety of gimmicks to hide how much it is spending. One such trick is known as “changes in mandatory spending programs.” These “Chimps” are inserted into appropriations bills to produce phony budget savings.
“Americans have a right to know how their government is spending their money,” said Sen. Jeff Sessions, R-Ala., and ranking member on the Senate Budget Committee. “If Congress were more open and honest about where their tax dollars were going, I think people would be shocked by what they’d learn.”
Sessions and Sen. Olympia Snowe, R-Maine, are sponsoring budget reforms that would reduce — if not eliminate — Chimps.
In most years, Congress is supposed to pass a budget resolution that sets spending limits for appropriations bills. The cost of appropriations bills is the total of their spending and savings provisions.
$6.3 Billion In Phony Savings
Under congressional budget rules, Chimps are counted as savings because they “delay” spending on mandatory programs for later years. Using Chimps enables Congress to put additional spending in appropriations bills without exceeding the official limits set by the budget resolution.
The recent Commerce-Justice-Science appropriations bill that… Continue reading
Freddie Mac: A Bottomless Pit Of Taxpayer Losses?
Housing Crisis: Government mortgage company Freddie Mac lost an additional $6 billion in the third quarter and wants Congress to bail it out with taxpayers’ money. How about dissolving the failed institution instead?
Freddie Mac is an almost bottomless pit of financial malfeasance. Last year alone it lost $19.8 billion. Taxpayers have so far been drained of as much as $169 billion to save Freddie Mac and Fannie Mae, its federal sister that has also been a bust.
Washington estimates they could burn through another $51 billion by the end of 2014.
The anti-capitalists blame Wall Street for the housing meltdown. But Freddie and Fannie are at the heart of the mess. They bought bundles of toxic mortgages from other lenders, which government coerced to make loans to borrowers with shaky credit.
As much as 30% of the loans Freddie and Fannie bought could be regarded as subprime.
The pair was also, Cato Institute analyst Mark Calabria wrote earlier this year, “the largest single investor in subprime private label mortgage-backed securities.
“During the height of the housing bubble, almost 40% of newly issued private-label subprime securities were purchased by Fannie Mae and Freddie Mac.”
Freddie and Fannie literally became dumping… Continue reading
