You all better have one helluva hedge in place.
Yesterday I read that the Euro banks are leveraged at 25 to 1. As a reference, Leehman was 30 to 1 when it went belly up. So what?
Tonight I read Yahoo Finance's review of the movie Margin Call (save your money. Spacey could have used his real name for this one) and in the comments section a fellow named Rob posted the following which I cannot confirm or deny yet:
"This story from Bloomberg just hit the wires this morning. Bank of America is shifting derivatives in its Merrill investment banking unit to its depository arm, which has access to the Fed discount window and is protected by the FDIC.
This means that the investment bank's European derivatives exposure is now backstopped by U.S. taxpayers. Bank of America didn't get regulatory approval to do this, they just did it at the request of frightened counterparties. Now the Fed and the FDIC are fighting as to whether this was sound. The Fed wants to "give relief" to the bank holding company, which is under heavy pressure.
This is a direct transfer of risk to the taxpayer done by the bank without approval by regulators and without public input. You will also read below that JP Morgan is apparently doing the same thing with $79 trillion of notional derivatives guaranteed by the FDIC and Federal Reserve.
What this means for you is that when Europe finally implodes and banks fail, U.S. taxpayers will hold the bag for trillions in CDS insurance contracts sold by Bank of America and JP Morgan. Even worse, the total exposure is unknown because Wall Street successfully lobbied during Dodd-Frank passage so that no central exchange would exist keeping track of net derivative exposure."
Halloween approaches. I'll go back to being dead now.
Thanks for the enthusiastic VLO reco, AH. I was a wee bit late and only bought at 21.75... still, I have a nice collection of acorns and corn nuts for today...
I'm holding off on the FN for now... too many uncertainties... will a second shoe drop? I don't know... So, I'm resisting a buy for now.
yep....up 50 cents already Midav....less talk more action my friend....harvesting acorns is my game....I will leave the national politics to all the idiots in office...both parties....me I just do refiners.
If you take the insured value of every building and business in say.....the valley of the sun then you might end up with that figure.......but what are the chances of every single building being destroyed........thats like derivitives. The actual cash being put up and exchanged in this eventuality is a very small percentage of the total number being quoted.
I followed your string right up to the last sentence...that is where you have it wrong....even in the depression Ford cars were being driven on White Star gasoline....watch the movie on Bonnie and Clyde...gasoline and tire sales go up....heck they were all running around chasing eachother and shooting the tires out of stollen autos....so gasoline and tire sales skyrocketed....
What also ticked me off was the "hard money" bonuses the banksters showered themself with on the hypothetical derivitive earnings that turned out to be crap. And didn't pay back these monsterous bonuses after re-statements or even complete bankruptcy of the institutions they led. Look at the bonuses paid to Sandy Kumar or any of them, amounting to billions. Who said government workers were crooks? If they are they are babes in the forest with wolves in the private sector when it comes to gangster like activity.
This can't possible be true. First, there are rules governing what can be be counted as deposited funds and I am pretty sure derivatives don't qulify as such. Second, that Europe is going down has been known for a long time, I doubt that these banks would have been so heavily leveraged with what any child could tell you is a very bad bet. Third, even if the initial point were true - that the banks are counting these derivatives as deposits - no money has exchanged hands yet and if the banks were to try and borrow through the discount window to cover the losses (which doesn't make sense, BK is the only viable option in such a scenario) the FDIC would just say "no".
Having said that, the EU is going down and several of our largest financial instititutions and even our own government have a huge financial stake in EU and the countries that comprise it. When they go down, they will take us with them (so adjust your portfolio accordingly), but it isn't going to play out like this. Most likely scenario is the banks will have losses they can't cover, but this time there will be no bailout. Financial Darwinism...those institutions that have failed to adapt to the new economic environment will fall by the wayside and those Occupy Wallstreet rabble rousers will shout with gleeful Schadenfreude as BoA will certainly be one of those corpses on the side of the road when this all goes down.
The cart will fall apart long before the horse collapses. The top U.S. companies have a bigger stake in europe (sometimes 50% of their revenue) than the entity we call the government. If europe goes down it will be a fire that will affect Asia, the U.S, Canada,Brazil all of which are dependent to some extent (sometimes a lot more than some) on exchange in commerce. Higher taxes is the LAST thing anybody is going to have to worry about if revenue streams dry up.
Absolutely. Given that choice. It still burns me up when AIG paid GS full face value on it's credit default swaps. If AIG went it WOULD cost the taxpayer (hasn't happened yet) and it would hang more dollars on my children when I depart this crazy world.