Banks Making Derivative Bets On Whether Or Not PIIGS Fall

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Egg
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Banks Making Derivative Bets On Whether Or Not PIIGS Fall

Post by Egg » Wed Nov 09, 2011 3:08 pm

The “Too Big To Fail Banks” are at it again, making huge speculative bets on the odds of sovereign default by Portugal, Italy, Ireland, Greece and Spain. The costly lessons of the derivatives debacle of 2008 have apparently been forgotten.

In 2008, the Too Big To Fail banks bought massive amounts of credit default swaps (CDS) to protect themselves from loss on their huge holdings of subprime mortgages. By purchasing CDS from institutions such as insurance giant AIG, the banks were able to convince regulators that their net exposure to losses on holdings of toxic mortgage instruments was minimal. So how did that work out?

As the mortgage market collapsed in 2008, AIG’s payoff liability on the CDS it wrote soared. AIG was forced to post additional collateral with counterparties as its credit rating was downgraded and the company faced collapse. If AIG had been allowed to collapse, the too big to fail banks who thought they were hedged, would have instead faced losses in the hundreds of billions. The failure of AIG would have resulted in huge losses to the banks and AIG bondholders.

Instead of being allowed to fail, AIG was bailed out by both the U.S. Treasury and the Federal Reserve who agreed to a financial commitment of up to $182 billion. The final amount lent or invested to bail out AIG by the Treasury and the Fed ultimately totaled $140 billion. AIG still owes the U.S. Treasury almost $50 billion according to propublica.org which tracks the cost of taxpayer financed bailouts.

It wasn’t until a year and a half later that the full truth about the AIG bailout was revealed. In January 2010, the NY Fed was forced to release documents showing that over $100 billion of the taxpayer bailout funds given to AIG were transferred to major financial institutions such as Goldman Sachs, Deutsche Bank and Merrill Lynch to make them whole on credit default swaps with AIG.

http://problembanklist.com/to-big-to-fa ... debt-0430/


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lkwalker
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Re: Banks Making Derivative Bets On Whether Or Not PIIGS Fal

Post by lkwalker » Wed Nov 09, 2011 3:11 pm

Originally Posted by GeneralStriker
From 2008

The Fed and the usual gang of 'experts' will always spend their meager energy on the analysis of the economic cogs and gears rather than the state of the deus ex machina itself. The fact is that the world is experiencing the greatest transfer of wealth since the beginning of recorded history. Pax Americana is in decline and fall. Nothing can slow the decent and the chaotic consequences for human continuance per se. Behold a pale horse. The ultimate discontinuity is at hand and the results will not be pretty- interesting, but not pretty.

The Empire won't go quietly- not with a whimper but a bang. Perhaps that is why the Johannine prophecies seem so apt. This movie played out before in a much smaller theatre. It doesn't require a prophet to see the future anymore- just a bit of tweaking on the fine tune knobs. The future has never had such a compelling immediacy.

The world is being strangled by the Malthusian garrote. Desperate populations are about to become engaged in a war for remaining resources. That is what the Iraq war is all about. Self preservation will finally wring out the last dampness of altruism. It has happened before to a lesser degree and the remedy that it spawned- Christianity- will find itself finally eclipsed by it's opposite principles. This is the larger picture. All that's left are the tedious details, the footnotes- the various methods of mayhem and the hydra-headed fools, the walk-ons of history, that permit their use.

So what sound and fury do we see in the immediate future? The crash of the markets, unlimited war, local transfers of wealth and property- evictions, repossessions, the calling of social margin. Families squatting in the dross of their own foreclosed homes- the new huddled masses, their utilities disconnected, while the successors of the failed banks are unable to force them out. Transportation at a stand-still. Empty grocery stores. Gunshots in the night. And the foreign wars of our addled emperor coming home. The attack on Iran will result in the sinking of aircraft carriers in the Persian Gulf. Saudi Arabia will be over-run by the gangs of it prodigal son. There will be no more oil shipped by those greedy sheiks. The ayatollahs will loose their missiles on Israel and taste the fruits of Samson's nukes. Persia will be no more. Israel will be no more. And then it all comes home. The scatterings of the Middle Eastern desperadoes will appear on our own streets, in our own buildings- and bring with them endless nine elevens. Of course there is more- much more- this is just a selective foretaste of the impending chaos. Let your imagination run wild to see the entire movie. Whatever disaster that you have the temerity to envision will come to pass. Shortly.

The billions that have gone before us, upon whose shoulders we stand, are here and now- new flesh on their bones- to witness the denouement of history. It could have been otherwise. The greatest fear shall now become- not death, but the inability to die. Perhaps John had it right after-all.

"If you don't think to good, don't think too much." Yogi

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