Posted on 11/03/2014 8:04:40 AM PST by Citizen Zed
At this point, the five largest banks account for 42 percent of all loans in the United States, and the six largest banks account for 67 percent of all assets in our financial system.
The bets that I am most concerned about are known as “derivatives“. In essence, they are bets about what will or will not happen in the future. The big banks use very sophisticated algorithms that are supposed to help them be on the winning side of these bets the vast majority of the time, but these algorithms are not perfect. The reason these algorithms are not perfect is because they are based on assumptions, and those assumptions come from people. They might be really smart people, but they are still just people.
If things stay fairly stable like they have the past few years, the algorithms tend to work very well.
But if there is a “black swan event” such as a major stock market crash, a collapse of European or Asian banks, a historic shift in interest rates, an Ebola pandemic, a horrific natural disaster or a massive EMP blast is unleashed by the sun, everything can be suddenly thrown out of balance.
What would you say about a bookie that took $200,000 in bets but that only had $10,000 to cover those bets?
You would certainly call that bookie a fool.
But that is what our big banks are doing.
Right now, JPMorgan Chase (NYSE:JPM) has more than 67 trillion dollars in exposure to derivatives but it only has 2.5 trillion dollars in assets.
(Excerpt) Read more at theeconomiccollapseblog.com ...
If those bets were $100,000 on each side, I'd say that was a profitable bookie.
Obamanomics. Hope and change.
“Right now, JPMorgan Chase (NYSE:JPM) has more than 67 trillion dollars in exposure to derivatives but it only has 2.5 trillion dollars in assets...”
The usual misunderstanding between notional value and value at risk.
If I bet you $10 the stock market will go down tomorrow, the notional value of that derivative is the billions of dollars that the Dow stocks trade every day. However, the most I can win or lose is still only $10. So do I call this a $100 billion bet? No, I call it a $10 bet.
The actual value at risk from all of JPM’s derivatives, according to the CEO, is about $80 billion. But most of them are hedged to offset each other.
This theory was actually tested when Lehman Brothers failed. There notional value of all the Lehman bets was about twice the assets of Lehman, about $800 billion. But when the 60 biggest players settled up, only $400 million changed hands.
With their interest rates at or near zero and them charging borrowers 4, 5, 6 percent or more they are in paradise.
That would be the case if everyone paid back the money, and there were no losses. It would help, too, if they didn’t have to have expensive employees in expensive office buildings to make and manage the loans.
However, neither one of those is the case.
Stop making sense!!!
Give it a few years & we'll witness yet another neat little Government-led/sponsored transfer of assets.
The game is rigged & we're the marks.
But if there was a bet that had a 99% chance of me making $100 MILLION, and a 1% chance of me losing $20 billion, I would take the bet. If I win, I make $100 million. If I lose, I say "I don't have $20B, talk to my bankruptcy attorney".
That's the game the banks are playing. They are betting that an event that would make them lose, would be an event which would bring down the whole banking system, and the feds would have to step in to save things, like they did in 2008.
I could give you a list of the banks that didn't come out of it better.
Give it a few years & we'll witness yet another neat little Government-led/sponsored transfer of assets.
I know. TARP transferred tens of billions from those big banks.....to the Treasury. And Obama "lawsuits" have transferred tens of billions more.
Thuglife!
Yeah - and those banks got absolutely nothing out of TARP (& TAF & TLAF & TLGP & TIFF & deferred tax credits & billions that were lent but not disclosed), eh?
They’re not too big to fail, they are just the right size now for Lord Foul and holup to blackmail for billions.
They absolutely rebuilt their capital and got time for the market to stabilize. Huge benefits thanks to TARP.
One of the reasons why our banks are in much better shape than the European banks, which are still mostly weak.
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