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us banks in big trouble?

  1. 24,765 Posts.
    "Four Biggest Banks in America have Huge Leverage

    By Greg hunter’s USAWatchdog.com

    I keep hammering away at the fact the Fed doled out $16 trillion in the wake of the credit crisis of 2008. This is an enormous sum that is greater than the all goods and services produced in the U.S. in a single year. Domestic banks and companies got the money, right along with foreign banks and companies. In effect, the Federal Reserve bailed out the world financial system. Now, we are right back to square one facing another financial meltdown with European banks and sovereign debt. If the Fed spent $16 trillion, why in the heck is this problem not fixed and why isn’t the world economy taking off like a rocket?” The simple answer is it wasn’t enough money.

    The Bank of International Settlements pegs the total world over-the-counter (OTC) derivative exposure at around $600 trillion, but many experts say the real figure is more than twice that amount. No matter which figure you use, it is a gargantuan sum. OTC derivatives are an unregulated dark pool of money with no public market. These are basically debt bets between two entities on things such as credit risk, currencies, interest rates and commodities. According to the latest report from the Comptroller of the Currency, just four U.S. banks have an eye popping $235 trillion of OTC derivative leverage. (Click here for the complete Comptroller of the Currency report.) As a nation, U.S. banks have a total OTC derivative exposure of $250 trillion. So, the fact that just four U.S. banks have this much leverage and risk is astounding! The banks are listed below in order of size and approximate OTC exposure:

    1.) JP MORGAN CHASE BANK NA OH

    $78.1 trillion OTC derivatives

    2.) CITIBANK NATIONAL ASSN

    $56.1 trillion OTC derivatives

    3.) BANK OF AMERICA NA NC

    $53.15 trillion OTC derivatives

    4.) GOLDMAN SACHS BANK USA NY

    $47.7 trillion OTC derivatives

    Considering that the total assets of these four banks are a little more than $5 trillion, I see a frightening amount of risk with a total derivative exposure of $235 trillion! This is nearly 50 to 1 leverage. On top of that, assets such as real estate or mortgage-backed securities can be held on the books at whatever value the banks think they can sell them for in the future. I call this government sanctioned accounting fraud, or mark to fantasy accounting. Who knows what the true value of the banks “assets” really are.

    I am sure the banks would say that the net exposure is really not near that great because the banks have hedged their bets. The banks will probably say, by and large, these debt bets will cancel out or back up one another. It is known in the banking world as “bilateral netting.” A recent article in Zerohedge.com explained the enormous risk by saying, “The best example of how the flaw behind bilateral netting almost destroyed the system is AIG: the insurance company was hours away from making trillions of derivative contracts worthless if it were to implode, leaving all those who had bought protection from the firm worthless, a contingency only Goldman hedged by buying protection on AIG. And while the argument can further be extended that in bankruptcy a perfectly netted bankrupt entity would make someone else whole on claims they have written, this is not true, as the bankrupt estate will pursue 100 cent recovery on its claims even under Chapter 11, while claims the estate had written end up as General Unsecured Claims which as Lehman has demonstrated will collect 20 cents on the dollar if they are lucky.”

    The full article is at http://usawatchdog.com/four-biggest-banks-in-america-have-huge-leverage/
 
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