Wall Street con trick

[marmar]

from the Asia Times:


Wall Street con trick
By Ellen Brown

"Far from reducing risk, derivatives increase risk, often with catastrophic results." - Derivatives expert Satyajit Das, Extreme Money (2011)

The "toxic culture of greed" on Wall Street was highlighted again last week, when Greg Smith went public with his resignation from Goldman Sachs in a scathing oped published in the New York Times. In other recent eyebrow-raisers, London Interbank Offered Rates (or LIBOR) - the benchmark interest rates involved in interest rate swaps - were shown to be manipulated by the banks that would have to pay up; and the objectivity of the International Swaps and Derivatives Association was called into question, when a 50% haircut for creditors was not declared a "default" requiring counterparties to pay on credit default swaps on Greek sovereign debt.

Interest rate swaps are less often in the news than credit default swaps, but they are far more important in terms of revenue, composing fully 82% of the derivatives trade. In February, JP Morgan Chase revealed that it had cleared US$1.4 billion in revenue on trading interest rate swaps in 2011, making them one of the bank's biggest sources of profit. According to the Bank for International Settlements:

Interest rate swaps are the largest component of the global OTC derivative market. The notional amount outstanding as of June 2009 in OTC [over-the-counter] interest rate swaps was $342 trillion, up from $310 trillion in Dec 2007. The gross market value was $13.9 trillion in June 2009, up from $6.2 trillion in Dec 2007.

For more than a decade, banks and insurance companies convinced local governments, hospitals, universities and other non-profits that interest rate swaps would lower interest rates on bonds sold for public projects such as roads, bridges and schools. The swaps were entered into to insure against a rise in interest rates; but instead, interest rates fell to historically low levels. ............(more)

The complete piece is at: http://www.atimes.com/atimes/Global_Economy/NC24Dj05.html

[leveymg]

1. So, if JPMorgan Chase sold $1.2B worth, who sold the remaining $13.7T in gross interest rate swaps?

Who's holding all that sovereign debt risk?

[dballance]

2. Well, being dumb is bliss

If anyone thinks their banker is being good to them and helping them make money on their investments then they are the stupid muppets Goldman made fun of.

You are only a sack of shit the banks can extract money out of.