The Fed’s European “Rescue”: Another Back-Door US Bank / Goldman bailout?

• Behind all the so-called bailouts and rescue is the toxic derivatives held by Illuminist banks. They want governments to take the losses from them. Thus, you have the FedRes buying about US$1.3T of toxic MBS derivatives in 2009 by creating money out of thin air. These derivatives are worthless. (See: Bernanke Admits Printing $1.3 Trillion Out Of Thin Air!) If governments do not do as they are told, Illuminist banks threaten to take down the entire financial system!
  –
  Jim Sinclair:
  The reason that sovereign debt cannot fail is the five largest US banks hold trillions of dollars of credit default swap OTC derivatives guaranteeing that garbage against failure. If euro debt fails, the Western financial world implodes, so it will not now.
  –
  The Fed’s European “Rescue”: Another back-door US Bank / Goldman bailout? 
  by Nomi Prins, www.Infowars.com 
  In the wake of chopping its Central Bank swap rates today, the Fed has been called a bunch of names: a hero for slugging the big bailout bat in the ninth inning, and a villain for printing money to help Europe at the expense of the US. Neither depiction is right.
  –
  The Fed is merely continuing its unfettered brand of bailout-economics, promoted with heightened intensity recently by President Obama and Treasury Secretary, Tim Geithner in the wake of Germany not playing bailout-ball.
  ….
  Similarly, today’s move was also about protecting US banks from losses – self inflicted by dangerous derivatives-chain trades, again with each other, and with European banks.
  ….
  Rating agency, Moody’s  announced it was looking at possibly downgrading 87 European banks. Still the Fed waited with open lines. And then, S&P downgraded the US banks again, including Goldman ,making their own financing costs more expensive and the funding of their seismic derivatives positions more tenuous. The Fed found the right moment. Bingo.
  –
  Now, consider this: the top four US banks (JPM Chase, Citibank, Bank of America and Goldman Sachs) control nearly 95% of the US derivatives market, which has grown by 20% since last year to  $235 trillion. That figure is a third of all global derivatives of $707 trillion (up from $601 trillion in December, 2010 and $583 trillion mid-year 2010. )
  –
  Breaking that down:  JPM Chase holds 11% of the world’s derivative exposure, Citibank, Bank of America, and Goldman comprise about 7% each. But, Goldman has something the others don’t – a lot fewer assets beneath its derivatives stockpile. It has 537 times as many (from 440 times last year) derivatives as assets. Think of a 537 story skyscraper on a one story see-saw. Goldman has $88 billon in assets, and $48 trillion in notional derivatives exposure. This is by FAR the highest ratio of derivatives to assets of any so-called bank backed by a government. The next highest ratio belongs to Citibank with $1.2 trillion in assets and $56 trillion in derivative exposure, or 46 to 1. JPM Chase’s ratio is 44 to 1. Bank of America’s ratio is 36 to 1.
  –
  Separately Goldman happened to have lost a lot of money in Foreign Exchange derivative positions last quarter. (See Table 7.) Goldman’s loss was about equal to the total gains of the other banks, indicative of some very contrarian trade going on. In addition, Goldman has the most credit risk with respect to the capital  it holds, by a factor of 3 or 4 to 1 relative to the other big banks. So did the Fed’s timing have something to do with its star bank? We don’t really know for sure.
  –
  Sadly, until there’s another FED audit, or FOIA request, we’re not going to know which banks are the beneficiaries of the Fed’s most recent international largesse either, nor will we know what their specific exposures are to each other, or to various European banks, or which trades are going super-badly.
  –
  But we do know from the US bailouts in phase one of the global meltdown, that providing ‘liquidity’ or ‘greasing the wheels of ‘ banks in times of ‘emergency’ does absolute nothing for the Main Street Economy. Not in the US. And not in Europe. It also doesn’t fix anything, it just funds bad trades with impunity.
  –
  Nomi Prins article first appeared on her blog.

end