Recent reports say bad mortgages only 5% of the problem, derivatives 95% - 5 banks hold most of them

[Hannah Bell]

http://www.occ.treas.gov/ftp/release/2008-74a.pdf

morgan, citi, hbsc, etc.

significance?

[4 t 4]

1. so if those sucky sucky lying 5 banks

go down, why should the Entire economy fail??

[ww2player]

2. $700 billion isn't a drop in the bucket to fix Derivative problem

Derivatives the new 'ticking bomb'
Buffett and Gross warn: $516 trillion bubble is a disaster waiting to happen


http://www.marketwatch.com/news/story/derivatives-new-ticking-time-bomb/story.aspx?guid=%7BB9E54A5D-4796-4D0D-AC9E-D9124B59D436%7D

[Vincardog]

8. The Derivative problem is that they are a ponzi scheme that is broken down.

What exactly is in a derivative that is supposed to give it value?

[Warpy]

17. No, it isn't. It's just a start on shoring up the balance sheets

of major banks in the hope that the major ones keep buying up the smaller ones that fail.

Notice that no one is suggesting hedge funds be bailed out. That is where a lot of fictional capital will be lost, mostly by institutions and very wealthy individuals that have been suckered into the lure of high risk, high return gambling. Unfortunately, that means insurance, pension funds and some state governments and even national governments could become insolvent.

Whatever happens, it will be a very wild ride over the next few years.

[TexasObserver]

35. $700 billion is a patch on a tire, to get this old Bush jalopy thru 2008

[dkofos]

3. That tells me the BAILOUT is a ripoff of the treasury. Let those 5 banks fail

[BrklynLiberal]

4. I agree.

[Virginia Dare]

22. Sounds good. I'd like to know the implications of that first though..

what are we left with, how many other dominoes fall, and how much would it cost the FDIC?

[anigbrowl]

25. Did you even read it? It includes banks that have already failed.

[Hannah Bell]

34. Wachovia?

On 29 September 2008, the Federal Deposit Insurance Corporation (FDIC) announced that Citigroup will acquire Wachovia Corporation's banking operations.

Wachovia's bank subsidiaries did not fail, nor were they placed into receivership. The transaction was facilitated by the FDIC, with the concurrence of the Board of Governors of the Federal Reserve and the Secretary of the Treasury.<6><7><30>

[tblue]

5. Oh really? So 1) it is not valid to blame this mess on the 'minorities' and people who took

out subprime mortgages and 2) we still have a lot of people in danger of losing their homes (8,000 a day, I think I heard) and that is still one of the 'fundamentals' of our economy that is absolutely not strong.

I have family members who took out subprime loans and are having a hell of a time making their payments. And, last time I checked, they were white.

[PDJane]

12. No. The minorities have been taken advantage of

All the way around. They are paid less, they get less schooling, and they have a harder time accruing assets. Blaming the subprime mess on them is just bigotry.

This mess has little or nothing to do with the poor; it has to do with the rich, with greed, with moving assets to the top, and with a major breakdown that everyone could see coming. The minorities, ACORN, and programmes that help those at the bottom are going to suffer, because the assets have all been moved to the top, and those folks are going to do their damndest to keep it all.

It's an insane system, and it has been working world wide. The US still lives on slavery, but now the slavery has been outsourced.

[PDJane]

13. sorry....double post.

I feel quite strongly about the subject..........

[2speak]

14. Many of us have been trying

to get that across to people for quite some time now. Best thing to do is stay away from the posts for the bailout. This is history repeating itself. They fell for bailouts in 1929 and many more identical schemes. The only thing we can do now is not fall for it this time.

[valerief]

6. The top 5 in the document

Total Credit Exposure to Risk Based Capital (%)

01Q4 02Q4 03Q4 04Q4 05Q4 06Q4 07Q4 08Q1
JPMORGAN CHASE 438.8 427.4 547.8 361.1 315.4 347.5 418.7 411.6
BANK OF AMERICA 94.7 114.2 118.6 143.4 97.1 92.9 115.2 215.4
CITIBANK 123.3 146.9 198.0 221.3 266.7 268.1 223.0 279.1
WACHOVIA 83.9 102.5 80.6 77.6 73.1 82.8 81.4 77.6
HSBC 222.7 290.7 359.1 483.3 721.3
Avg % (Top 5 Banks) 185.2 197.8 236.3 205.2 208.6 230.1 264.3 341.0

[Kutjara]

7. $62 trillion in Credit Default Swaps and...

$400 trillion or so in other shady financial instruments coming home to roost will make the current crisis look like rounding error. President Obama's first job should be to push Congress to redefine these instruments as "gambling" and make them unenforceable under US law.

[lostnfound]

20. k

[LonelyLRLiberal]

29. I like it. Make them illegal. Why should WE pay for someone else's gambling?

Just wipe them out. (Wonder what that would do in reality?)

[gopbuster]

33. I agree... but I'm assuming there will be many insurers who will take serious

hits as the institutions and the bondholders of those institutions fail. Somebody is going to get left holding the bag and there will be more failures on that end of the spectrum.



Oh what a tangled web they have woven.

[thereismore]

9. Citi? Is there any realistic chance they will go down? Serious question. Experts please tell me. nt

[2speak]

11. No

They are in with the richest group. They will survive.

[thereismore]

15. Damn. nt

[Hannah Bell]

16. the richest banks = the biggest players.

significance?

i'd read morgan was one of the first lobbyists to break glass-steagall's wall between investment & deposit banking, & one of the innovators in these loosy-goosy financial instruments.

greenspan was morgan man before he went to the fed.

when he headed the fed, rule change effectively defanged glass-steagall.

significance?

[indepat]

19. Didn't Kramer speculate Citi was broke months ago? But then was he not recommending

Wachovia only 16-or-so days ago? :P

[dbonds]

10. Derivatives deserve to crash and burn, then be outlawed.

I am agreeing with Kucinich the more I hear about this new deal and the more I learn about what is really happening.

[PA Democrat]

18. Anyone want to venture a guess about what caused AIG's problems?

Because there were so few defaults over the past few years, mutual funds, investment banks and insurers like AIG wrote lots of swap contracts as an easy way to make money. It was like writing auto insurance policies in a world with no car accidents.

AIG (AIG, Fortune 500) sold protection on nearly $600 billion of fixed income assets in the form of credit default swaps - including $57.8 billion tied to subprime mortgages.

If AIG should end up in bankruptcy and isn't there to stand behind those contracts, players who wrote swaps insuring against an AIG debt default will have to come up with payments that could reach well into the billions of dollars.

In addition to investors who may lose AIG as a counterparty, there are lots who will also suffer because they assumed that the insurance giant would never default. Among the potential losers in the event of a default are some big financial players like Pimco, whose Bill Gross manages the world's largest bond fund.

http://money.cnn.com/2008/09/16/news/derivatives_benner.fortune/

[lostnfound]

21. Links to other quarterly reports incl 2008Q2

http://www.occ.gov/deriv/deriv.htm

[slipslidingaway]

23. Thanks, big K&R n/t

[The Backlash Cometh]

24. Within those derivatives, is there any way to identify the worst offenders?

[slipslidingaway]

27. From what I've read JPM has always been near the top after

merging with Chase.

[Hannah Bell]

30. p 22

[valerief]

41. See msg 6.

[TxBlue]

26. I've been saying this since "crisis" "reared it's head" - Derivatives=Highly Leveraged Gambling

Why not take care of homeowners instead of fat cat gamblers??

Something needs to be done but DeFazio, Kartur, Kucinich have much, much better solutions.

[TexasObserver]

37. And they've rolled snake eyes.

Every boom, there are smart asses who game the system and create some kind of "new" real estate investment tool, and they all lead to the same place: a BUST caused by excessive leverage, and therefore falsely inflated values, that ultimately must come down.

This was gambling and it was stupid gambling.

[Gregorian]

28. Unreal housing prices. The fix is devaluing homes.

That's my uneducated hypothesis.

I've always thought derivatives were the big problem. It's like a chain letter. A pyramid scheme. Almost literally.

There isn't enough money on the planet to throw at it. And I believe this is the beginning of the lowering of American standards we've been putting off for decades.




edit- Would an alternative be a mortgage moratorium? Something whereby the note holder has to accept a lower value, and thereby decrease the mortgagee's payment?

Now I'm in terratory that I konw nothing abougt. And I also can't type.

[DLnyc]

38. I think housing prices don't really explain the magnitude of the problem.

In a simple mortgage, if the home-owner defaults, the bank is left owning the house. Although the value of the house (minus the costs of getting it sold) might be less than the value of the mortgage, its only 20 or 30 percent less, say 50 percent less in extreme cases. On the other hand, complicated swap instruments can effectively magnify this 20 or 30 percent to near 100 percent, for the holder of one side of the bet. I'm not an expert, but worked in this industry a little, and my best guess would be the houses have not lost THAT much of their value, but the crazy-assed bets on bets on side-bets have lost LOTS of value.

[Gregorian]

40. That's actually what I had in mind.

I blame my fingers for typing what I wasn't saying.

No, I see how it's the sale of notes on down the line. And maybe housing prices have little to do with that. But I was under the impression that since housing prices WERE HIGH, lenders were bending over backwards to facilitate buyers. And that even included appraiser's reports. And that is what I believe lead to note holders being in possession of less than face value notes. In other words, I suppose that translates to Americans not being able to afford the homes they now own.

I'm just glad my money is all in my property. I don't care about money. But I own this place. And whatever the value is, it's relative to other properties. And that's what counts.

What really bothers me is that money is more than paper. It represents work. People worked their entire lives, and it could just vanish.

[Karenina]

31. And just look at which banks are at the top of the feeding chain...

WHAT a coinkydink!

[chimpymustgo]

32. Thanks for posting this. K&R.

[Greyhound]

36. Thanks, K&R. n/t

[SmokingJacket]

39. Some smart person give me an answer, pls!

What would happen if the derivatives were just zeroed out?

Are there companies that would go under because all their wealth was in derivatives, or basically imaginary?

And if those five banks went under, and the govt helped guarantee deposits with FDIC, how much would it matter?

I feel like I have a basic grasp of the mortgage crisis, but cannot figure out the derivatives bit.