THE DYNAMICS OF THE DERIVATIVES BEAST

YouTube – The Black Hole

The little drama of ‘The Black Hole’ is an office employee discovers a magic hole that lets him reach into any hidden or locked places.  He is greedy and uses it to get into a safe.  As he reaches deeper and deeper, he falls thorough the hole into the safe, which he now cannot escape.  This is a good analogy for the Derivatives Beast.  This dark, occult creature was created so humans could be greedy and reach into locked places and steal wealth.  Now, they fell into the hole and are trapped and no matter how much wealth we pour into the safe to save these crooks, they can’t escape and the money flowing in makes things worse.  The news today about all this is important: we are trapped for sure.  Thanks to AIG’s counterparty business with a bunch of gnomes and pirates.

Bloomberg.com: Worldwide

 

Merrill Says It Discovered Trading ‘Irregularity’ 

Merrill Lynch & Co., the securities firm acquired by Bank of America Corp., said it uncovered an “irregularity” during a review of its trading operations.

 

Almost all modern money making systems are based on exploiting ‘irregularities’.  This is why traders are hired: to seek out and then ruthlessly use these irregularities.

 

The bank informed regulators immediately of the discrepancy in “certain trading positions”, Merrill Lynch said in a statement from London today. The bank said it’s working with the authorities to investigate further. A spokeswoman for the bank declined to comment further.

 

I recall, at the very start of this mess, in late 2007, a young trader in France was going in at night to make irregular trades.  He was rewarded for this.  So he did it more and more.  The trades turned out to be a total mess.  Unlike Madoff, this had an aura of innocence.  Madoff set off to create irregularities so he could make money flow illicitly into his own pockets and into a wide array of Jewish charities.  

 

In all such cases, we end up with a mess requiring unravelling many threads that are deliberately intertwined to make it hard to undo these Gordian Knots.  Now, people are scared and since the eye of the public is now upon them, they are trying to stop this manic exploitation of errors.


Merrill Lynch may have lost hundreds of millions of dollars on currency trading and credit derivatives last year, the New York Times reported earlier today. The lossesdid not “spill into plain view” until after Bank of America investors had approved the $33 billion takeover in December and Merrill Lynch disbursed $3.6 billion in bonuses to bankers, the newspaper said. Bank of America later sought additional government funding.

 

Now, why did they uncover this occult mess only AFTER rewarding the wizards who committed the crimes?  HAHAHA.  After giving themselves billions in ‘bonuses’, they admitted, the work was worthless.  In this case, this cries out for prosecution and then imprisonment of the traders, the company’s owners and bosses and anyone who allowed this to happen.  Arrest the entire Board of Directors of Merril Lynch [past and present] and Bank of America.  

 

They are paid to oversee things and obviously, were goofing off.  There are many influential people on these boards who are supposed to bring in an illusion of sagacity and honesty but these icons of goodness are on many boards and they exercise no oversight at all.  They should also be arrested for being frauds helping criminals.


“Senior managers of the business are focused on the issue and believe the risks surrounding possible losses are under control,” Merrill Lynch said in the statement.

 

Hahaha.  They liked the money coming in and didn’t know, these were really losses.  The ‘senior managers’ tend to be people more intent on playing upper crust nobility games, going to tournaments, going to parties, going to Bilderberg meetings or Davos.  Or yacht trips with mistresses, etc, all the fun things in life.  Meanwhile, the traders run amok.  The only way to gain power so they can also goof off all day long is to make lots of money.  Then, they are promoted and become remote to it all.  They just sit back and OK whatever the guys in the shark tank want to do.

 

Bank of America Chief Executive Officer Kenneth Lewis is trying to rein in Merrill’s traders after their losses brought the bank to the brink of collapse, the New York Times said.

“It was always going to be extremely difficult to integrate a retail bank like Bank of America with an investment bank like Merrill because the cultures are so different,” said Richard Staite, an analyst at Atlantic Equities LLP in London. He has an “underweight” rating on Bank of America’s shares.

 

HAHAHA.  The guys in the shark tank kept on ‘trading’ even though all this was just cannibalism, all the sharks are eating each other.  This is what happens when one is trapped at zero. All systems are rapidly closing down.  Trade of any sort is stopping.  Any trade being done generates losses.  This is because we are in a Black Hole.  

 

The only thing operational is the Derivative Beast’s ability to eat any wealth that does appear.  He is eating our FUTURE wealth, now!  This is very dire and has to stop. 


 

 

$160 trillion in ‘dealer notionals’ compared to ‘end-user notionals’?  When this took off in 1995 which happens to be when Japan began its ZIRP regime [some coincidence!] the basis of all insured bank’s derivatives took off. Instead of the tradition of banks making money out of thin air based on a 10% credit cushion, they took off and the spread widened until $160 trillion in bets were placed on $1 trillion in ‘real money’.  

 

Now, the Office of the Comptroller of the Currency is what?  OCC: About the OCC:

 

The Office of the Comptroller of the Currency (OCC) charters, regulates, and supervises all national banks. It also supervises the federal branches and agencies of foreign banks. Headquartered in Washington, D.C., the OCC has four district offices plus an office in London to supervise the international activities of national banks.

The OCC was established in 1863 as a bureau of the U.S. Department of the Treasury. The OCC is headed by the Comptroller , who is appointed by the President, with the advice and consent of the Senate, for a five-year term. The Comptroller also serves as a director of the Federal Deposit Insurance Corporation (FDIC) and a director of the Neighborhood Reinvestment Corporation.

 

 

Ah!  The comptroller of the ‘currency’ was a guy Lincoln set up to deal with the new way the government intended to pay for the Civil War: printing ‘greenbacks’.  To prevent bankers from lending not only to the President but to everyone, Lincoln needed someone beholden to him to prevent this.  

 

This was so he could protect the US gold holdings in the Treasury while having a new money system running alongside the gold/silver/copper currency system run by the Treasury.  US paper dollars were not backed by gold and therefore, could not be used for international trade.  The Confederates were desperate for gold because they had virtually no industrial base and needed to buy from England and England only did deals for gold.

 

Anyway, the OCC continued merrily along even after the Federal Reserve, a private bank run by the biggest banks in america, usurped this power entirely. The OCC would keep track of the Real Money Printers in the Fed and click its tongue and try to put on controls to prevent out-of -control debt creation.  This is why it passively watched the Derivatives Beast grow from a tiny baby into a monster bigger than the entire world’s wealth.

 

Of course, the big banking houses spent a lot of money, trying to impose this system on America via campaign bribes, running for office, being appointed to positions controlling the big banks so they controlled themselves, etc.  This is continuing: nearly all of Obama’s picks so far are from this pool of sharks.

 

Senators Demand to Know A.I.G. Trading Partners – NYTimes.com

 

The hearing, led by Senator Christopher Dodd, Democrat of Connecticut and chairman of the Senate Banking Committee, was called to examine the regulatory patchwork that had allowed huge risks to build up at A.I.G. Since the insurance conglomerate’s near collapse in September, the federal government has committed $160 billion to keep it afloat.

 

Dodd should begin by looking in a mirror.  He is a big part of this problem.  Now, for political purposes, he is pretending to be outraged.  Right.  And he wants this insurance thing fixed!  Of course, Congress allowed this to develop.  I recall no moves made to stop it and many moves made to enable this.


Tens of billions of those dollars have merely passed through A.I.G. to its derivatives trading partners, shielding them from losses. The Fed has refused to provide the names of those financial institutions, and senator after senator, Democrat and Republican, said that was an outrage.

 

AIG was counterparty to the shark party.  The US taxpayers are paying off the bets made by AIG and these piratical sharks.  Just like AIG and the others wanted their bonuses no matter what, the sharks want their flesh.  Instead of fishing them out and eating them, we are feeding the sharks.  Hungry sharks have big stomachs.  Not one penny of this loot is going into anything even remotely constructive or useful.  This is not money to prop up industries in trouble.  This is money going to guys who use it to drive us deeper into debt.


“We need to know who benefited, and we’re going to find out,” said Senator Richard C. Shelby, Republican of Alabama and the ranking member of the committee. “The Fed can be secretive for a while but not forever.”

 

I want to see Dodd and Shelby’s rolodexes!  I bet we will find all these missing names.  And why do they dither about the Fed?  Instead of begging the Fed for information, all they have to do is vote to END THE FED!  We make this clear every day: the Fed is a FRAUD!  


Mr. Kohn said the Fed believed that the only hope of recovering the taxpayers’ money was to get A.I.G. back on its feet, doing business as usual — and that meant respecting its customers’ privacy.

 

HAHAHA.  Doing business as usual is why everything collapsed.  The privacy is why things collapsed.  The Mafia running our banking systems don’t want to reveal names for a variety of reasons.  The Madoff affair already exposed this Mafia to a lot of questions about how the system operates in reality.


“I would be very concerned that if we gave out the names, people wouldn’t want to do business with A.I.G.,” he said. But at Senator Dodd’s urging, he agreed to go back to the Fed and ask the other governors to reconsider.

 

I would love to go with Mr. Kohn to see how he breaks this news to his buddies.  ‘Oy veh!  What can we do? They want to know who we are!  They want information!  We can’t let this happen!  How can we bribe everyone, or twist US economic policies so they work for us and not for the people in this god-forsaken country!’  Well, they will try to buy time while frantically trying to restart the money machine so they can sit in the dark vault, collecting the real wealth while handing out IOUs to the rest of the planet.


“We’re in a new world, and new types of transparency are required,” he said….

 

After Congress knocked down the walls that once separated banking, insurance and capital-markets activity in 1999, these diverse businesses began knitting themselves together within A.I.G., creating unpredictable combinations. Regulators, still working in their narrow domains, did not keep up with the changes.

“The creation of financial supermarkets can have what I would call a knock-on effect,” said Eric R. Dinallo, the New York State insurance superintendent.

 

See the graph above.  This is how they ‘knock on’ things.  They have a tiny ‘seed’ and then have weeds grow out of this ‘seed’ and if there is no winter, the weeds will grow forever, is how they think.  They interwove everything wonderfully so it can’t be unravelled.  They wanted this because this forces us to save a bunch of sharks and pirates when we need to save our banking system.  The Federal Reserve conspires with these guys to create this problem.


He said state insurance regulators had done a good job keeping A.I.G.’s insurance subsidiaries solvent. But then A.I.G.’s derivatives business — A.I.G. Financial Products, the purveyor of the now-notorious credit-default swaps — got into trouble. The financial products unit was not an insurance company and was beyond state purview, Mr. Dinallo said. But it was under the same umbrella with the insurance companies, and in the crisis, it threatened to strip the insurers’ capital away.

“Thank God, there are still some separations intact,” Mr. Dinallo said.

 

If the collapse waited just one more year, the last of the barriers between the sharks and the normal business would have been removed.  As it was, enough was taken down so that the sharks could eat up all the profits generated by normal business.  The sharks got billions in bonuses even while losing money while the insurance side bled to death.


Mr. Shelby expressed doubts that A.I.G.’s state-regulated insurance companies were entirely innocent. He said they had engaged in a risky securities lending business and ended up needing $35 billion of the Fed’s bailout last fall.

 

See Shelby lie.  How amusing.  They are not innocent.  There are no innocent parties in this mess. But we don’t have to punish everyone, just the people at the very, very top.  Just like we didn’t punish all the Japanese and German soldiers after WWII.

 

 

Now, here is some of the latest news from Lincoln’s OCC:

 

OCC – Office of the Comptroller of the Currency, Administrator of National Banks

March 6, 2009 

The OCC authorized a national bank to become a clearing member of ICE Trust, a clearinghouse for over-the-counter credit default swaps, with examiner in charge (EIC) written approval. Other national banks may rely on the letter(PDFto become clearing members of ICE Trust, but must obtain prior written EIC approval.

 

Now, after passively watching the Derivatives Beast grow to immense size, the OCC is going to rein it in.  Kind of too late, of course.

 

http://www.occ.treas.gov/interp/mar09/int1113.pdf

 

Interpretive Letter #1113 

March 4, 2009                                                                                               March 2009 

12 USC 84 

12 CFR 7.1017(a) 

 

 

 

 

 

Subject:  [                                ] (“Bank”) Membership in The IntercontinentalExchange 

               US Trust (“ICE Trust”) Credit Default Swap Clearinghouse  

 

Dear [                ]

 

This responds to your request that the Office of the Comptroller of the Currency (“OCC”) 

confirm that it is permissible for the Bank to participate as a clearing member of ICE 

Trust, a clearinghouse for over-the-counter (“OTC”) credit default swaps (“CDS”).1  ICE 

Trust is a New York trust company, which will be a member of the Federal Reserve 

System and subject to the regulatory and supervisory requirements of the Federal Reserve 

Board (“FRB”) and the New York State Banking Department.  ICE Trust will meet the 

statutory requirements for a multilateral clearing organization (“MCO”),2 as a State 

member bank.  As an MCO, ICE Trust will be permitted to clear CDS, as OTC 

derivatives.3   

 

Like all systems set up way too late, the first step is to end the old system.  Or rather, bring in gum shoes to examine everyone very closely.  I know how the guys who created this mess will respond:  ‘We don’t know how this works.’  

 

If it is too complicated for even scam artists to understand, it should be made ILLEGAL and be eliminated ruthlessly.  Once we do this, true, the system won’t work but hell’s bells, it isn’t working, anyway, already!  Sweep it all aside and start all over again.  After arresting the parties who created this mess in the first place.

 

Here is an old story I found today while rummaging about the internet, it is from the beginning of the Derivatives Beast’s reign of terror and it involves a woman Obama chose to run the Treasury’s lower levels and who pulled her name yesterday.  I bet she is sweating bullets today.

 

SEC Testimony: Report to Congress on Over-The-Counter Derivatives Markets and The Commodity Exchange Act

U.S. Securities & Exchange CommissionTestimony of

 

Annette L. Nazareth, Director Division of Market Regulation

Before the Senate Committee on Agriculture, Nutrition, and Forestry, 
re: The Report to Congress on Over-The-Counter Derivatives Markets and The Commodity Exchange Act by The President’s Working Group on Financial Markets

 

 

February 10, 2000

 

Chairman Lugar and Members of the Committee:

I am pleased to appear today to testify on behalf of the Securities and Exchange Commission (“SEC” or “Commission”) as you consider issues pertaining to the reauthorization of the Commodity Futures Trading Commission (“CFTC”). My testimony focuses on the Report on Over-the-Counter Derivatives Markets and the Commodity Exchange Act (“OTC Derivatives Report”), which the President’s Working Group on Financial Markets (“Working Group”) submitted to Congress last November.

As you know, the application of the Commodity Exchange Act (“CEA”) to transactions involving over-the-counter (“OTC”) derivative instruments raises significant questions of public policy. The Commission has welcomed the opportunity to study some of these questions in coordination with other members of the Working Group. The rapid evolution of OTC derivatives markets requires a regulatory approach that promotes greater legal certainty as well as innovative financial instruments. The Working Group’s Report and its recommendations represent an important step toward this goal.

I. The Growth of OTC Derivatives Market

It is widely recognized that OTC derivative instruments are important financial management tools that, in many respects, reflect the unique strength and innovation of American capital markets. Indeed, U.S. markets and market professionals have been global leaders in derivatives technology and development.

 

This statement is an inditement of this woman!  She thought the over-the-counter handshake bets were great and made America great.  I knew long ago, this was stupid and dangerous.  So did others like Soros, just for example.  She thought this ‘innovation’ was a good thing, not pure evil.  And she ENCOURAGED IT.  So she is Derivative Beast’s mommy.


OTC derivative instruments provide significant benefits to corporations, financial institutions, and institutional investors by allowing them to isolate and manage risks associated with their business activities or their financial assets. These instruments, for example, can be used by corporations and local governments to lower funding costs, or by multinational corporations to reduce exposure to fluctuating exchange rates. Because of the range of benefits these products offer, the OTC derivatives market has grown tremendously during the past two decades. According to data from the Bank for International Settlements, at the end of June 1999, the total estimated notional amount of outstanding OTC derivative contracts was $81.5 trillion.

 

I wish this Whore of Babylon would explain how this risky system increased risk and instead of isolating it, spread it like the Black Plague.  As for ‘protection from fluctuating exchange rates’: HAHAHA.  The Floating Currency Regime launched by Nixon and Burns are a mess!  If they wanted to NOT have these fluctuations, all we have to do is END THE FED and reinstate the gold standard via the Treasury.

  1. The Treasury Amendment

The OTC Derivatives Report also focuses on providing greater certainty for instruments covered by the Treasury Amendment. The Treasury proposed this amendment in 1974 out of concern that the broad statutory definition of “commodity” would subject OTC markets in government securities and foreign currency to CEA regulation. Accordingly, the amendment excludes a list of instruments from the definition of commodity. These listed instruments, however, still may be subject to CEA regulation when traded on a “board of trade.” By proposing to replace “board of trade” with “organized exchange,” the OTC Derivatives Report seeks to more clearly delineate the parameters of the limitation on the exclusion.

 

So, due to worries that the word ‘commodities’ might interrupt the growing system of using a piece of paper [the OTC] as a black hole to plaster onto the side of the vending machine or the safe, the OCC and Congress decided to write the laws in such a way as to prevent regulations!  HAHAHA.  Money well spent!  Corrupt Congress so they prevent regulations.


The OTC Derivatives Report further recommends that the Treasury Amendment be clarified to allow the CFTC to address problems associated with foreign currency “bucket shops.” Transactions in foreign currency futures and options would be subject to the CEA if entered into between a retail customer and an entity that is neither regulated or supervised by the SEC or a federal banking regulator nor affiliated with such a regulated or supervised entity.

 

ARRGH.  What is a ‘bucket shop’??? Why doesn’t this woman tell me?  Why is she using code words here?  I read a lot of stuff and have never, never seen this term when reading about FX trading.

Bucket shop –The term is used as a pejorative colloquialism to refer to different kinds of businesses, indicating that the speaker believes it is a fraud orscam. In this sense it might be used as a name for stock market, unregulated credit default swapsairline ticket consolidators, or for heraldry scams.

Evidently, she is talking about scams here.  If so, this should have been the focus of the hearings.  Namely, how scams were growing and spreading like weeds and how severe regulation was required.  I keep saying, if anything is growing very, very fast, it is bad and should be controlled or stopped entirely.


 

 

Hybrid Instruments and CFTC Exclusive Jurisdiction

Although the members of the Working Group did not reach consensus in the OTC Derivatives Report that all hybrid instruments should be entirely excluded from the CEA or that a hybrid instruments rule needs to be codified at this time, the CFTC has agreed that it will not propose any new rule about hybrid instruments without the concurrence of the other Working Group members. This decision reflects recognition of the interests of the SEC and bank regulatory agencies in this area. These interests arise because hybrid instruments possess characteristics of securities and bank products.

The OTC Derivatives Report, however, urges Congress to clarify that the Shad-Johnson Accord should not be construed as applying to hybrid instruments that have been exempted from the CEA.

Finally, over the years, the clause in the CEA granting the CFTC “exclusive jurisdiction” over certain matters has caused confusion. Questions have been raised over the appropriate regulator and regulatory scheme for complex derivative instruments possessing attributes of securities and futures contracts. All Working Group members agreed to recommend amending the CEA to explicitly clarify that insofar as hybrid instruments may be subject to the CEA, the exclusive jurisdiction clause shall not be construed to limit the authority of the SEC and the bank regulatory agencies with respect to such instruments.

These hybrid instruments are the very same thing that is causing all the rescue money to vanish into this black hole.  No one regulated these things and no one tried to stop their growth and even though everyone knew these were connected to ‘bucket shop’ operations, everyone decided to sit back and let things grow utterly out of control.

picture-22picture-34

 

picture-42

It is painfully obvious from these graphs that the players were NOT protecting themselves from currency and interest rate instability.  They were making this grow and grow to get fees, bonuses and goodies!  And they got filthy rich, playing these derivatives game.  Until they fell into the Black Hole.

ΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩΩ

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3 Comments

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3 responses to “THE DYNAMICS OF THE DERIVATIVES BEAST

  1. Pingback: THE DYNAMICS OF THE DERIVATIVES BEAST « Culture of Life News

  2. Pingback: THE DYNAMICS OF THE DERIVATIVES BEAST « Culture of Life News 2

  3. pkscott

    I really couldn’t figure out HOW the notional value of all the derivatives was multiples of the (not really) underlying assets. I finally found an answer that I can understand. You could buy derivative “insurance” on a a loss in “something” that you had NO ECONOMIC INTEREST IN. Of course this is illegal if you actually call it insurance. It’s really more like a side bet, or buying fire insurance on your neighbors house. Two BIG problems. Companies like AIG didn’t have the $ to pay off the “bets” and some of the people who bought the “insurance” are arsonists. Since they have NO ECONOMIC INTEREST in the assets (and I use that term loosely) they are actively trying to crater the assets to collect on their insurance. Or, even if you own the house, but it has fallen to 5 cents on the dollar, you torch the house to collect the “insurance” you had on it and collect a buck.
    The other thing that is just starting to come into focus is “synthetic” derivitives. Apparently the “appetite” for derivitives was so high that their weren’t enough of them to meet “demand” so being the truely demented gnomes that they are, the banks created products that weren’t actually “derived” from anything. They “mirrored” the performance of derivitives with some very convoluted shenanagins and a whole butt load of “insurance.” I got a migrain just trying to comprehend this one.
    This is where a big whopping lot of the money that is being sucked into the black hole that is AIG is going. This is actually starting to get some exposure. We the sheeple are paying out on these side bets and bogus insurance policies because the “bookie” is broke. I think when the general public really gets this the pitchforks and torches are going to come out.

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