This is the second part about USA. Again, It ain’t pretty to say the least!
Where the same absurd Alice in Wonderland economic and political farce is playing out in the USA. And as in Europe it is, as usual, the common people who are paying the price.
And as in Europe, the US crisis is anything but over regardless of what the political elites are trying to tell the people in USA. In USA the role of ECB is played by the FED (the Federal Reserve), which creates money out of “thin air” to support the gigantic and increasing debt. And to keep the stock market going and lower the price of the dollar.
So that the federal US government can spend your tax money like a drunken sailor.
(See my posts:
All graphs get bigger when you click on them
In USA, Goldman Sachs and the other investment banks, plus the big Hedge Funds, are pushing leverage to ridiculous and dangerous extremes.
If you read the Comptroller of the Currency, Administrator of National Banks, report for the second quarter 2012 “Quarterly Report on Bank Trading and Derivatives Activities”, you get utterly horrified of the totals of the open derivatives positions in the US market.
Four of the largest U.S. banks are walking an extreme tightrope of risk, leverage and debt when it comes to derivatives. Below you are going to find just how utterly exposed they are.
But first what is leverage?
Most people do not understand “leverage” and what it actually means. If they did, they would not sleep at night knowing what’s going on right now.
To put it simple: leverage means that these banks etc use a leverage of say 1:50 or 1:100 in their speculations. Which means that they only put up 1 of their own dollars for an investment worth 50 or 100 dollar. Their dollars are “worth” 50 or 100 times more than they actually are.
It ALSO means that IF “things” goes wrong way they LOSE 50 or 100 dollars for every dollar they invested in that trade or position. Or much, much more.
And usually when things goes wrong, it goes very fast when it comes to trading with these kind of leverages. So very quickly, these sums get astronomical. In a couple of days they can literally lose ALL their capital and more.
This has happened time and time again. Just to mention a few:
- Lehman Brothers (was the 4th largest inv. bank in the US).
- Bear Stearns
- American International Group
- Northern Rock (a medium-sized British bank)
- Washington Mutual
- American Savings and Loan
- Landsbanki and Glitnir
- Barings Bank
- Société Générale
- JP Morgan Chase & Co
- Morgan Stanley
- Long-Term Capital Management L.P. (LTCM)
As I said before, this is JUST A VERY SHORT LIST
This would not per se be a problem if this were a truly free and capitalist market. Because then these banks would go bankrupt and the owners and investors would lose their money. As they are supposed to do if the do bad business or trades.
But as we all know, this is NOT a free and capitalist market. Our “dear” politicians have “decided” that these banks with all their wild speculations are too important or to big, to be allowed to fail.
So instead, they have used taxpayer’s money and put whole countries at risk and in extreme debt just to bail out these banks.
And the banks knows that whatever speculations they do, REGARDLESS of how much or bad they speculate, and as you can see below their speculations are horrific, the politicians are going to bail them out with our tax money.
JP Morgan Chase
Total Assets: $1,812,837,000,000 (just over 1.8 trillion dollars)
Total Exposure To Derivatives: $69,238,349,000,000 (more than 69 trillion dollars)
Total Assets: $1,347,841,000,000 (a bit more than 1.3 trillion dollars)
Total Exposure To Derivatives: $52,150,970,000,000 (more than 52 trillion dollars)
Bank Of America
Total Assets: $1,445,093,000,000 (a bit more than 1.4 trillion dollars)
Total Exposure To Derivatives: $44,405,372,000,000 (more than 44 trillion dollars)
Total Assets: $114,693,000,000 (a bit more than 114 billion dollars)
Total Exposure To Derivatives: $41,580,395,000,000 (more than 41 trillion dollars)
To sum up – TOTAL EXPOSURE TO DERIVATES for ONLY these four banks:
207, 375, 086, 000, 000 TRILLION DOLLARS!!!!!!!!!!!
TOTAL ASSETS for these four banks: 4,720,464,000,000 TRILLION DOLLARS
So they can “cover” 2,27 % of the Total Exposure with ALL their Assets!
So who is going to pay for the “rest”: 202, 654, 622, 000, 000 TRILLION DOLLARS!!!!!!!!!!! if anything goes wrong?
Well, we know the answer to that doesn’t we. So far, it’s the common people, i.e. the taxpayers, who had to cover for all the banks bad speculations thanks to our dear politicians.
Take another look at those figures for Goldman Sachs. If you do the math, Goldman Sachs has total exposure to derivatives contracts that is more than 364 times greater than their total assets!
That is utter insanity, but everyone just keeps pretending that the emperor actually has clothes on.
And why are “our” politicians SO EAGER to protect these speculators?
To put these GIGANTIC sums into perspective lets compare with the GDP from USA and all of EU from 2011
There a lot of different way to calculate GDP and the figures for each year. Add to that exchange fluctuations, conversion rates etc. So the figures below comes from the same source (IMF) to make the comparison easier. And it is their conversion.
GDP USA 2011 – 15,094,025 billion US dollars
GDP EU 2011 – 17,610,826 billion US dollars
Total GDP for EU and USA 2011: 32,704,851 billion US dollars.
Lets compare these 32,704,851 billion US dollars with TOTAL EXPOSURE TO DERIVATES for these four above mentioned banks:
207, 375, 086, 000, 000 TRILLION DOLLARS!!!!!!!!!!!
32,704,851 billion US dollars in COMBINED GDP of EU and USA
Anyone see any problem???
Problem solved all right. So just move on, nothing to notice here or worry about.
Because according to out “dear” politicians, bankers and political elites from EU and USA there is NO SERIOUS PROBLEM HERE. The problems in USA and EU are more or less solved etc.
So the ones that put as in the mess in the first place, very “reassuringly” tells us: “We take care of it”.
Let’s move on to another “bright spot” –the federal budget and debt. The figures are based on the 2012/2013 data:
2012 US Tax Revenue: $2,469,000,000,000
2012 Federal budget: $3,796,000,000,000
2012 Budget deficit: $1,327,000,000,000
US Federal Debt as of January 22, 2013: $16,471,084,067,491
Total interest paid on the debt in 2012: $359,796,008,919
Budget INCREASE between 2012 and 2013: $38,500,000,000
To make these gigantic sums understandable here is how these figures would look like for a “normal” family:
Annual family income: $24,690
Annual family expenses: $37,960. 154% of the annual family income.
Annual family shortfall borrowed from friends/neighbors etc: $13,270. 54% of the annual family income.
Total interest the family paid last year: $3,598 (at near 0% interest). Nearly 15% of the annual family income
Total family debt (mortgage, auto, credit card): $164,471.This is 666% of the annual family income.
Change in family spending this year: an increase of $385
This looks like a very responsible family wouldn’t you say?
And do you think this family would get any loans from the banks?
When you look at it this way, it really seems absurd. Yet it’s true… a slow motion train wreck. That any person with more than one functioning brain cell can see coming miles away. Except our “dear” politicians. They are in ACTUAL FACT increasing the spending AND the debt.
Here’s another way to look at the debt ceiling I found in a paper. It’s very symptomatic:
Let’s say you come home from work and find there has been a sewer backup in your neighborhood… and your home has sewage all the way up to your ceilings.
What do you think you should do?
Raise the ceilings, or remove the crap?
Well, or “dear” politicians are franticly at an increasing speed trying to raise the ceiling at the same time as the “sewage” is increasing EVEN MORE.
Yeap, there you have politicians in a nutshell.
Why fix the problem that they themselves caused, when the politicians can pretend that they are the giver of all gods and bearer of all gifts to all the people all the time.
And it doesn’t cost anything for anybody. It’s ALL free forever. And they all lived happily ever after.
Sounds like a wonderful fairytale doesn’t it?
On that “cheerful” note, I stop here.
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