Tuesday, January 31, 2012

Goldman, JPM Attempting to Exempt Swaps Books from Regulation

Goldman and JP Morgan are attempting to exempt themselves from Frank-Dodd legislation regarding credit default swap regulation, stating that they have no risk as their $75 Trillion in derivatives net out to nearly zero.

More than half of the derivatives- trading business of Goldman Sachs Group Inc. (GS), Morgan Stanley and three other large banks could fall largely outside the Dodd- Frank Act if they succeed in lobbying regulators to exempt their overseas operations, government records show.

The Fed filings show that JPMorgan Chase & Co. had 59 percent of its $188 billion in overseas branches or international affiliates; Citigroup Inc. (C) had 53 percent of $122 billion; and Bank of America Corp. had half of $125 billion in non-U.S. operations in the same period.

The fair-value assets and liabilities include the value of interest rate, foreign exchange, commodity, equity and credit derivatives that are held for trading purposes and marked at market prices.

JPMorgan uses a different method to determine the size of its derivatives business, according to a person familiar with the bank’s operations. As a consolidated bank, JPMorgan calculates that it has $30 billion in derivatives exposure once assets and liabilities are nettedRead more:  Bwahahaha Jamie wishes!
Jim Willie destroyed this fallacy in our recent interview:

'We hear constantly about the counter parties for the derivatives that these banks own. And we hear that they offset. Like Bank A has credit derivatives for default of Bank B and vice versa, so they’re both ok, they cancel out. Well that’s DEAD WRONG! DEAD WRONG!! THEY BOTH DIE! They don’t help each other! It’s like saying well this guy’s drowning in a pool in the deep water, and so is his friend! Neither one can swim, but it’ll cancel them out, and they’ll both be ok. THAT’S A BUNCH OF GARBAGE!! The counter party risk is MUTUAL AND DEADLY'