Wednesday, March 28, 2012

Warren Pollock: Definitive on Derivatives Blowup - Ponzi's Fail in Contraction

Warren Pollock discusses the derivatives ponzi, and how over 1 Quadrillion in TBTF derivatives are backed by YOUR thousands of times of course.

de·fin·i·tive   [dih-fin-i-tiv] adjective 1. most reliable or complete, as of a text, author, criticism, study, or the like; schemes can go on for a long time under the mask of expansion; these frauds blow up during a contraction of new money being input into them. Such may be the story of credit derivatives as we see a working contraction in the notional value of these instruments as reported by the comptroller of the currency. In simple terms the number of these instruments has gone down to a mere 240 Trillion!.. The premise for this ponzi is the concept of netting whereby risks off offset on paper under the false justification that positions can become risk neutral. In this ponzi scheme the efficacy of the netting process has magically risen from 50% or so to an astounding 92.2%.. This means that the reported risk of 240 Trillion is only 8% of the notional amount.
In less insane times the notional risk was reduced to a mere 50% through the netting process. Even with 8% risk not covered by netting the liabilities of JPM and others are far greater than their assets under management. The problem being that JPM's assets are secured by its liabilities and the liabilities of banks tend to be YOUR Savings. With changes to Safe Harbor rules the government is not only facilitating fraud with these netting assumptions but they are also putting your savings at risk by giving the coverage of derivatives priority should there be a dispute. This very issue is being worked out presently with MF Global.