Let us not forget that the Federal Reserve is not a governmental agency and that there is precious little oversight of its activities by anyone. The Federal Reserve is a private entity, ostensibly owned by its member banks – but there has never been any public release of the ownership positions by the various banks. Therefore, it should be assumed that the Federal Reserve will act on behalf of its owners and not the United States government.
The Federal Reserve Announcement …
By my calculations, applying a 5% loss to the total derivatives held by the major banks, JP Morgan, Citibank, Goldman Sachs, and HSBC remain problematical and should be further scrutinized by the Federal Reserve as continuing threats to the systemic health of our financial system. If you wish to see the numbers for yourself, you may wish to read the Quarterly Report on Bank Derivatives Activities. To calculate the five percent stress test numbers I normally use for my analysis, simply compute five percent of the derivatives held by the institution and subtract that amount from the institution’s total assets to see who would be underwater if those derivatives ever went south.
The official explanation that TRILLIONS in derivatives do not matter because they would be “netted” in the settlement process is demonstrably false as all institutions would hang on to whatever assets they possessed and wait for the courts to settle the mess – if ever. If you want to see this failed process in action, look at Jon Corzine’s MF Global resolution.
Bottom line …
DODD-FRANK, allegedly introduced to reduce the systemic risk to our financial system is every bit a fraud as the two corrupt asshats who gave it their names; Representative Barney Frank, former Chairman of the House Financial Services Committee, and Christopher Dodd, the former Chairman of the Senate Banking Committee. Both lying to the public about the safety and soundness of Fannie Mae and Freddie Mac just before they were placed under a government conservatorship to forestall an official finding of insolvency.
Our financial system, the best in the world, is still full of loopholes that are amplified by the actions of corrupt politicians and the lobbyists for the special interests. It would not be far from the mark to suggest that Goldman Sach’s related people run our financial system.
We are so screwed.
"The object in life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane." -- Marcus Aurelius