Dr. Joseph P. Farrell
April 25, 2016
Mr V.K. sent this article along, and when you read it, I think you’ll see why he did. But the problem is, where to “file’ it, because its contents are so stunning. Here’s the article:
The crux of the problem, I suggest, is outlined by the following paragraphs:
- All the “big banks” are overexposed to each other as a result of trading “bad derivatives” paper
A rational observer of Wall Street’s serial hubris might have expected some key segments of this letter to make it into the business press. A mere eight years ago the United States experienced a complete meltdown of its financial system, leading to the worst economic collapse since the Great Depression. President Obama and regulators have been assuring us over these intervening eight years that things are under control as a result of the Dodd-Frank financial reform legislation. But according to the letter the Fed and FDIC issued on April 12 to JPMorgan Chase, the country’s largest bank with over $2 trillion in assets and $51 trillion in notional amounts of derivatives, things are decidedly not under control.
At the top of page 11, the Federal regulators reveal that they have “identified a deficiency” in JPMorgan’s wind-down plan which if not properly addressed could “pose serious adverse effects to the financial stability of the United States.” Why didn’t JPMorgan’s Board of Directors or its legions of lawyers catch this?
Then, a little farther down the page:
How could one bank, even one as big and global as JPMorgan Chase, bring down the whole financial stability of the United States? Because, as the U.S. Treasury’s Office of Financial Research (OFR) has explained in detail and plotted in pictures (see below), five big banks in the U.S. have high contagion risk to each other. Which bank poses the highest contagion risk? JPMorgan Chase.
In other words, folks, the big banks were busily pumping up each other’s ledger sheets by trading the credit defaul swaps/derivative bundles (and bundles of bundles), one key component of which were mortgages (many of them fraudulent), and when the housing bubble burst…well, you know the story.
But now comes a second point in the article, and it’s a stunner”