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7/20/2012

The criminals in the finance and banking system

Betting derivatives and conducting proprietary trading or gambling.


Below are three short paragraphs that could really summarized the shit situation JP Morgan is in as well as many to big to fail bank and sovereign wealth funds. The first is about derivatives and how this monster has grown to a size that could destroy not only the biggest banks but also taking down the global finance and banking system with it.

Simply, ‘A derivative buys you the option (but not obligation) to buy oil in 6 months for today's price/any agreed price, hoping that oil will cost more in future. (I'll bet you it'll cost more in 6 months). Derivative can also be used as insurance, betting that a loan will or won't default before a given date. So its a big betting system, like a Casino, but instead of betting on cards and roulette, you bet on future values and performance of practically anything that holds value. The system is not regulated what-so-ever, and you can buy a derivative on an existing derivative. ….no economist in the world knows exactly how the derivative money flows or how the system works, while derivatives are traded in microseconds by computers, we really don't know what will trigger the crash, or when it will happen, but considering the global financial crisis this system is in for tough….the 9 largest ‘American and European’ banks hold a total of $228.72 trillion in Derivatives - Approximately 3 times the entire world economy. No government in world has money for this bailout.’ These paragraphs are copied from Democracy.info

When banks are indulging in such huge bets, they need to cover their backsides through hedging, betting against a loss position.

‘A JP Morgan trader, Bruno Iksil, has been accumulating a giant bet on U.S. corporate bonds. He used derivatives to do it, and he messed up the bet and lost $2 billion for the bank. He could end up losing $1 billion more if the market doesn't cooperate.’ According to Market Place Easy Street blog.

To add into the mess, banks used to be conservative but could not resist the big money that traders were making. They too want a piece of action for themselves. How else would they be able to make the kind of crazy profits to pay the kind of crazy money to their top management and traders? The big salary must be foot by some operations, and they went for proprietary trading, ie trading themselves with the bank’s or clients’ money. The more they traded, the more hedging they needed and the more derivatives would be written. And they ended up with a mountain of debt, swaps, derivatives and betting slips that they probably did not know what was happening and any small changes in a position could end up in huge losses.

To summarise, fraudulent banking practices were allowed to go on, deregulation allowed the banks and their traders to do as they pleased with the regulators just as blurred as to what was going on. The regulators just lapped it up on whatever information the banks and their traders told them, if they were not in cahoot. When they said everything was in order, under control, the regulators could not be more happy even if it was a big white lie. How could the regulators allow the derivative transactions to balloon to US$228 trillion? Imagine the risk involved and the amount of losses should anything goes wrong? Do they have any clue what is happening? They don’t even have any clue about banks rigging Libors!

And they allowed the presumably smarter banks and traders write bets on anything, and they have not the slightest clue of what they were. And when pushed to allow the banks to trade their own money, even against their clients’ position, the regulators were as good as raising the white flag. Let them do whatever they want, just don’t create a mess, as they were lost in the maze of financial instruments and betting slips. The banks were addicted to gambling as they need to pay their robbers at the top with millions per head and hundreds of millions annually. No amount of loans officers and tellers could make this kind of money to pay these turkeys. Only gambling in derivatives could feed their appetite.

And all it needs is a little trigger and for a bank to surrender when it is no longer able to conceal its losses and cooking of the books, everything is going to come down very quickly. All the façade of well ran, well managed sophisticated systems and instruments by the best brains from Harvard and other Ivy League universities was only a great deception with each rogue bank or trader trying to disguise their excesses for as long as they could, and to demand as high a compensation package, plus an equally atrocious severance package. These turkeys cannot lose. Only the clients of the banks and the general taxpayers that would eventually have to foot the bill.

13 comments:

Anonymous said...

Red mean, alamak, any suggestions on where to keep the savings saved from 35 years of hard work slogging earning a salary by selling my time, youth and largely like a modern slave?

Other than spreading to as many banks as practical, invest in shares and bonds, property and gold. Anything else to do?

Anonymous said...

Red bean not mean, sorry

Katana guillotine said...

Well @Anon 525, Charles Hugh Smith wrote "food is wealth; health is wealth; energy is wealth; all else is illusion". So, buy tangible food or energy investments and maybe sponsor a doctor in the family, if they have the ability. Best not to follow the smart government which sold SPC to CNPC. Now, SPC stands for "Singapore Pay China".

Keep clear of Auric Pacific though. Ex-mechanic in charge there.

Socially useless bankers doing derivatives trading and enabling corporate raiding, are destroying value and collecting bonuses for doing it. Instead of benefitting from infinite bailouts at taxpayer expense they should be lined up against the wall, decapitated, and fed to the hyenas. When banking goes back to only doing plain old deposit-taking and lending, it will be performing the service it was intended to and not stealing the upside while sticking others with the downside.

Anonymous said...

I thought was ex shop keeper or retailer not mechanic lar

Anonymous said...

The regulators are also criminals in allowing and colluding with them.

Divali said...

"Anarchy in the financial markets...
and a state of lawlessness which encourages heists of unimaginable proportions without risk of punishment.

If we don’t watch it, the losses will do the world economy, and all of us, in."

http://thestar.com.my/columnists/story.asp?file=/2012/7/21/columnists/aquestionofbusiness/11702200&sec=aquestionofbusiness

Anonymous said...

Haha....

so long as they do not rob You at gunpoint or with a dagger. IT IS NO CRIME.

Chua Chin Leng aka redbean said...

Many people still think that it doesn't concern them. Just like the one plate of char kuey teow. Even the char kuey teow is affected the cost of living all the way.

The financial meltdown is going to make many millionaires and billionaires around the world into paupers, including HDB millionaires.

No one can run except those who have nothing.

Anonymous said...


Who said: "FOOLISH ENOUGH to build MRT"?

On the one hand, we had President Ong Teng Cheong (then Minister of Communication):
"The MRT is much more than a transport investment, and must be viewed in its wider economic perspective. The boost it'll provide to long term investors' confidence, the multiplier effect and how MRT will lead to the enhancement of the intrinsic value of Singapore's real estate are spin-offs that cannot be ignored."
- 28 March 1982

"The MRT will usher in a new phase in Singapore's development and bring about a better life for all of us."


On the other hand, we had a "visionary" Minister who went out of his way to deliberately, publicly, and rudely slam President Ong - the chief advocate for the MRT system - as being "FOOLISH ENOUGH":

"The construction industry has become over-heated and if Singapore were to be foolish enough to want to build its proposed mass rapid transit (MRT)system now, it will find itself in trouble."
- Forum on economic affairs at NUS, 17 December 1981.


Question: So, who was this "visionary" Minister who was not as "foolish enough" as President Ong?


Answer: Who else, but (again!) that very same man who is now each day busily (passively) shaking the hands of fishmongers and saving fainting children (on camera), desperately hoping that such comical last-minute manoeuvres can help him to get $4,000,000 per year as our President.

Meet Tony Tan, the "not-foolish-enough" Minister for Trade and Industry in 1981.

Yes, this is the same Tony Tan whose forecast that Singapore had too many university graduates went wrong (again!), and whose forecast that pumping billions of dollars into failed western banks is good investment went wrong (again!)

Oh, by the way, when he made that wrong forecast on education, he was the Minister for Education.

When he made that wrong forecast on investment, he was in charge of GIC.

And yes, you guessed it, when he made that wrong forecast on the impact of MRT on the construction industry, he was the Minister for Trade and Industry!

Just what's wrong with this Minister? 他妈的,he made the wrong forecast in every ministry he headed and when he had finally done enough screwing up all these ministries, he went right into the "private" sector (i.e. GIC) and immediately proceeded to lose billions of dollars of our CPF money!

Is this the kind of President you want?

Not me.

I am not "foolish enough" to want to listen to any of his Presidential "visions"

More importantly, I am not "foolish enough" to vote him to let him scold me; note that President Ong Teng Cheong was then his colleague in the cabinet and yet, despite having already had the opportunity to counter Mr. Ong privately during cabinet meetings, he was not contented. No, not enough! He had to 'suan' his colleague publicly and make sure the "nation-building" newspaper reported on it!

So, do you think he will have any problem labelling you - an ordinary citizen - as "foolish enough", when he becomes the President.

His good friend LKY has already called you "daft". Not enough? You want to be called "foolish enough" next?



So, Singapore did "foolishly enough" went ahead with the MRT construction. Did Singapore "find itself in trouble"?

Eagles Eye



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