Cooking the Books: U.S. Banks are Giant Casinos

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Cooking the Books: U.S. Banks are Giant Casinos

Postby Gnosty » 07 Feb 2004, 12:56

Cooking the Books: U.S. Banks are Giant Casinos

by Michael Edward


While media financial reporters keep the current focus of the public eye on Martha Stewart, the insolvency of U.S. banks due to their derivative holdings is being swept under the carpet.

Because banks have not been making a profit from traditional lending, derivatives became a fantastic way for them to net huge gains by trying to guess (gamble on) future prices of commodities or stocks. They were able to take these gambling risks because the Fed is supposed to back them from losses that would make them insolvent (more liabilities than assets). The worst part is that derivative transactions stay off the books and away from the prying eyes of investors and analysts.

U.S. interest rates being kept low by the Federal Reserve System (which is neither Federal nor does it have any intrinsic reserves) is to simply hide the hundreds of $Billions ($100 Billion U.S. Dollars = $100,000,000,000) of derivative losses and the true insolvency of U.S. banks. The moment interest rates start to run up, U.S. banks will be left holding little paper value assets to offset their vast derivative gambling losses.

U.S. stock markets are being manipulated to show overall value gains and "profits" is to keep U.S. banks "paper solvent". In reality, the public is being conned into thinking that U.S. banks are still solvent because they show "gains" in their stock "paper" value. If the U.S. markets were not manipulated, U.S. banks would collapse overnight along with the entire U.S. economy.

U.S. banks are merging with each other to hide their derivative losses with "paper asset" bookeeping that incorrectly shows they are solvent with enough "assets" to overcome their losses. In reality, this is smoke and mirror accounting, a scam worth $Trillions.

U.S. banks - with the privately owned Federal Reserve System at the helm - have turned into giant casinos by running a Casino Economy that is splintering into vast piles of insolvent firewood. The kindling was lit in the early 1990's, but now a bonfire is raging with great plumes of red-ink smoke. Can the Fed and the Fed-controlled media keep the public from seeing that red smoke with their manipulative mirrors? If the public would just open their eyes and wake up, they would see what's really going on, so here's something to focus your eyes on:


The top 25 U.S. banks with the largest derivatives holdings (estimate based on OCC Q3-2003 report and updated from news releases since 10/03). Remember, $1 Billion U.S. Dollars = $1,000,000,000.

RANK - BANK NAME - DERIVATIVES (in $US BILLIONS)

1 - JPMORGAN CHASE BANK - 33,700 ($33 Trillion, 700 Billion)

2 - BANK OF AMERICA - 13,800

3 - CITIGROUP - 11,000

4 - WACHOVIA CORPORATION - 2,457

5 - BANK ONE CORPORATION - 1,133

6 - HSBC - 1,043

7 - WELLS FARGO BANK NA - 911 ($911 Billion)

8 - FLEET BOSTON - 494

9 - BANK OF NEW YORK - 496

10 - COUNTRY WIDE FINANCIAL - 410

11 - STATE STREET - 320

12 - TAUNUS - 307

13 - NATIONAL CITY - 203

14 - ABN AMRO - 188

15 - MELLON - 153

16 - KEYCORP - 98 ($98 Billion)

17 - SUNTRUST - 82

18 - FIRST TENNESSEE BANK NA - 58

19 - U S BAN CORP - 54

20 - PNC BANK NATIONAL ASSN - 45

21 - DORAL - 31

22 - NORTHERN TRUST - 25

23 - CIBC DELAWARE - 25

24 - METLIFE - 22

25 - UTRECHT-AMERICA - 20


If you want to get a hint at how much red ink your U.S. bank casino is swimming in, look at their latest financial report and keep an eye out for an entry such as, "adjustment of derivative financial instruments" or "adjustment of non-interest instruments". If they list such an "adjustment" (most do not), this means they have written off the losses incurred from their derivative gambling.

If you bank with one of the 25 banks listed above, you can expect worse than the 1986-1990 Savings & Loan bank collapses when people were unable to remove all or most of their money from their accounts until years later. This time, you can expect to loose whatever they claim to "hold" for you because the FDIC and the "Fed" have no means to replace the losses with any intrinsic value.

If you choose to keep accounts with these U.S. banks, you have just become a high-stakes gambler, and the odds are stacked against you.


Non-commercial reproduction allowed, otherwise copyright 2004 by WorldVisionPortal.Org
Last edited by Gnosty on 08 Feb 2004, 15:04, edited 1 time in total.

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FINANCIAL WEAPONS OF MASS DESTRUCTION

Postby Gnosty » 07 Feb 2004, 17:23

FINANCIAL WEAPONS OF MASS DESTRUCTION

"We view them as time bombs both for the parties that deal in them and the economic system... In our view... derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal." -- Warren Buffett

"It could rip your guts out overnight... the biggest, most potentially lucrative, and destructive market in the world." - Into the Fire, by Linda Davies

"Derivatives are nothing more than a set of tools. And just as a saw can build your house, it can cut off your arm if it isn't used properly." - Walter D. Hops, Treasurer, Ciba-Geigy, Business Week, October 31, 1994, p.98

"I once had to explain to my father that a bank didn't really make its money taking deposits and lending out money to poor folk so they could build houses. I explained that the bank actually traded for a living." - Stan Jonas, Derivatives Strategy, April, 1998, p.19

Here's my favourite: "The government announced that it's no longer going to issue 30 year bonds. What better way to inspire confidence in our government than by saying 'We might not be around that long.'" - Jay Leno, The Tonight Show, November 1, 2001

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Postby Gnosty » 07 Feb 2004, 18:58

U.S. BANKS HAVE BECOME A PONZI SCHEME

A reader asked me to put in layman's terms what a derivative is and why derivatives are making or have made U.S. banks insolvent:

Derivative -- A financial contract whose value depends on a risk factor, such as:
1. the price of a bond, commodity, currency, share, etc.
2. a yield or rate of interest.
3. an index of prices or yields.

Derivatives are financial instruments that have no intrinsic value, such as a value in silver or gold or anything else that has a value in and of itself. Derivatives get their value from something else, an external value. They hedge (gamble) the risk of owning things that are subject to unexpected price fluctuations, such as foreign currencies, bushels of wheat, stocks, or government bonds.

There are two main types of derivatives:
1. Futures (or contracts for future delivery at a specified price), and
2. Options that give one party the opportunity to buy from or sell to the other side at a prearranged price.

Although futures markets have existed in some form since at least the 17th century, modern futures markets developed in the 1850's with the opening of the Chicago Board of Trade. However, since the early 1970's, financial futures (derivative) markets dealing with currencies, company stock shares, and bonds have become much more important.

In 1971, the Bretton Woods system of fixed exchange rates broke down when the US suspended the exchange of the U.S. dollar to gold. In a world of floating exchange rates among the different world currencies, exporters and importers faced new risks.

By the 1990's, many financial institutions involved with derivatives (risk gambling) were employing mathematicians and physicists to design sophisticated risk financial instruments.

Derivatives (futures and options) are highly "leveraged" transactions. This means that traders or banks are able to assume large future and option positions - accompanied by large risks - with very little up-front capital outlay. In other words, they pay for a derivative contract with pennies on the dollar. When their gamble on the future doesn't pay them back a higher price than their bet (contract price), they have to come up with assets to cover not only their losses, but the full value of their bet.

Sometimes, derivatives are deliberately mispriced in order to conceal actual losses or to make fraudulent "book value" profits. When a U.S. bank has big losses, this is usually what they will do to "cover-up" their great losses. Here are some actual examples:

In 1995, Baring Bank became insolvent. Nick Leeson lost $1.4 billion by gambling that the Nikkei 225 index of leading Japanese company shares would not move from its normal trading range. That assumption was shattered by the Kobe earthquake on January 17, 1995 after which Leeson attempted to conceal his losses with mispriced complex derivatives.

In 1998, the (LTCM) Long Term Credit Management hedge (derivatives) fund was rescued at a cost of $3.5 billion because of worries that its collapse would have severe repercussions for the world financial system.

In 1999, mispriced derivative options were used by NatWest Capital Markets to conceal their losses. The British Securities and Futures Authority concluded its disciplinary action against the firm in May 2000.

In March 2001, a Japanese court fined Credit Suisse First Boston 40 million yen because a subsidiary had used complex (mispriced) derivatives transactions to conceal their losses.

In 2001, Enron - the 7th largest company in the US and the world's largest energy trader - made extensive use of mispriced energy and credit derivatives (and became the biggest firm to go bankrupt in American history) after attempting to conceal huge losses.

In January 2004, four foreign currency dealers at the National Australia Bank have been caught running up $180 million (Australian) mispriced derivative debts in three months of unauthorised trades.

What does all this mean for U.S. banks? Astronomical losses for U.S. banks (as well as most world banks) have been concealed with mispriced derivatives. The problem with this is that these losses don't have to be reported to shareholders, so in all truth and reality, many U.S. banks are already insolvent. What that means is that U.S. banks have become nothing less than a Ponzi Scheme paying account holders with other account holder assets or deposits. The banks have no assets other than newly acquired assets because they have hidden the loss of all previous assets with mispriced derivatives.

Robbing Peter to pay Paul has never worked, and every Ponzi Scheme (illegal pyramid scam) has always ended abruptly with great losses for every person who invested in them. U.S. bank account holders are about to find this out.
Only the harmonics of the LifeCross will bring Living Light to humanity - Michael Edward

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Postby Gnosty » 08 Feb 2004, 17:45

Most Bank Derivatives Have UNLIMITED Risk

Michel Camdessus, representing the International Monetary Fund at the G-7 conference recently held in Lyon, France, forecast that "the next international crisis will be banking".

Big banks swap all kinds of promises all the time, like interest rate swaps, forward currency swaps, options on futures, etc. They try to balance all these promises (hedging), but there is the big danger that one big player will go bankrupt and leave lots of people holding worthless promises. Such a collapse could cascade, as more and more banks cannot meet their obligations because they were counting on the defaulted contract to protect them from losses.

All of this is done off the books, so there is no total on how much exposure each bank has under a specific scenario. Some of the more complicated derivatives try to simulate a specific event by tracking it with other events (that will usually go in the same or the opposite direction). An example is: Buying Japan stocks to protect against a loss in the U.S. However, if this usual correlation changes the slightest bit, big losses can result.

The big danger with the big banks is that while they can use derivatives to hedge risk, they can also use them as a way of taking ON risk.

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Postby Gnosty » 09 Feb 2004, 12:57

DERIVATIVES ARE THE KISS OF DEATH

From Moneyfiles.Org
http://www.moneyfiles.org/kissdeath.html

LOS ANGELES (CBS.MW) - 99% of passive investors should never use them.

Was Warren Buffett unreasonable in calling derivatives "financial weapons of mass destruction" and "time bombs?" A Wall Street Journal editorial says yes. Thought Buffett laid this issue to rest with his recent warning about the derivatives in Fortune. But unfortunately, The Journal followed Business Week in defending derivatives and their bizarre world of short-term trading and market timing. It's extremely dangerous to leave Main Street investors with a strong impression the $2 trillion derivatives market has value to average Americans. It doesn't. The high-risk world of derivatives is enemy territory for the vast majority of individual investors, and should be avoided at all costs. Stick with me and I'll show you one more time why derivatives are as big a weapon of mass destruction for a small investor with a $100,000 portfolio as they are in the arena of $100 billion portfolios that Buffett is warning us about.

One derivative "WMD" already exploded.

First, The Journal ignored key facts in hyping derivatives as "one of the major innovations in the financial markets in the past three decades ... The real miracle of derivatives is that they [help] institutions lay off risk, making the financial system less vulnerable to a giant blow-out." Wrong.

The Journal failed to mention that we've already had one "giant blow-out." Remember, Long-Term Capital Management? The global financial system was on the brink of a total meltdown in 1998 when the highly-leveraged LTCM was a huge player in the derivatives game. LTCM, as you may recall, was the brainchild of the two guys who won the 1997 Nobel Prize for their work with derivatives. Unfortunately, their "miraculous innovation" backfired and became the very thing Buffett is warning against, a "financial weapon of mass destruction." The Fed was forced to step in and negotiate a multi-billion dollar bail-out, wiping out LTCM. Buffett warns that today too many derivatives risks are being laid off to an ever smaller group of risk-takers. And that concentration is what is making derivatives a new WMD time bomb.

Business is risky and executives get caught up in the illusion that because derivatives may work on short-term problems, they can also lay off huge long-term risks. That illusion is a booby trap, because most long-term risks can't be identified, let alone effectively laid off.

An illusion for the "little guy"

Unfortunately, a very similar illusion is now being created in the minds of America's 93 million passive investors. Stories in Business Week, The Journal and others are encouraging passive investors to venture into the high-risk gambler's world of derivatives - and all that goes along with them, hedging, leveraging, commodity futures, options, puts, calls, spreads, and other speculative securities more suited high-tech Wall Street pros.

The illusion leads Joe and Jane Lunchbox to believe they too can lay off their risks. That if they just start using derivatives, start timing the market, and get into active day-trading, they will also improve their returns and beat the averages. Ain't gonna happen!

This new wave of articles is also telling us that buy-and-hold doesn't work anymore because we're now in a tricky sideways market with high daily volatility, like we experienced in the 70s and early 90s. They warn that even if you do diversify, you need to do something called "tactical allocation," another word for market timing.

They are basically telling America's passive investors that they only have two choices: You either become an active trader, get familiar with derivatives, start timing the market and buy and sell securities on a daily basis to beat the averages, or resign yourself to low passive returns in the 7-8 percent range, if you're lucky.


Six reasons to steer clear

The suggestion that derivatives, market-timing and active trading are a viable alternative for vast majority of U.S. investor who are passive investors, is absolute nonsense. Switching from passive investing to active trading is not only wrong for the vast majority of investors, it's guaranteed to fail. Derivatives are a "financial weapon of mass destruction" for the small investor as well as the big-time pros. And here's a quick review of the pitfalls:

1. Stock market is irrational and unpredictable
Wharton economist Jeremy Siegel studied 120 big-move days in market history since 1802, and for only 30 was there any rhyme or reason. Seventy-five percent of the time the market is unpredictable. Market-timing is just dumb luck and extremely risky!

2. The more you trade, the less you earn
Behavioral finance professors Terry Odean and Bill Barber of the UC Davis researched 66,400 investors. Two things kill returns for active traders: Lousy stock-picking and transaction costs. Buy-and-hold investors (2% turnover) beat active traders (258% turnover) 18.5 percent to 11.4 percent.

3. Investors "buy-high, sell-low," and lose
Fund investors are bad timers. Morningstar research says they "buy-high, sell-low." Greed creates buying frenzies at the top. Fear creates panic selling at the bottom. Market timing is a costly waste of time.

4. Online trading makes it easier to lose more
Odean and Barber also says investors converting from off-line to online trading saw their returns drop big-time. Before, they were beating the market by 2 percent. After they fell under the market by 3 percent.

5. Too confident: We lose, then deny and lie
Money says 88 percent of investors are too optimistic. In their over-confidence they believed they were beating the market but were actually under-performing by 5-15 percent. They'd make bad decisions, then hide the truth from themselves and others.

6. Even "winning" traders don't win much
Still want to be an active day-trader? The successful ones live, breath, eat and sleep trading. It's an all-consuming full-time job, so you'll have to give up your day job, with its 401(k) and medical benefits. Is it worth it? Successful traders average under $50,000, very few make more than $100,000 a year. It's a lonely life. Many get addicted or burn out. One mistake and you could lose everything in a flash.

Like Buffett says, derivatives really are a "financial weapon of mass destruction," not only for the economy and financial markets, but for the individual investor on Main Street America. They are a time bomb. Run for cover!

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Postby Gnosty » 09 Feb 2004, 23:20

SLIPPING ON DERIVATIVE BANANA PEELS

"Credit derivatives are the greatest risk currently facing banks", according to the latest survey by the Centre for the Study of Financial Innovation on September 29, 2003.

Their annual poll of top financial practitioners, regulators, and analysts reveals widespread concern about the burgeoning use of derivatives to transfer risk, as well as the lack of information on residual concentrations of risk.

One analyst said: “There is a daunting lack of transparency in reporting, and it is not readily apparent who holds the risk or what concentrations of risk exist.”

Let me put this in plain English for those of us who don't speak "financese":

Banks and bank regulators (government) are not reporting the truth about bank Derivative losses ("a daunting lack of transparency in reporting"), and

Banks and banking regulators (government) are not disclosing their Derivative risks (losses) or how much risk (losses) they have ("it is not readily apparent who holds the risk or what concentrations of risk exist.")

I really don't know any other word to describe this type of scenario other than the word FRAUD. Pehaps SCAM might be a better choice, or perhaps FINANCIAL CON might be an even better description.

Actually, derivatives are quite simple for us non-financial people to understand. Anyone who has been to Las Vegas or at the casino on a cruise ship can understand it perfectly.

A bank gambles and bets on certain pre-determined odds, like playing the casino dealer in a game of poker (banks call this 'hedging their risks with derivative contracts'). When they have to show their cards at the end of the play, they either win or loose their bet; either the bank wins or the house wins (this is the end of the derivative contract term).

For us small-time players, we might loose $10 or $20, but the big-time banks are betting hundreds of $Millions on each card hand. The worst part is that they have a gambling addiction and can't stop betting money that isn't theirs to bet with.

I guess no-one has told these gambling banks that the odds are not in their favor or that in gambling, the risk odds are always stacked against the player.

What the above survey is telling us is that banks are not revealing their gambling losses and no-one knows how much they've gambled and lost to date. Common sense tells you that sooner or later, they have to leave the poker table.

Winners always leave the gambling table with a big smile and you can see the chips in their hand to know they won more than they had bet. But loosers always walk away quietly and don't talk about how much they lost. If a bank makes a good profit (won their bet), they would be telling everyone that their derivative contracts have paid off and they're sitting pretty. In reality, the big-time gambling banks are not talking and won't tell anyone how much they gambled or how much they lost.

We've been hoodwinked and the game is pretty much over.

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Postby Gnosty » 09 Jan 2007, 13:28


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Postby Paulo » 10 Aug 2007, 14:50


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Postby Gnosty » 02 Sep 2007, 14:24

http://judicial-inc.biz/Gold_as_Investment.htm

"The price of gold is determined by taking the world's debts, liabilities, and money supply, and dividing it by all the gold in the world.

Gold will become just an equation, and its number could easily be $40,000 an ounce. If you're on the Titanic, and you have $40,000, than that's what a seat in the lifeboat is worth. Stocks, bonds, and financial assets will be bought for mere pennies."


Couldn't have said it better myself...


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