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Old 05-28-2013, 02:27 PM   #1
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shadow banking - OTC derivatives and the event horizon of black holes

I just read a story about the HKMEX collapse over at this site:

It is an interesting read, and if what they are saying does come to pass, the shadow banking system may in fact be brought tho its knees, taking with it the above ground banking system, since all remaining confidence will likely collapse.
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Old 05-28-2013, 04:20 PM   #2
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This one?

I don't think it will come to pass. The CFTC recently neutered a key provision for the same thing here in the USA:

The banking lobbies will likely do the same in Euroland.
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Old 05-28-2013, 07:07 PM   #3
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Why lose sleep over 1 or 2 banks having billions or possibly trillions of dollars of derivatives on their books?

Last edited by Aubuy; 05-28-2013 at 11:36 PM. Reason: simple is better
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Old 05-29-2013, 06:50 AM   #4
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Yeah, so about that CFTC decision....
Quote :
The entire Western World banking system just missed the need for a bail-in by a hairs length.

The next crisis in finance in North America will be a product of the FASB, the Guardians of Auditing, allowing banks to value OTC derivative paper at whatever the bank wishes. This is a camouflaged black hole loss unstated that Western Banking system deposits could fall into to disappear partially or wholly, made up of your deposits. Washington made moves to override the CFTC, mandating proper valuations which the FASB has run away from. Had the banks been required by the CFTC to value these derivatives at anything resembling a real market (there isn’t any markets for the legacy OTC derivatives of 1991 to 2008), we would have had another banking crisis in the USA on Tuesday after Memorial Day. The USA just missed another banking crisis by a hair’s length. Next time it will be closer.

If the banks had to realize the real loss in this paper, now valued way above real worth, facing that loss would vaporize the bank’s entire capital, impacting the next line of financial defense which is the funds of the depositors, seriously reducing to totally wiping out your deposits. This distance between the bail in of Cyprus and of the entire Western financial world stands on the question of honestly valuing OTC derivatives or not lying about the value of the legacy paper banks are carrying. This is the real PONZI of not just the century but all written history in finance. The real number of notional value of OTC derivatives outstanding is not $700 trillion but rather over a quadrillion as it stood and was reported by the BIS printed hear before the BIS reduced the number to $700 trillion by adopting a new computer program for valuation named "Value to Maturity," a total cartoon.

We, the entire Western Financial World, are a bankruptcy just waiting to happen.

Had the CFTC implemented this regulation before it’s alteration, which is in fact a cancelation, you would have been bailed-in. Without this cancellation of this standing regulation, the USA would have had to have Bail-In Tuesday.

Quote :
Imagine if a Bush Administration official had insisted that U.S. law must reign supreme in every country where a U.S. bank does business. That’s essentially the position of Chairman Gary Gensler of the Commodity Futures Trading Commission (CFTC). And despite a world-wide backlash, the U.S. press corps is giving him an ovation.

Meanwhile, new Securities and Exchange Commission Chairman Mary Jo White is receiving a Bronx cheer for suggesting that foreign financial regulators ought to have some say over what happens inside their borders.

The issue involves swaps, which are financial contracts that allow people to exchange risks. Within the CFTC’s jurisdiction, for example, two parties might agree to swap a floating interest rate for a fixed one. Over on the SEC’s turf, the agency now oversees credit-default swaps (CDS) in which one party is paid to accept the risk that an institution will default on its bonds.

Mr. Gensler is attempting to regulate not only foreign branches of U.S. banks but in many cases even the foreign firms with which they do business. The CFTC also seeks expansive authority over foreign transactions whenever a U.S. person, broadly defined, is on one end of the deal. This would allow the Beltway agency to regulate much of the known world, if the world would tolerate it.
Mr. Gensler’s current chaos might be forgivable if he were solving the problems of 2008. To the contrary, for the first time U.S. taxpayers now explicitly stand behind Wall Street derivatives trading. The Gensler strategy is to concentrate risks in “systemically important” clearinghouses that now enjoy emergency access to loans from the Federal Reserve.
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