Inquiring minds have been wondering if/when America would wake up from its collective narcissistic internet stupor of knowing ‘all-the-answers’, and begin to realize that Ben Bernanke is not a ‘dumb’ man. That he might know more than either he is letting on and/or more than they actually do.
Mr. Bernanke is attempting to extricate the United States from a problem that could easily destroy it. The Fed Chairman can be called many derogatory names but ‘stupid’ is not one of them.
So, what is the real reason why he is funneling, quite literally, trillions of dollars into Wall Street banks?
Ben Bernanke is printing money and funneling it into the Wall Street banks just as fast as he can, not for crony capitalism (although that surely does exist), but for one and only one very important reason: DERIVATIVES.
According to the Office of the Comptroller of the Currency’s Quarterly Report on Bank Trading and Derivatives Activities for the Second Quarter 2010 (most recent), the notional value of derivatives held by U.S. commercial banks is around $223.4 TRILLION.
Five banks account for 95% of this. Can you guess which five?
The only difference that SurvivingCalifornia asserts is that SeekingAlpha’s derivitive number is too small. USDebtClock.org has the number at more than $575 Trillion! Considering that the World Economy is about $61 Trillion (2008) which means that derivitives are about 9 1/2 times larger than the economy of the entire world.
But let’s get back to the more conservative numbers of SeekingAlpha.com:
Of course, Bernanke tells the public and Congress that the reason we need low interest rates is to support housing prices. He doesn’t mention that $188 TRILLION of the $223 TRILLION in notional value of derivatives sitting on the Big Banks’ balance sheets is related to interest rates.
Yes, $188 TRILLION. That’s thirteen times the US’ entire GDP, and nearly four times WORLD GDP.
Now, of course, not ALL of this money is “at risk,” since the same derivatives can be traded/spread out dozens of ways by different banks as a means of dispersing risk.
However, given the amount of money at stake, if even 4% of this money is “at risk” and 10% of that 4% goes wrong, you’ve wiped out ALL of the equity at the top five banks.
Put another way, Bank of America (BAC), JP Morgan (JPM), Goldman (GS), and Citibank (C) would CEASE to exist.
If you think that I’m making this up or that Bernanke doesn’t know about this, consider that his predecessor, Alan Greenspan, knew as early as 1999 that the derivative market, if forced into the open and through a public clearing house, would “implode” the market. This is DOCUMENTED. And you better believe Greenspan told Bernanke this.
This is why America needs to wake up…but humbly so. Otherwise, this is what the landscape of the country will look like:
Do we really want the United States to look like a set on the movie “The Book of Eli”?
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