TSP Smart’s public service announcement: Read Pam Martens and Russ Martens full article. The real bailouts in the last financial crisis were not the few trillions reported, but the hundreds of trillions in derivative bets wall street did not have to to cover.

Excerpts from Wall Street Banks Are Dangerously Evading U.S. Derivatives Rules by Making Trades at Foreign Subsidiaries

According to documents released by the Financial Crisis Inquiry Commission (FCIC), at the time of Lehman Brothers’ bankruptcy on September 15, 2008, it had more than 900,000 derivative contracts outstanding and had used the largest banks on Wall Street as its counterparties to many of these trades… These are the same Wall Street mega banks shown on the chart above that are now evading Dodd-Frank derivative rules by moving large amounts of their opaque derivative trades to their foreign subsidiaries.

Another chart from the Financial Crisis Inquiry Commission that will take your breath away shows the derivatives casino that Goldman Sachs had become by June of 2008. The figures are simply staggering. In the most dangerous form of derivative, credit derivatives, Goldman Sachs had $5.1 trillion notional (face amount) exposure. And almost all of its counterparties were being propped up by the Federal Reserve’s secret revolving loans. In the case of Merrill Lynch and Morgan Stanley, where Goldman had more than $600 billion exposure to each counterparty, the Fed made $2 trillion in secret, cumulative, below-market rate loans to each firm, according to the GAO audit.

Because of the pivotal role that derivatives played in the Wall Street collapse of 2008, which spawned millions of foreclosures and job losses across the U.S., the Dodd-Frank financial reform legislation was supposed to prevent insured depository banks from holding these dangerous derivatives. One derivatives reform measure was known as the “push out rule,” where derivatives would be pushed out of the insured bank to a different part of the bank holding company that could be wound down without taxpayer support if the bank became insolvent. But before that rule ever took effect, Citigroup engineered its repeal.

…A decade after the worst collapse of iconic Wall Street institutions in history and the largest Federal Reserve bank bailouts in global banking history, there is very little to show in the way of meaningful reform. Without the restoration of the Glass-Steagall Act, Wall Street’s wealth transfer system, that plunders the 99 percent in service to the 1 percent, will continue humming along.

Read the Full Post Wall Street Banks Are Dangerously Evading U.S. Derivatives Rules by Making Trades at Foreign Subsidiaries

TSP Smart & Vanguard Smart Investor

Categories: Perspectives