Five Banks have taken on the leverage normally reserved for hedge funds, placing the US dollar and the entire financial system at risk, and essentially holding it hostage to carry their losses while they take their profits.
They are JP Morgan Chase, Bank of America, Citibank, Wachovia, and HSBC.
JP Morgan alone is holding derivatives with a value of $84.8 Trillion. Yes they have netted that down, provided there are no significant counterparty failures in which case that netting goes to hell in a handbasket. Their credit exposure to capital ratio is 418.7. This gearing is priced to the perfection of a lossless countertrade with nothing even reasonably expected on the tails. They make LTCM almost look like grannies when to comes to being a risk-loving beta monster.
This is why their counterparty Bear Stearns had to be bailed out with public money. There are a few others to keep a close eye on including Merrill and Lehman with their derivatives exposures although they are not in the top five.
This is why its not over yet.
There are two classes of financial institutions in trouble. Those that are 'too big to fail' and those that are 'too big to mention the word failure in the same sentence.' The top five derivatives speculators are in the latter category.
This debate among deflation, stagflation, hyperinflation and disinflation ought to be expanded to include financial obliteration.
The source for these graphs is the latest report from the Office of the Comptroller of the Currency OCC Dec. 07 Report
If the Federal Reserve had taken over supervision from the OCC as Secretary Paulson recommended, do you think we would be seeing such detailed reports on the concentration of risk in five financial market players? Or would they be skulking to the Discount Window to try and hold their books together with public money without any disclosure?
