$100 Billion and Counting: How Wall Street Blew Itself up

[Celebration]

http://www.alternet.org/story/74510/?page=entire

Hard to pick four paragraphs here. This was all eye opening for me. I guess my favorite part has to do with the lack of paper trails, so here goes. Well, maybe it is the bank ownership of Mark-it Partners.

One likely answer is that around this time regulators with a fetish for orderly paper trails (but myopic to the rapidly escalating financial hazard of this unregulated market) had stumbled upon the fact that there was a growing backlog of credit derivative trades that were never officially confirmed between the parties, reaching a peak of 153,860 unconfirmed trades by September 2005. Of this, 97,650 trades were more than 30 days overdue; 63,322 trades were a stunning 90 days past due according to a Government Accountability Office (GAO) report. (Although regulators knew about this spiraling trading nightmare as earlier as 2003, the GAO report did not come out until we were deep into the credit crisis in June 2007.) It was during this time that regulators got an agreement from the major dealers that Mark-it Partners would begin collecting and aggregating the data on unconfirmed trades, keeping individual dealer data confidential from other dealers and preparing a monthly report of aggregated data for regulators.
Who were the banks and brokerage houses responsible for this unmitigated mess? With only a few exceptions, the exact same firms with a majority ownership in Mark-it Partners.


To grasp the magnitude of this wild west world of trading, one needs to understand that we are not talking about a market of a few billion dollars. According to the International Swaps and Derivatives Association, the credit derivatives market has grown from an estimated total notional amount of nearly $1 trillion outstanding at year-end 2001 to over $34 trillion at year-end 2006.


According to the U.S. Office of the Comptroller of the Currency (OCC), JPMorgan, Citigroup and Bank of America handled about 90 percent of this trading among U.S. commercial banks in the fourth quarter of 2006. (These are the same three banks that were backing the scheme last year with the U.S. Treasury to create a $100 Billion bailout fund for exotic instruments that also had never seen the light of day of exchange trading. That plan failed when it appeared to be a thinly disguised artificial pricing mechanism to inflate values for the worst hit firms on Wall Street: namely, Citigroup.)


According to the GAO report, significant progress was achieved for a period in bringing down these unconfirmed trades but by November 2006, the numbers had climbed again: there were over 81,000 unconfirmed trades with around 31,000, or 54 percent, remaining unconfirmed for over 30 days. Raising images of the early 1900s curb market in lower Manhattan where traders posted securities for sale on lampposts, the report notes that this vast market is being handled manually to a significant extent. (Our nation has apparently devolved not only on torture and constitutional rights and habeas corpus and election integrity but we now seem to have wiped out 100 years of trading advances.)

Oh, yeah, it's the fault of the borrowers for taking risks and not knowing what they were signing.
:sarcasm:

Be sure to read the part about Greenspan.

[flashl]

1. This says it all ...

the unabridged story is breathtaking in its callous disregard for the economic well being of this nation and its people.

[Celebration]

2. It's more like Enron than I realized

Let's say, Enron to the power of 100, or something. Never underestimate the power of greed.

[flashl]

3. Its huge, folks can't see the bottom. nt

[Common Sense Party]

4. It's not as big as the media would have us believe.

The subprime market was pretty small.

Right now it's the traders taking advantage of blood in the water and making money by selling short.

[Celebration]

5. there is a big, big domino effect

The problem is that even though subprime loans aren't a huge percentage of the total, the whole thing is so interwoven with everything else that there is a domino effect. There is desperation in trying to save the bond insurers, for example. And the balance sheet of the American family has taken it on the chin. Not only have their homes plummeted in value, but the value of their dollar holdings are way down.

And now, banks have no reserves??? What the....?

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=114x33786

[Warpy]

6. Eye popping stuff

and more proof of why 9000 hedge funds were headquartered in the Caymans and why they resisted regulation by the World Bank for all these years.

Those are the scum suckers that are behind this whole fiasco.

[CGowen]

7. I thought it was the DTC, although it could be that it's owned by Citi and J.P. Morgan

Interestingly, many of the financial actors behind the 1913 creation of the Federal Reserve are pivotal in today’s securitization revolution including Citibank, and J.P. Morgan. Both have share ownership of the key New York Federal Reserve Bank, the heart of the system.

Another little-known shareholder of the New York Fed is the Depository Trust Company (DTC), the largest central securities depository in the world. Based in New York, the DTC custodies more than 2.5 million US and non-US equity, corporate, and municipal debt securities issues from over 100 countries, valued at over $36 trillion. It and its affiliates handle over $1.5 quadrillion of securities transactions a year. That’s not bad for a company that most people never heard of. The Depository Trust Company has a sole monopoly on such business in the USA. They simply bought up all other contenders. It suggests part of the reason New York was able for so long to dominate global financial markets, long after the American economy had become largely a hollowed-out “post-industrial” wasteland.

http://www.globalresearch.ca/index.php?context=va&aid=7876

[OneBlueSky]

8. for a little perspective, compare this $100 billion to the over $1 trillion that was "lost" . . .

by the Defense Department, coupled with the almost $1 trillion that the war is costing us . . . which is more detrimental to the nation's economic health? . . .

[sbyte]

9. the final parragaph says a lot.

It was four years after the crash of 1929 before the major titans of Wall Street were forced to give testimony under oath to Congress and the full magnitude of the fraud emerged. That delay may well have contributed to the depth and duration of the Great Depression. The modern-day Wall Street corruption hearings in Congress were cut short by the tragedy of 9/11. They must now resume in earnest and with sworn testimony if we are to escape a similar fate.


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The truth is OUT there ... and right here. at DU.