29 September 2014

Global Banks Will Face Day of Reckoning

There was an article recently that appeared on ZeroHedge by Michael Snyder of the economic collapse blog. In the article he updated the derivatives exposure of the 5 biggest banks in the US.

The numbers below are hard to imagine because they are so big.

JPMorgan Chase

Total Assets: $2,476,986,000,000 (about 2.5 trillion dollars)

Total Exposure To Derivatives: $67,951,190,000,000 (more than 67 trillion dollars)


Total Assets: $1,894,736,000,000 (almost 1.9 trillion dollars)

Total Exposure To Derivatives: $59,944,502,000,000 (nearly 60 trillion dollars)

Goldman Sachs

Total Assets: $915,705,000,000 (less than a trillion dollars)

Total Exposure To Derivatives: $54,564,516,000,000 (more than 54 trillion dollars)

Bank of America

Total Assets: $2,152,533,000,000 (a bit more than 2.1 trillion dollars)

Total Exposure To Derivatives: $54,457,605,000,000 (more than 54 trillion dollars)

Morgan Stanley

Total Assets: $831,381,000,000 (less than a trillion dollars)

Total Exposure To Derivatives: $44,946,153,000,000 (more than 44 trillion dollars)

Derivatives are very complex financial instruments that are used to make bets on what will happen in the future. Many experts blame the financial crisis in 2008 on derivative structures like collateralized debt oblations (CDOs) and credit default swaps (CDSs) that were traded by banks.

In a 2002 letter to shareholders legendary investor Warren Buffett described derivatives as “ financial weapons of mass destruction”. Many argue that derivatives can be useful as long as they are used in limited quantities. 

Counterparty Risk

The problem as you see from the statistics above is that the derivative exposure by the big banks is inherently unstable. One of the reasons why we are proponents of owning physical precious metals is because of the counterparty risk that is involved with banks that trade with one another.

Should a bank or insurance company not be able to follow through on their contractual obligation, then the default could have a ripple effect on the entire global financial system. With the numbers as big as they are it could represent something beyond the central banks ability to deal with.

Bank balance sheets have become so complex that assessing the true risk to the financial system is difficult to completely understand. Gold would be the ultimate insurance against some sort of major systemic banking crisis.

Too Big to Fail Banks are now Bigger and More Complex

The too big to fail banks are now even bigger than they were in 2008.  It is also not just the Banks in the US that are gambling big right now.

The article by Mr. Snyder references data that was detailed by ZeroHedge where Germany’s Deutsche Bank has a total derivative exposure of 55 trillion euros. This amount is about 100 times greater than the deposits that the bank has and 5x greater than the GDP of Europe.

The global economy has become completely dependent on a handful of very large banks. So a major problem with even one of these banks will likely have wide ranging consequences.

Author: celticgold.eu

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