Analysis of News—www.analysis-news.com

Of Interest to Investors, Survivalists and Others Concerned About Their

Economic and Financial Futures

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With a focus on the Plutocrats, Goldsmiths, Super-Rich Insiders, and their Allies and

what they are conspiratorially doing to manipulate the financial markets, make more

profits, rip us off and install a world government under their control

The Goldsmiths—Part XCI

By R. D. Bradshaw

The purpose of this article is to take another look at the derivatives problem and especially with a focus on the Credit Default Swaps which have been in the news recently.

The goal is not to go into the specifics on how the Cabal successfully manipulates the markets to make off with trillions of dollars in slight of hand tricks, dishonesty and market manipulations. I have done this numerous times in previous Goldsmiths. Other sources, like Market Ticker, have written at length on the corruption and skullduggery in the financial markets. But I will focus here on how big the problem is in today’s modern America.

Goldsmiths 80 and 82, along with several news articles on April 1 and 5 and May 1, 2009, all at www.analysis-news.com, discussed at some length the Quarterly Report on Bank Trading and Derivatives as prepared by the Office of the Comptroller of the Currency. This report details the extent of the derivatives problem of each specific bank—to include details of its holdings of futures and options (yes to include overall data on its involvement in gold and precious metals).

The importance of derivatives is that this is the category where the Cabal makes its big bucks in deceiving and cheating investors. Also, it is the overall area in the credit derivatives where the banks and financial institutions have become over extended and why the Fed and government will pump up to $23.7 trillion to them (per the latest Jul 20, 2009 estimate) in order to bail them out of their bad investments.

By going to the Comptroller’s web site (occ.treas.gov), one can access the quarterly reports of bank trading and derivatives for the last many quarters (under subject matter and quarterly report of derivatives). The latest quarter, ending March 31, 2009) is up at the OCC site. It is available to scrutinize (the next quarter won’t be complete until Sep). The Executive Summary on page 1 and the accompanying tables all outline the extent of the problem. The problem in essence is that the banks are now holding some $202 trillion in derivatives.

The five largest banks hold some 96% of the derivatives. JP Morgan Chase has $81.2 trillion; Goldman Sachs has $40 trillion; Bank of America has $39 trillion; Citibank has $30 trillion; and HSBC Bank has $3.5 trillion. The quarterly report gives the details on how much each of the banks holds in futures’ contracts, in options, etc. While the gross figures are staggering, they can be adjusted down a little. For trading derivatives, there are gross positive figures which can be offset with gross negative figures.

When these offsets are applied, the result is a net credit exposure of about $1.4 trillion. While this net data is theoretically possible if all the trading contracts are held to maturity, it is plausible that many contracts will be traded before maturity. Therefore, there can be some alterations in the real world so that the exact offsetting data may not be realized. In any case, this $1.4 trillion is probably the minimum exposure the banks are faced with in derivatives. The maximum for all derivatives can be far greater depending on how the contracts are closed out (perhaps something between $1.4 trillion and a higher number that could go all the way to the $200 trillion).

There are some more aspects about this data being compiled by the OCC. First, there is data on gold and precious metals. The OCC gives the specifics on gold contracts for the five major banks just cited. At March 31, 2009, the banks were holding a total of some $117,052 million in gold contracts. Some $116,911 million of this was held by the big five banks cited (JP Morgan Chase was number one with $93 billion; interestingly Goldman Sachs was at zero though many believe that GS is big in working gold futures).

Credit Default Swaps (CDS)

There is another facet of this OCC data which really prompts this Goldsmiths. One of the items receiving attention by the OCC is $14.6 trillion in Total Credit Derivatives (OTC). While this definition includes some miscellaneous items, the bulk of this $14.6 trillion is in the form of Credit Default Swaps which the banks are heavily involved in with both the buying and selling of these instruments. Obviously, the banks do buy these instruments from dealers to protect their own bond holdings/loans receivable and it appears too that the banks are in this market selling them as well.

CDSs are essentially complex insurance products which are traded between two parties, and insure against a borrower defaulting on its debt. Such derivatives tend to be traded over-the-counter, and as such are not subject to market regulation or disclosure. Lehman Brothers and AIG both gained some fame by trading in these instruments. This cost the taxpayers some $180 billion to bail out AIG’s commitments to the big banks.

While the CDSs might make some sense in terms of persons trying to insure or protect debt they are holding as assets, it must be noted that anyone can buy one of these instruments though they are not even creditors of the stated debt. JP Morgan Chase invented this concept some years ago to allow speculation by anyone on these instruments and the underlying debt they supposedly protect.

Some of the debt covered by the CDSs is quite large as investment banks like Goldman Sachs and others have been in the business of packaging/repackaging huge amounts of mortgages and issuing bonds and Collateralized Debt Obligations to finance the packages. Some bond rating agencies have been induced to issue AAA ratings on these packages when they sometimes have been very close to being nothing but junk bonds.

In any case, many of these packaged bonds have been sold to pension funds and other agencies with some big bucks to invest. Some holders of these bonds have bought CDSs to protect their investments. And as just noted, speculators can enter the market to buy and/or sell CDSs though they are distant third parties. Since the possibility of speculation is present in these instruments, we can be sure that the Rothschild Cabal banks are heavily involved in such speculation.

While this almost $14.6 trillion figure for the US banks is hefty, the global numbers are even higher. The Bank for International Settlements gives the global total at $45 trillion. About a year ago, and especially with the flap over Lehman Brothers and AIG, there has been considerable interest in these CDSs. Even the Rothschild Cabal controlled media has had stories on the danger they pose (for example, last year both Time and Newsweek magazines had stories on this subject).

An excellent presentation on the dangers of these instruments was presented in “The Paragraph” in its article of Dec 26, 2008 on “An Inside Story of Wall Street Bank Crashes” which took note of the work of Michael Lewis’ in his Liar’s Poker which offered the inside story of the Wall Street of the 1980s and its excesses.

In a recent article, Lewis told the story of Steve Eisman, a money manager with the hedge fund Front Point Partners. By 2005, the subprime mortgage market appeared to be shaky because of the explosion in subprime mortgages and the speculation in the market. So Eisman began shorting the companies that made the subprime loans, and the companies that built the houses bought with those loans. But this work brought with it some big transaction fees.

So one day, a bond trader from Deutsche Bank, Greg Lippman, suggested that Eisman not short the companies but rather short their mortgage backed bonds. Per the story, Lippman “was selling a newly-hot product of the Wall Street investment banks — the credit default swap, where you could bet that a mortgage-backed bond would fail without ever owning the bond. So there was no real limit to how much money could be bet that way.”

Eisman checked into the idea and noted the companies making some of the worst subprime loans and bought CDSs on their mortgage backed bonds. An example was “Long Beach Financial (owned by the now-bankrupt Washington Mutual), which wrote house mortgages like this: $720,000 with no down payment to a Mexican strawberry picker, who spoke no English and made just $14,000 a year. One reason lenders made such risky loans was that Wall Street investment banks would bundle them up into bonds, run the bonds by a rating agency and get most of the bundle rated AAA (least risky) instead of BBB.” Thus, they were turning garbage into gold, per Eisman.

Later, at a conference, Eisman met one of the market managers who was glad Eisman was buying the CDSs to short the market. Per the story, banks like Deutsche Bank and Goldman Sachs were eager to sell the CDSs because they “were taking Eisman’s bet against a mortgage, and using it to create another bond just like the mortgage-backed bond, except that it was backed not by the mortgage, but by the bet.”

The essence of this story is that the big Cabal bank speculators are heavily involved in these derivatives to speculate and bet both ways on the same product to make money with the spread. Consequently, it is easy to see how this business has expanded and re-expanded many times over to reach the $200 trillion level now in the US.

The Present Concern

In any case, two stories broke on Jul 15, 2009 on government efforts to gain some publicity over supposedly caring about the CDSs and their possibilities to cause a meltdown in the US and global financial systems. The lesser of the two reports was made by the London Telegraph in a story by James Quinn that the US Dept of Justice would make an investigation of the CDS market. One of the big traders in this business is a company called Markit with $26.5 trillion of these CDSs

Per the story, “One part of the investigation is understood to focus on whether the dealers which own Markit have an unfair advantage over other players in the market. The inquiry by the DoJ is in addition to an existing investigation being carried out by Andrew Cuomo, New York State’s Attorney General, who has been looking into the market, specifically in relation to the collapse of Lehman Brothers last September. Lehman’s implosion caused the CDS market, of which it had been a major part of, to dry up, and its counter-party risk to other institutions was one of the reasons behind the run on the bank’s funds.”

The other media story concerned US Representative Maxine Waters who has introduced a bill in Congress on July 10 to ban the CDSs. Money Morning of Jul 15 had a story on the Waters’ bill. Maxine says that unless credit default swaps are banned outright, “the industry will find a way to loosen standards and widen exemptions for customized contracts and we will be right back to where we are today.”

Money Morning adds: “There are a number of product areas in which such a crash might occur, but for my money, credit default swaps top the list. That makes it crucial for us to at least rein in the derivative securities with the utmost urgency.”

This article mentions two problems with the CDSs: “First, there is no watertight way of settling credit default swaps in case of default.” And two, “holders of credit default swaps have an incentive to push companies into bankruptcy.” Per the story: “In the 1930s, short sales of stock (except on an ‘uptick’) were prohibited to prevent speculators from driving companies into bankruptcy. Well, the leverage available on CDS securities is much greater than on stock, and in the case of financial institutions, the amount of CDS outstanding is also much greater. That means speculators have correspondingly more incentive to load up on CDS and push a company into bankruptcy.”

Regardless of how it might happen, the CDSs represent financial instruments which could implode over night and bring about a collapse of the whole US financial house of cards.

The Bottom Line

The question of the Credit Default Swaps is one of the most serious today and especially since it is receiving some media and political attention from the White House and Congress. I don’t propose to suggest that anything positive will be done about the problem. But at least, it is in the discussion stage. Accordingly, the next Goldsmiths, Part XCII, will address the possibility of a further melt down of derivatives and especially if the ruling Rothschild Cabal should lose control.

As pointed out above, the purpose of this article is not to detail the specifics on how the Cabal manipulates the news, the government, the exchanges, etc in order to rip off and steal from investors. Actually, the previous Goldsmiths and writings of other persons have done this, as noted above.

But there are some valuable lessons to be learned from this data. First, it demonstrates the extent of the problem that banks face. While the big ones are taking much from the public, in the way of profit and gain, they are also on the hook for trillions more which much of is believed to be toxic and bad. I don’t propose to say for sure how much of this is bad but it is in the trillions. Because of this fact, the big banks are still scrambling on how they are going to get the people to pay off their losses (that has been the purpose of all the bail outs so far—to make the taxpayers absorb the losses and not the banks).

The next big feature of this presentation is the fact that the big banks are now some of the biggest speculators in the futures and options markets. They are clearly the biggest players in the manipulation of gold prices. We can say the same for all commodities. It is now a game for the bankers. Of course, the banks trade off and push the prices up hoping that they can unload their products on some suckers at the high prices. That’s what happens with the manipulations.

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Disclaimer: None of the above is for investment advice. It is for information purposes only.

Back issues of the Goldsmiths, by the editor of the Analysis of News, can be accessed from a Google or Yahoo search engine by typing in “R. D. Bradshaw” Goldsmiths. Several hundred web sites can be found with the back issues and with translations to Spanish, Italian, German, Chinese, Polish, Dutch and other foreign languages. Finally, the “Archives-Goldsmiths” of this website (www.analysis-news.com ) has all of the Goldsmith articles issued to date.

Besides the revelations contained in the Goldsmiths’ articles, the work of the plutocratic financial market manipulators to conspiratorially manipulate and control the financial markets (to make more profits and install a world government under their management) is also addressed at length in the periodic analysis of the news and in other articles produced at www.analysis-news.com. This website has an article of interest to any person interested in understanding the market Manipulators. It is the Hidden Secret of the Manipulators, why they succeed and how to follow their manipulations.

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