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Geithner's Dirty Secret: Five U.S. Banks hold 81% of the total net credit risk exposure in event of default.

Posted by Gabrielle Cusumano on Friday, April 03, 2009 11:45:54 AM
JPMorgan Chase holds a staggering $88 trillion in derivatives; Bank of America with $38 trillion, and Citibank with $32 trillion. Number four in the derivatives sweepstakes is Goldman Sachs, with a mere $30 trillion in derivatives; number five, the merged Wells Fargo-Wachovia Bank, drops dramatically in size to $5 trillion. Number six, Britain's HSBC Bank USA, has $3.7 trillion. "

Geithner's dirty little secret
By F William Engdahl   Excerpted from: http://www.atimes.com/atimes/Global_Economy/KD03Dj02.html
 
US Treasury Secretary Tim Geithner, in unveiling his long-awaited plan to put the US banking system back in order, has refused to tell the dirty little secret of the present financial crisis. By refusing to do so, he is trying to save de facto bankrupt US banks that threaten to bring the entire global system down in a new more devastating phase of wealth destruction.
 

The "dirty little secret" that Geithner is going to great degrees to obscure from the public is very simple. There are only at most perhaps five US banks that are the source of the toxic poison causing such dislocation in the world financial system. What Geithner is desperately trying to protect is that reality. The heart of the present problem, and the reason ordinary loan losses are not the problem as in prior bank crises, is a variety of exotic financial derivatives, most especially credit default swaps.

In the Bill Clinton administration of 2000, the Treasury secretary was Larry Summers, who had just been promoted from number two under former Goldman Sachs banker Robert Rubin to be number one when Rubin left Washington to take up the post of Citigroup vice chairman. As I describe in detail in my new book, Power of Money: The Rise and Fall of the American Century, to be released this summer, Summers convinced president Clinton to sign several Republican bills into law that opened the floodgates for banks to abuse their powers. The fact that the Wall Street big banks spent some US$5 billion in lobbying for these changes after 1998 was likely not lost on Clinton.

One significant law was the repeal of the 1933 Depression-era Glass-Steagall Act, which prohibited mergers of commercial banks, insurance companies and brokerage firms such as Merrill Lynch or Goldman Sachs. A second law backed by Treasury secretary Summers in 2000 was an obscure but deadly important Commodity Futures Modernization Act of 2000. That law prevented the responsible US government regulatory agency, Commodity Futures Trading Corporation (CFTC), from having any oversight over the trading of financial derivatives. The new CFMA law stipulated that so-called over-the-counter (OTC) derivatives like credit default swaps, such as those involved in the AIG insurance disaster, (and which investor Warren Buffett once called "weapons of mass financial destruction"), be free from government regulation.

At the time Summers was busy opening the floodgates of financial abuse for the Wall Street Money Trust, his assistant was none other than Tim Geithner, the man who today is US Treasury Secretary, while Geithner's old boss, the self-same Summers, is President Obama's chief economic adviser as head of the White House Economic Council. To have Geithner and Summers responsible for cleaning up the financial mess is tantamount to putting the proverbial fox in to guard the henhouse.

What Geithner does not want the public to understand, his "dirty little secret", is that the repeal of Glass-Steagall and the passage of the Commodity Futures Modernization Act in 2000 allowed the creation of a tiny handful of banks that would virtually monopolize key parts of the global "off-balance sheet" or OTC derivatives issuance.

Today, five US banks, according to data in the just-released Federal Office of Comptroller of the Currency's Quarterly Report on Bank Trading and Derivatives Activity, hold 96% of all US bank derivatives positions in terms of nominal values, and an eye-popping 81% of the total net credit risk exposure in event of default.

The top three are, in declining order of importance: JPMorgan Chase, which holds a staggering $88 trillion in derivatives; Bank of America with $38 trillion, and Citibank with $32 trillion. Number four in the derivatives sweepstakes is Goldman Sachs, with a mere $30 trillion in derivatives; number five, the merged Wells Fargo-Wachovia Bank, drops dramatically in size to $5 trillion. Number six, Britain's HSBC Bank USA, has $3.7 trillion.

After that the size of US bank exposure to these explosive off-balance-sheet unregulated derivative obligations falls off dramatically. Continuing to pour taxpayer money into these five banks without changing their operating system, is tantamount to treating an alcoholic with unlimited free booze.

The government bailout of AIG, at more than $180 billion so far, has primarily gone to pay off AIG's credit default swap obligations to counterparty gamblers Goldman Sachs, Citibank, JP Morgan Chase and Bank of America, the banks who believe they are "too big to fail". In effect, these institutions today believe they are so large that they can dictate the policy of the federal government. Some have called it a bankers' coup d'etat. It definitely is not healthy.

Geithner and Wall Street are desperately trying to hide this dirty little secret because it would focus voter attention on real solutions. The federal government has long had laws in place to deal with insolvent banks. The Federal Deposit Insurance Corporation (FDIC) places the bank into receivership, its assets and liabilities are sorted out by independent audit. The irresponsible management is purged, stockholders lose and the purged bank is eventually split into smaller units and when healthy, sold to the public. The power of the five mega banks to blackmail the entire nation would thereby be cut down to size. Ooohh. Uh Huh?

This is what Wall Street and Geithner are frantically trying to prevent. The problem is concentrated in these five large banks. The financial cancer must be isolated and contained by a federal agency in order for the host, the real economy, to return to healthy function. (continue lengthy article at link)Excerpted and more at Asian Times at: http://www.atimes.com/atimes/Global_Economy/KD03Dj02.html


Hedge fund pays Obama Advisor Larry Summers $5.2 Million in Compensation 

WASHINGTON, April 3 (Reuters) - Lawrence Summers, a top economic adviser to U.S. President Barack Obama, was paid about $5.2 million in compensation by hedge fund D.E. Shaw during the past year, according to financial disclosure forms released on Friday by the White House.

Officials from D.E. Shaw were not immediately available for comment. Summers, a former U.S. treasury secretary, was a part-time managing director of the firm after stepping down as president of Harvard University.

Summers was also paid hundreds of thousands of dollars in speaking fees from major Wall Street firms and financial institutions, including JP Morgan (JPM.N), Citigroup (C.N), Goldman Sachs (GS.N) and Lehman Brothers, the forms showed.

________________________________________________________________________________________________________
TOP TEN U.S. HEDGE FUND FIRMS** (JANUARY 2009)
Firm
AUM ($ billions)
Bridgewater Associates
$38.60
JPMorgan
$32.90
Paulson & Co.
$29.00
D. E. Shaw Group
$28.60
Och-Ziff Capital Management
$22.10
Soros Fund Management
$21.00
Goldman Sachs Asset Management
$20.60*
Farallon Capital Management
$20.00
Renaissance Technologies
$20.00
Barclays Global Investors
$17.00*
Source: Absolute Return
Unless noted otherwise, all asset figures are as of January 1, 2009.
* as of December 31
** the full Billion Dollar Club appears in Absolute Return’s March issue.
Press Release: TOP HEDGE FUND ASSETS DECLINE MORE THAN 32% IN 2008’S SECOND HALF
March 4, 2009
Page 3 of 3
How this survey differs from others
It’s a starting point:
The Absolute Return Billion Dollar Club is the only survey of hedge fund assets in the Americas
that bases its conclusions on a list of all firms known to posses $1 billion or more in hedge fund
assets. The Billion Dollar Club’s totals should necessarily be considered a baseline for the assets of
the U.S. hedge fund industry, as there are myriad firms that are not included in the list because
their assets do not reach the $1 billion threshold. HedgeFund Intelligence produces similar
surveys for Asia and Europe that are combined every six months into our Global Review, which
will be released shortly.
It contains fresh information:
The Billion Dollar Club, whenever possible, bases firm asset totals on January 1 data, which
includes the most recent redemptions and allocations, thereby making the survey more current
and accurate than those focusing on December 31 numbers. In instances where only December
31 data is available, it has been specifically noted in the survey.
About Absolute Return
Absolute Return is the leading source of U.S. hedge fund news and information, featuring
proprietary data and analysts on more than 2,600 U.S. single-manager hedge funds. Absolute
Return, a monthly magazine, and the Absolute Return Directory and Database are divisions of
HedgeFund Intelligence, the biggest provider of hedge fund news and data in the world with the
largest and most knowledgeable editorial and research teams of any hedge fund information
provider. We supply data on over 8,600 funds and comprehensive news and analysis from across
the globe. For more information, please visit www.hedgefundintelligence.com/ar.
##ENDS##
Notes:
About Absolute Return and HedgeFund Intelligence
For more information contact:
Media Contact:
Armel Leslie, Walek & Associates
212.590.0530, aleslie@walek.com
Carolyn Sargent
Deputy Editor, Absolute Return
212.224.3565, csargent@absolutereturn.net
File Format: PDF/Adobe Acrobat - View as HTML
Mar 4, 2009 ... state managing $96 billion. TOP TEN U.S. HEDGE FUND FIRMS** (JANUARY 2009). Firm. AUM ($ billions). Bridgewater Associates. $38.60. JPMorgan ...
www.hedgefundintelligence.com/images/590/.../Billion%20Dollar%20Hedge%20Fund%20Club%20-...

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Treasury Dept. on an unknown search (info via sitemeter.com)
Domain Name   treas.gov ? (U.S. Government)
IP Address   63.167.255.# (Sprint)
ISP   Sprint

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