Full story here. Don’t wait for “Helicopter Ben” to circle your house. Trade with ShadowTraders, make your money and keep it.
“…Fed chairman Ben Bernanke has moved with breathtaking speed to contain the crisis. Last Sunday night, he resorted to the “nuclear option”, invoking a Depression-era clause – Article 13 (3) of the Federal Reserve Act – to be used in “unusual and exigent circumstances”.
The emergency vote by five governors allows the Fed to shoulder $30bn of direct credit risk from the Bear Stearns carcass. By taking this course, the Fed has crossed the Rubicon of central banking.
To understand why it has torn up the rule book, take a look at the latest Security and Exchange Commission filing by Bear Stearns. It contains a short table listing the broker’s holding of derivatives contracts as of November 30 2007.
Bear Stearns had total positions of $13.4 trillion. This is greater than the US national income, or equal to a quarter of world GDP – at least in “notional” terms. The contracts were described as “swaps”, “swaptions”, “caps”, “collars” and “floors”. This heady edifice of new-fangled instruments was built on an asset base of $80bn at best.
On the other side of these contracts are banks, brokers, and hedge funds, linked in destiny by a nexus of interlocking claims. This is counterparty spaghetti. To make matters worse, Lehman Brothers, UBS, and Citigroup were all wobbling on the back foot as the hurricane hit.
“Twenty years ago the Fed would have let Bear Stearns go bust,” said Willem Sels, a credit specialist at Dresdner Kleinwort. “Now it is too interlinked to fail.”…”
Â You know, if I went around trying to sell my house to more than one party, it’d be called fraud. And we already have a regulatory mechanism in place called a title company to make sure that ownership can be verified and transfered properly. This is why I can’t make $4 million from my humble home. Not so with these dear banks. The regulatory party was eliminated (too many messy questions), and thru the miracle of structured investment vehicles they sold the same crap over and over. Oh, and they could sell it to grandad’s retirement fund because they had the ratings agencies in their pocket too. Oh, for the chance to grease someone at the credit bureau who’ll swear on a stack of balance sheets that my FICO score is 850 and my “stated income” is around $3 million. Just to finish this scenario, the feds find me doing this, but since I’m doing it with all of my friends (some of whom happen to be the fed guys bosses) I won’t be allowed to fail and the feds will trade my SIV certificates for $4 million. Such a deal!