Bank Watch ...

[extractorfan]

Which is really weird given that we're experiencing an uptick in opportunities just now.

[Aurora]

Steve Richards - The Independent - 05/07/12

Change is in the air. Labour understands this, Tories don't

Bob Diamond's resignation is the latest vivid sign that the old order is crumbling.

Article continues ...

The old order is crumbling?

I say, steady on old boy.

[biffvernon]

I've a friend who just told me she's taken her money out of the bank and bought 4 hectares of woodland.

[emordnilap]

Derivatives in graphics.

[Tarrel]

Derivatives in graphics.

[SleeperService]

Derivatives in graphics.

A beautifully simple and shocking state of play I think. The UK numbers are just as bad and remember, the estimates are just that and will probabily revise upward in fairly short order.

[Tarrel]

I'm fairly sure I understand what a derivative is, but what do they mean by "derivative exposure"? It sounds like some form of credit risk, but what exactly?

[Little John]

I'm fairly sure I understand what a derivative is, but what do they mean by "derivative exposure"? It sounds like some form of credit risk, but what exactly?

It sounds like a derivative of a derivative which, as insane as that sounds, would not surprise me in the least if true.

[SleeperService]

Derivative Exposure is the 'value' of the bets AKA derivatives that each bank has. As most banks hold several bets on each item covered, price of oil, value of a given company's share etc. the net exposure is less than the numbers shown. How much less is a carefully guarded commercial secret and is different for each bank.

All this money is leveraged off real assets such as cash deposits and derived assests such as bundles of debt brought from another bank, (Steve's derived derivative). So for each £10 a bank holds it will bet £100. As 'assets' are traded around a Ponzi scheme results which is kept propped up by extra 'real' money coming into the system. QE is one method of doing this IF the banks don't then start betting with it, which they have. So £15 billion become £1500 billion of extra exposure.

The problem remains the same but the numbers get bigger. A good analogy is the Nuclear Arms Race. At the peak there was enough megatonnage to wipe the land and most of the sea completely clean of life several times over, but they kept adding to the stockpiles.

At the moment we're watching governments doing the same thing financially. At the moment these 9 banks can wipe the Global DP out three times over. A few weeks ago it needed the top 10.....

[Little John]

Derivative Exposure is the 'value' of the bets AKA derivatives that each bank has. As most banks hold several bets on each item covered, price of oil, value of a given company's share etc. the net exposure is less than the numbers shown. How much less is a carefully guarded commercial secret and is different for each bank.

All this money is leveraged off real assets such as cash deposits and derived assests such as bundles of debt brought from another bank, (Steve's derived derivative). So for each £10 a bank holds it will bet £100. As 'assets' are traded around a Ponzi scheme results which is kept propped up by extra 'real' money coming into the system. QE is one method of doing this IF the banks don't then start betting with it, which they have. So £15 billion become £1500 billion of extra exposure.

The problem remains the same but the numbers get bigger. A good analogy is the Nuclear Arms Race. At the peak there was enough megatonnage to wipe the land and most of the sea completely clean of life several times over, but they kept adding to the stockpiles.

At the moment we're watching governments doing the same thing financially. At the moment these 9 banks can wipe the Global DP out three times over. A few weeks ago it needed the top 10.....

F*ck me man...you've got to laugh.

As for the derivatives;

Am I right in making a tentative assumption that for every bet in one direction, there is a commensurate bet in the opposite direction that has been taken out by a counter party? A bit like a commodity futures contract, which is a kind of leveraged derivative itself?

Or have I got that completely wrong

[SleeperService]

F*ck me man...you've got to laugh.

As for the derivatives;

Am I right in making a tentative assumption that for every bet in one direction, there is a commensurate bet in the opposite direction that has been taken out by a counter party? A bit like a commodity futures contract, which is a kind of leveraged derivative itself?

Or have I got that completely wrong

No you've got that completely right. But as these bets are bundled up and traded one party can end up with both opposing bets which can both be declared as an asset

While the other party can get shot of what they feel is the losing bet the resulting reduced liability can be treated as an addition to the assets

Thus two equal and opposite bets one potentially an asset and one a liability can end up as three assets. Which can then be leveraged again and again and again...

Someday somebody will write a book about what's been going on and nobody will believe it.

[Tarrel]

I'm having trouble believing it now!

[Tarrel]

Thanks for the explanation though, Sleeper

[Aurora]

Polly Toynbee - The Guardian - 05/07/12

The Barclays ethos infects our culture. Purge the entire board

The bank's directors sit on so many institutions that banning them all would send a healthy shock wave through the City.

Article continues ...

[biffvernon]

Excellent piece from Polly Toynbee.