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Bill Gross: "Pyramids Crumbling" - Modern Banks Are a Pyramid Scheme of Leverage
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This Link is located in the Public Channel Housing Bubble and Bear Links.
Posted by ian 2 years 26 days ago (pimco.com). Views: 1,956
Tags: housing bubble bill gross |
| Related Tags: credit crisis gold wall street peter schiff economics inflation banks |
Our modern shadow banking system craftily dodges the reserve requirements of traditional institutions and promotes a chain letter, pyramid scheme of leverage, based in many cases on no reserve cushion whatsoever. Financial derivatives of all descriptions are involved but credit default swaps (CDS) are perhaps the most egregious offenders. While margin does flow periodically to balance both party’s accounts, the conduits that hold CDS contracts are in effect non-regulated banks, much like their hedge fund brethren, with no requirements to hold reserves against a significant "black swan" run that might break them. Jimmy Stewart—they hardly knew ye! According to the Bank for International Settlements (BIS), CDS totaling $43 trillion were outstanding at year end 2007, more than half the size of the entire asset base of the global banking system. Total derivatives amount to over $500 trillion, many of them finding their way onto the balance sheets of SIVs, CDOs and other conduits of their ilk comprising the Frankensteinian levered body of shadow banks.
While the exact amount of reserves supporting the Bank of Shadows is undeterminable, let’s go back to the $45 trillion BIS estimate of outstanding CDS for more insight. If total investment grade and junk bond defaults approach historical norms of 1¼% in 2008 (Moody’s and S&P forecast something close) then $500 billion of these default contracts will be triggered resulting in losses of $250 billion or more to the "protection selling" party once recoveries are inserted into the equation.
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ian said |
| 1 year 359 days ago |
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Bank "Joke"
I can still talk to young business people who after jumping through hoops for banks to get loans have some junior college twerp banker blow them off by saying their business isn't up to (their banks) standards or some such nonsense. Since I have been in business I have had four banks go under (industry term "merge" see: Bear Stearns) I tell these young people you have to now enter conversations with a bank asking them if THEY will still be in business during the term of the loan. I often bring up (in business since 1971) how many banks I have dealt with that have gone OUT OF BUSINESS. Man do they squirm! They get all blustery and toss out safety catch phrases like " Oh NOooo they Merged" blah blah blah. reference The American Bank, First Union, First Florida to mention a few. These guys folded during the "boom" times.... Watch Watchovia.....Watch Nationsbank.
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ian said |
| 1 year 362 days ago |
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bio for Bill Gross
http://en.wikipedia.org/wiki/William_H._Gross
Gross is one of the world's largest mutual fund managers, focusing mostly on bonds. Called "the nation's most prominent bond investor" by the New York Times, he manages Pacific Investment Management's Total Return fund (the world's largest bond fund and fifth largest mutual fund) and several smaller ones.
According to the Forbes 400 in 2007, he is the 380th richest person in America, with a net worth of $1.3 billion.
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