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On December 29,
2009 The New York Post [josh.kosman@nypost.com] published an article titled, Deep in derivatives, where scribe Josh Kosman ‘took-a-shot’ at
explaining the ABSURDITY of the bind boggling derivatives positions amassed
by financial behemoths such as J.P. Morgan Chase and Goldman Sachs. In
an attempt to explain how dangerously systemically-interconnected derivatives
makes ALL banks, Kosman began;
“The amounts are so large that if the swaps and other
derivative contracts the banks broker go bad because the parties on either
side of the deal collapse, the banks could be in trouble.”
Kosman then goes
on with some very superficial analysis of the latest Office of the
Comptroller of the Currency’s, Quarterly Derivatives Report, attempting
to scope out the magnitude of the excesses;
“As of Sept. 30,
Goldman posted $42 billion in derivatives and had $115 million in assets.
JPMorgan brokered $79
billion in derivatives against $1.7 billion in assets as of Sept. 30.”
Finally,
Kosman speaks of ‘a source’ close to Goldman who allegedly said
or told him,
“ [the] numbers
[in the Quarterly Derivative Report] include only Goldman Sachs [Commercial]
Bank, and not the larger holding company Goldman Sachs Group, so the entire
firm has less risk than it appears to in the OCC report. Goldman's investment
banking is handled outside the federally insured Goldman Sachs Bank.
Factual
Inaccuracies
First,
Kosman states and characterizes the institutions involved in these
derivatives trades as “brokers” when, in fact, they participate
as PRINCIPALS. The amount of risk involved when one trades as a principal is
materially larger than when one acts as a broker or agent. Of course,
if Kosman had bothered to read the rest of the Report, he would have known
that these trade COULD NOT HAVE BEEN BROKERED because the report tells us
there are empirically NO END USERS FOR THESE PRODUCTS:
 
source: OCC Quarterly
Derivatives Report, Pg. 9 of 33
Second,
Kosman reports that J.P. Morgan and Goldman Sachs reported their outstanding
derivatives positions as 42 and 79 Billion respectively. THIS IS
WRONG. The real amounts are measured in TRILLIONS. Maybe Mr.
Kosman cannot conceive of the ABSURDITY of these institutions have
proprietary positions in the TRILLIONS and thought it was a typo?
And
finally, Mr. Kosman reported the derivatives holdings of J.P. Morgan and
Goldman Sachs at the Commercial Bank level while citing “a
source” close to Goldman who seemingly had knowledge of “larger
positions” held at the Holding Company level. Once again, if Mr.
Kosman had actually read the OCC Report, he would not have needed to obtain
such information from “sources close to Goldman” – he would
have spotted the aggregate derivatives reported at the Holding Company level
in the same OCC Report on the very next page [Pg. 23]:
source: OCC Quarterly
Derivatives Report Pg. 23
Putting
aside the notion that Mr. Kosman “missed” the larger point that
we actually get some visibility on the constituent parts of the derivatives
reported at the Commercial Bank Level and we get ABSOLUTELY ZERO breakout on
the TRILLIONS of AGGREGATES presented as a lump-sum at the Holding Company
Level - I
bring all of this up for another very good reason which seems to have escaped
our beloved Mr. Kosman: Namely, the ABSURD amounts of derivatives these
financial behemoths are swinging around – absent ANY OBSERVABLE END
USERS – are CLEARLY being used for the expressed purpose of controlling
/ rigging Interest Rates, Currencies as well as Metals and other Commodities
Prices – for the simple reason that THERE’S NOTHING ELSE THAT IT
COULD BE.
The
ABSURDITY of it all is so very clearly demonstrated in Mr. Kosman’s
inability to grapple with the scope of the numbers in front of his own eyes
– tens and hundreds of TRILLIONS not BILLIONS.
Rob Kirby
KirbyAnalytics.com
Also
by Rob Kirby
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