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A few years ago, when
J.P. Morgan grew their derivatives book by 12 Trillion in one quarter [Q3/07] – I did some back of the napkin math
– and figured out how many 5 and 10 year bonds the Morgue would have
necessarily had to transact on their swaps alone – if they are hedged. The bonds required to hedge the growth in
Morgan’s Swap book were 1.4 billion more in one day than what was
mathematically available to the entire domestic bond market for a whole
quarter?
Put simply, interest rate
swaps create more settlement demand for bonds than the U.S. issues.
This is why U.S. bonds
“appear” to be “scarce” – which the
bought-and-paid-for mainstream financial press explains to us is “a
flight to quality”. Better stated, it’s a “FORCED FLIGHT
[or sleight, perhaps?] TO FRAUD”.
Assertions that netting “explains”
this incongruity are a NON-STARTER. Netting generally occurs at day’s
end – the math simply does not even work intra-day.
Further Evidence of Gross Malfeasance in the U.S. Bond Market
Back in 2008, at the
height of the financial crisis, folks are reminded how the Fed and U.S.
Treasury were unsuccessful in finding a financial institution to either
acquire or merge with Morgan Stanley. Unfortunately, Morgan Stanley’s
financial condition has continued to deteriorate:
Analysis: How Morgan
Stanley sank to junk pricing
REUTERS | June 1, 2012 at 5:45 pm |
(Reuters) – The bond markets are treating Morgan Stanley like a
junk-rated company, and the investment bank’s higher borrowing costs
could already be putting it at a disadvantage even before an expected ratings
downgrade this month.
Bond rating agency Moody’s Investors Service has said it may cut
Morgan Stanley by at least two notches in June, to just two or three steps
above junk status. Many investors see such a cut as all but certain.
Many U.S. banks are at risk of a downgrade, but ratings cuts could affect
Morgan Stanley most because of the severity of the cut and because of its
relatively large trading business…..
The
“take-away” from the article above is that Morgan Stanley is not
a particularly good credit and the trajectory of their “credit”
has been “negative” for some time – particularly since the
financial crisis of 2008 when the Fed/U.S. Treasury could not find anyone
willing to acquire them. The Reuter’s scribe also pointed out something
highly relevant when she said Morgan Stanley has a “relatively large
trading business”. Let’s explore this a little bit deeper.
According to the U.S. Office of the Comptroller of the Currency [OCC] Morgan
Stanley’s derivatives book stood at 52.2 TRILLION at Dec. 31/2011. So
to say that Stanley’s trading business is “relatively
large” is perhaps a gross understatement [or maybe an intentionally
misleading statement?] – since it is currently the third largest
“known” derivatives book in the world:
 
Source: OCC
Swaps
Require/Consume Credit
In the chart above, I’d like to draw your
attention to the category SWAPS (OTC) – with are interest rate swaps
traded over-the-counter, or, not on an exchange. What is important for people
to realize is that interest rate swaps have two-way counterparty risk –
meaning both sides of the trade must have adequate/available credit lines for
each other before they can transact.
Now, with Morgan Stanley’s deteriorating
credit condition in mind – let’s take a look at how they grew
their swap position in a six month period - from Dec. 31/2010 to Jun. 30/2011:
Source: OCC
To Jun. 30/2011 – An increase of 8 TRILLION in
6 months:
Source: OCC
Ladies and gentlemen, the ENTIRE GLOBAL BANKING
COMMUNITY DOES NOT HAVE SUFFICIENT CREDIT LINES, FOR MS, TO ALLOW MORGAN
STANLEY TO GROW THEIR SWAP BOOK BY 8 TRILLION IN 6 MONTHS. Do remember, the
Federal Reserve has purview over Bank Holding Companies – so the Fed
necessarily knows “who” the other side of these trades really is
– and they are implicitly “comfortable” with the
counter-party risk.
Ergo, Morgan Stanley necessarily had a NON-BANK counterparty for this 8 Trillion increase in
the SWAPS component of their book. The counter-party for Morgan
Stanley’s swaps book is, by-and-large, the same counter-party as J.P.
Morgan, Citi, B of A and Goldman.
Now, you have to think about “WHO” or
“WHAT” would have the motivation to do this business with Morgan
Stanley et al? In light of the psychedelic, incomprehensibly large amounts of
swaps being consummated between Morgan Stanley and this
“unidentified” counterparty – it is most likely that the
counterparty is none other than the U.S. Treasury’s Exchange
Stabilization Fund [ESF] – an entity that is accountable to NO ONE,
has absolutely ZERO oversight and operates above ALL LAWS. It is HIGHLY
probable that these trades are being used as a means of undeclared stealth
bailout / recapitalization of Morgan Stanley on the public teat in conjunction
with arbitrarily controlling the long end of the interest rate curve.
It’s all about national security/preservation
of U.S. Dollar Standard. The following underscores what lengths the governing
apparatus will go to – to ensure the perpetuation of actual/perceived
U.S. Dollar hegemony:
First reported by Dawn Kopecki
back in 2006 when she reported in BusinessWeek Online in a piece titled, Intelligence Czar Can Waive SEC Rules,
"President
George W. Bush has bestowed on his [then] intelligence czar, John Negroponte,
broad authority, in the name of national security, to excuse publicly traded
companies from their usual accounting and securities-disclosure obligations.
Notice of the development came in a brief entry in the Federal Register,
dated May 5, 2006, that was opaque to the untrained eye."
What this means folks, if institutions like J.P.
Morgan, Citi, B of A, Goldman or Morgan Stanley are deemed to be integral to
U.S. National Security - can be "legally" excused from reporting
their true financial condition – including KEEPING TWO SETS OF BOOKS.
The entry in the Federal
Register is described as follows:
The memo Bush
signed on May 5, which was published seven days later in the Federal Register,
had the unrevealing title "Assignment of Function Relating to Granting
of Authority for Issuance of Certain Directives: Memorandum for the Director
of National Intelligence." In the document, Bush addressed Negroponte,
saying: "I hereby assign to you the function of the President under
section 13(b)(3)(A) of the Securities Exchange Act
of 1934, as amended."
A trip to the
statute books showed that the amended version of the 1934 act states that
"with respect to matters concerning the national security of the United
States," the President or the head of an Executive Branch agency may
exempt companies from certain critical legal obligations. These obligations
include keeping accurate "books, records, and accounts" and
maintaining "a system of internal accounting controls sufficient"
to ensure the propriety of financial transactions and the preparation of
financial statements in compliance with "generally accepted accounting
principles."
Conclusion:
The U.S. Bond market has been “gamed”
beyond belief and the only institution in the world with the means and motive to conduct this business is the U.S. Treasury [ESF]
in conjunction with/acting through the New York Federal Reserve. As such,
U.S. bond pricing and interest rates are set 100 % arbitrarily and today
represent the BIGGEST FINANCIAL HOAX
ever perpetrated on mankind.
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