Interest Rate Swaps Bankrupting Local Governments

by Ellen Brown

“The “toxic culture of greed” on Wall Street was highlighted again last week, when Greg Smith went public with his resignation from Goldman Sachs in a scathing oped published in the New York Times.  In other recent eyebrow-raisers, LIBOR rates—the benchmark interest rates involved in interest rate swaps—were shown to be manipulated by the banks that would have to pay up; and the objectivity of the ISDA (International Swaps and Derivatives Association) was called into question, when a 50% haircut for creditors was not declared a “default” requiring counterparties to pay on credit default swaps on Greek sovereign debt. 

“Interest rate swaps are less often in the news than credit default swaps, but they are far more important in terms of revenue, composing fully 82% of the derivatives trade.  In February, JP Morgan Chase revealed that it had cleared $1.4 billion in revenue on trading interest rate swaps in 2011, making them one of the bank’s biggest sources of profit.  According to the Bank for International Settlements:

[I]nterest rate swaps are the largest component of the global OTC derivative market.  The notional amount outstanding as of June 2009 in OTC interest rate swaps was $342 trillion, up from $310 trillion in Dec 2007.  The gross market value was $13.9 trillion in June 2009, up from $6.2 trillion in Dec 2007.

“Why are these swaps so popular, if they can be such a bad deal for borrowers?  Bond-Graham maintains that capitalism as it functions today is completely dependent upon derivatives.  We live in a global sea of variable interest rates, exchange rates, and default rates.  There is no stable ground on which to anchor the economic ship, so financial products for “hedging against risk” have been sold to governments and corporations as essentials of business and trade.  But this “financial engineering” is sold, not by disinterested third parties, but by the very sharks who stand to profit from their counterparties’ loss.  Fairness is thrown out in favor of gaming the system.  Deals tend to be rigged and contracts to be misleading. 

“The creation of credit has too long been delegated to a cadre of private middlemen who have flagrantly abused the privilege.  We can avoid the derivatives trap by cutting out the middlemen and creating our own credit, following the precedent of the Bank of North Dakota and many other public banks abroad.”

Insider Trading 9/11…Unresolved

By Lars Schall

A fairly long, in-depth exposition of foreknowledge in the financial markets prior to 9/11. Building on Mike Ruppert’s work in “Crossing the Rubicon”, Schall interviews Max Keiser, Jim Rickards, Catherine Fitts and Kevin Ryan and gets various public agencies on record. A bit technical in spots, but provides an essential background for understanding the machinations of these sociopaths.

“This excerpt deals in particular with the activities in put options, which occurred around Tuesday, September 11, 2001 to an abnormal extent, and at the beginning with a software that played a role here: the”Prosecutor’s Management Information System”, abbreviated PROMIS. PROMIS is a software program that seems to be fitted with almost “magical” abilities.Furthermore, it is the subject of a decades-long dispute between its inventor, BillHamilton, and various people / institutions associated with intelligence agencies,military and security consultancy firms.

“I asked the financial journalist Max Keiser, who for years had worked on Wall Street as a stock and options trader specifically about the put option trades. Keiser pointed out in this context that he “had spoken with many brokers in the towers of the World Trade Center around that time. I heard firsthand about the airline put trade from brokers at Cantor Fitzgerald days before.” He then talked with me about an explosive issue, on which Mike Ruppert elaborated in detail in “Crossing the Rubicon.”

“As far as the abnormal option trades around 9/11 are concerned, I want to giveMax Keiser the last word in order to point out the significance of the story.
 Max Keiser:
” Regardless of who did it, we can know that more than a few had advance warning – the trading in the option market makes that clear”