JPMorgan Chase’s derivatives spike by $14 trillion in first quarter to a six year high to $60 trillion

A Citizen Guide to Wall Street presents us with an alarming report penned by Pam Martens and Russ Martens:

Add JPMorgan Chase, the biggest bank in the United States with an unprecedented five criminal felony counts since 2014, to the growing list of debacles of which the Fed has lost control.

The Fed has its bank examiners pouring over the books of JPMorgan Chase on an ongoing basis, but somehow the bank’s dangerous book of derivatives has been allowed to spike by $14.42 trillion in the first quarter of this year, soaring from $45.84 trillion on December 31, 2021 to $60.26 trillion on March 31, 2022. That’s an increase of 24 percent in a three-month span. That information comes from page 18 of the newly-released report on derivatives in the banking system from the Office of the Comptroller of the Currency (OCC).

The Dodd-Frank Act of 2010 was supposed to stop the insanity of unfathomable amounts of risky derivatives being held at federally-insured banks. Under the so-called “push-out” rule in Dodd-Frank, derivatives were supposed to be moved out of the federally-insured bank to other parts of the bank holding company so that they could be wound down in a bankruptcy proceeding without endangering the federally-insured bank. Citigroup and its lobbyists succeeded in getting that provision repealed in a sneak maneuver in December 2014.

Then there was Dodd-Frank’s promise that all of these dangerous derivatives would become centrally-cleared in short order instead of being opaque over-the-counter contracts with bespoke (custom) terms that regulators and the public could not make heads or tails of. Well, that didn’t happen either. The current OCC report tells us that 71 percent of JPMorgan Chase’s equity derivatives are not centrally cleared; 100 percent of its precious metals contracts are not centrally cleared; and 96 percent of its foreign exchange derivative contracts are not centrally cleared.

The Fed and its fellow regulators deserve a grade of F for brazenly ignoring the intent of Congress when it passed the Dodd-Frank Act in 2010. Twelve years after its passage, dangerous derivatives are still not centrally cleared and instead of shrinking, their quantities and threat to financial stability are growing.

According to the official report from the Financial Crisis Inquiry Commission, which was statutorily mandated to investigate and report on the Wall Street financial collapse of 2008, derivatives played a central role in the crash. The report summarized its findings as follows:

“We conclude over-the-counter derivatives contributed significantly to this crisis. The enactment of legislation in 2000 to ban the regulation by both the federal and state governments of over-the-counter (OTC) derivatives was a key turning point in the march toward the financial crisis…without any oversight, OTC derivatives rapidly spiraled out of control and out of sight, growing to $673 trillion [globally] in notional amount. This report explains the uncontrolled leverage; lack of transparency, capital, and collateral requirements; speculation; interconnections among firms; and concentrations of risk in this market. OTC derivatives contributed to the crisis in three significant ways.

“First, one type of derivative—credit default swaps (CDS)—fueled the mortgage securitization pipeline. CDS were sold to investors to protect against the default or decline in value of mortgage-related securities backed by risky loans. Companies sold protection—to the tune of $79 billion, in AIG’s case—to investors in these newfangled mortgage securities, helping to launch and expand the market and, in turn, to further fuel the housing bubble.

“Second, CDS were essential to the creation of synthetic CDOs. These synthetic CDOs were merely bets on the performance of real mortgage-related securities. They amplified the losses from the collapse of the housing bubble by allowing multiple bets on the same securities and helped spread them throughout the financial system. Goldman Sachs alone packaged and sold $73 billion in synthetic CDOs from July 1, 2004, to May 31, 2007…

“Finally, when the housing bubble popped and crisis followed, derivatives were in the center of the storm. AIG, which had not been required to put aside capital reserves as a cushion for the protection it was selling, was bailed out when it could not meet its obligations. The government ultimately committed more than $180 billion because of concerns that AIG’s collapse would trigger cascading losses throughout the global financial system. In addition, the existence of millions of derivatives contracts of all types between systemically important financial institutions—unseen and unknown in this unregulated market—added to uncertainty and escalated panic, helping to precipitate government assistance to those institutions.”

Read the rest of it there.

They are looting the system of everything they can before it crashes and they bug out leaving John Q. Public holding the bag.  Remember this from last week?

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