More Events Regarding Derivatives

The headlines buried how AIG has more massive potential losses on their CDS portfolios.


According to AIG, the risk factor includes a super senior CDS portfolio with a net notional amount of $192.6 billion of AIG Financial Products Corp. and AIG Trading Group Inc. and their respective subsidiaries, collectively known as AIGFP, as of March 31, 2009. The portfolio represented derivatives written for financial institutions, principally in Europe, for the purpose of providing regulatory capital relief rather than for arbitrage purposes. The fair value of the derivative liability for these CDS transactions was $393 million at March 31, 2009.

If the credit markets continue to deteriorate, AIG may recognize unrealized market valuation losses in AIGFP's CDS portfolio in future periods which could have a material adverse effect on the company's consolidated financial condition or consolidated results of operations. Moreover, the period of time that AIGFP remains at risk for such deterioration could be significantly longer than anticipated, if AIGFP's expectations with respect to the termination of transactions in its regulatory capital portfolio do not materialize, AIG said in the filing.

Meanwhile India's biggest aluminum producer just got burned badly on derivatives, with a total loss of 80%.

Hindalco Industries Ltd., India’s biggest aluminum producer, reported an 80 percent decline in full-year profit because of waning demand, higher raw material costs and derivatives losses.

Now note this move, BNY Mellon makes minority investment in International Derivatives Clearing Group

The Bank of New York Mellon Corp. said Tuesday it has made a strategic minority investment in International Derivatives Clearing Group, an independently-operated NASDAQ OMX subsidiary.

IDCG serves as a designated clearing organization for clearing and settling interest rate swap contracts and other fixed income derivatives contracts. Financial details were not disclosed.

BNY Mellon (NYSE:BK), based in New York City, is Pittsburgh’s second largest bank according to deposits. It is a global financial services company focused on helping clients including institutions, corporations and high net worth individuals manage and service financial assets. BNY Mellon operates in 34 countries.

As part of the transaction, IDCG will utilize BNY Mellon’s securities servicing products, enabling both firms to better address current regulatory and infrastructure challenges.

“This strategic partnership with NASDAQ OMX provides our buy side and sell side clients with a flexible platform that meets their derivatives trading, clearing and servicing needs,” BNY Mellon President Gerald Hassell said in a statement.

NASDAQ OMX CEO Bob Greifeld said in a statement that the transaction “reduces credit risk in the large (over-the-counter) interest rate swap market” and “lends support to President Obama’s proposed reforms of the OTC derivatives market.”

I can't quote it but caught a little blurb on CNBC on how the derivatives market should grow and expand.

Subject Meta: 

Forum Categories: 

Derivatives & Securitization, part deux

I can't help tying this back to Matt Taibbi's superlative article on GS in July's Rolling Stone and his mention of Al Gore's $5 billion investment (hedge) fund, Generation Investment Management.

Whether it was Poindexter's futures market on Terrorism, or Gore's futures market on cap-and-trade, etc., it's still the same thing: financial engineering to create wealth for them, at the citizenry's expense, while accomplishing nothing. The energy expenditure alone with yet a new securitization (and derivatives) market with regard to cap-and-trade legislation will negate any miniscule environmental restrictions and improvements.

This is one colossal joke - and both Gore and Poindexter should now be buying heavily in the Karma Offsets market.

You must have Javascript enabled to use this form.


North Dakota has had a state-owned bank since 1919 and all revenues are deposited into it by legilative mandate. They observe normal capitalization ratios and obviously do not engage in any form of derivative speculation or leveraging (like G.S. 1000 to 1 insanity).

If all states followed this model, they could lend to themselves at 10:1 to fund infrastructure and social services.
The current 47 bankrupt states would solve their budget deficit with money to spare.

Then maybe the Federal Reserve would get a clue that we're on to them.
Otherwise, all this ranting and raving about trying to fix the mindset of the economic imperials and Capital Hill, which are one in the same, is for naught.

You must have Javascript enabled to use this form.

ND state owned bank

I never even heard of this, would be interesting to find out the specifics, expand this comment some more (you can create an account to post). Welcome to EP!

You must have Javascript enabled to use this form.

I thought we had an Instapopulist

On this a while back. I must admit, it was within the last three months I learned about it myself. Wikipedia has a nice set of linked articles on the history on The Bank of North Dakota, but today they're mainly providing the services of a FED to the people of North Dakota. They're the lender of last resort- though usually they'll just buy out points on your business loan. They clear checks- Kansas being deemed too far away. They guarantee student loans. They have an account with the Federal Reserve- but they don't pay FDIC insurance, their deposits being guaranteed by the state legislature.

I'd personally like to see their example used in an anti-trust lawsuit to break up the federal reserve into 50 similar banks.

Maximum jobs, not maximum profits.

You must have Javascript enabled to use this form.

Maximum jobs, not maximum profits.