Tag Archives: Credit Default Swaps

Financial Products, Clip from Inside Job Documentary (2010)



Collateralized Debt Obligations, Credit Default Swaps, Securitization Food Chain, AIG, The failure of AIG, Sub Prime Mortgages

Credit-Default Swap Settlement Against 12 Banks Approved

(CN) – A federal judge on Thursday approved a historic $1.86 billion settlement of claims that 12 banks colluded to obfuscate the credit-default-swap market.
U.S. Judge Denise Cote’s preliminary stamp of approval comes nearly a full month after class counsel announced the massive deal with Bank of America, Barclays, BNP Paribas, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JPMorgan Chase, Morgan Stanley, Royal Bank of Scotland and UBS.
Quinn Emanuel Urquhart & Sullivan and Pearson, Simon & Warshaw represented 10 plaintiffs led by a Los Angeles retirement fund that accused the banks of conspiring to prevent exchange trading of credit default swaps “at secret meetings and through telephone and email communications.”
As further alleged, the banks agreed to work only with the single clearinghouse they controlled and imposed rules to restrict trading to their own benefit.
Investigations by the U.S. Justice Department and the European Commission ensued when The New York Times blew the lid on the secret meetings in 2010.
Cote rejected an attempt by the banks to dismiss the lawsuit last year.
Though the banks claimed that their behavior was “self-interested conduct in reaction to the global financial crisis,” Cote was skeptical.
“The financial crisis hardly explains the alleged secret meetings and coordinated actions,” she wrote.

Read on.

Is The CDS Market Manipulated?


From Joshua Rosner of Graham Fisher

Credit Event, Or Not? Is Another Market Being Manipulated? (pdf)

As investors and market participants become increasingly aware of the regulatory failures that allowed for manipulation of LIBOR, FOREX, municipal bond bidding and certain commodities markets, regulatory sources are increasingly expressing concern that they have paid too little attention to potential manipulations of an arguably larger, more systemically important and less regulated market – the CDS market as self-governed, through ‘regulatory license’, by the International Swaps and Derivatives Association (ISDA).

It appears regulators are now turning their attention toward the CDS market, its problematic self-regulatory structure, the myriad of conflicts of interest, the potential avenues for manipulation by large dealers and the opaque and potentially self-serving manner in which determinations of “credit events” are privately decided by ISDA’s Determinations Committees (DCs). A growing volume of news stories, the publication of several new academic papers, the reversal of Dodd-Frank’s “Push-Out” rule which would have forced banks to move their derivatives out of the depository, and the DCs’ handling of several recent questions have only served to increase regulatory concerns and cause some to point out numerous similarities between the various manipulation scandals, the possibility of manipulations in the CDS market and the implications to the global economy.

Source: Dan Awrey

Big Banks Manipulated $21 Trillion Dollar Market for Credit Default Swaps (and Every Other Market)

Derivatives Are Manipulated.

Runaway derivatives – especially credit default swaps (CDS) – were one of the main causes of the 2008 financial crisis. Congress never fixed the problem, and actually made it worse.
The big banks have long manipulated derivatives … a $1,200 Trillion Dollar market.
Indeed, many trillions of dollars of derivatives are being manipulated in the exact same same way that interest rates are fixed (see below) … through gamed self-reporting.
The criminality and blatant manipulation will grow and spread and metastasize – taking over and killing off more and more of the economy – until Wall Street executives are finally thrown in jail.
It’s that simple …

Submitted by Washington’s Blog

Big banks face CDS lawsuit

It’s about time….

Investors may pursue a lawsuit accusing 12 major banks of violating antitrust law by fixing prices and restraining competition in the roughly $21 trillion market for credit default, an article in Reuters said.

While dismissing part of the case, U.S. District Judge Denise Cote said investors may press claims that the defendants’ Sherman Act violations caused them to pay unfair prices on CDS trades from the autumn of 2008 through the end of 2013, even as improved liquidity should have driven costs down.

“The complaint provides a chronology of behavior that would probably not result from chance, coincidence, independent responses to common stimuli, or mere interdependence,” Cote said.

According to the article, the defendants include Bank of America (BAC), Barclays, BNP Paribas, Citigroup (C),Credit Suisse Group (CS), Deutsche Bank (DB) , GoldmanSachs (GS), HSBC Holdings (HSB), JPMorgan Chase(JPM), Morgan Stanley (MS), Royal Bank of Scotland Group (RBS) and UBS AG (UBS).

Source: Reuters

JP Morgan credit default swaps creator Blythe Masters’ ex-husband launches offshored bitcoin hedge fund

We learn from Newsweek that:


Daniel Masters, a 50-year-old veteran commodities trader, started working for some of the largest companies in the world right out of university, trading in London, New York and Zug, Switzerland, for JPMorgan Chase and Phibro before moving on to the New York Mercantile Exchange, a short walk from Wall Street. By all appearances, it was your standard Wall Street career.


Then, in 2008, he moved to a tiny island off the coast of France called Jersey, which this week opened its doors to the island’s first fully regulated Bitcoin hedge fund—run by none other than Masters himself—as part of a push to create a nascent Silicon Valley in the heart of the English Channel, replete with government-funded entrepreneurial hubs and startup accelerators.


No sooner did word of the offshore Bitcoin fund get out than Reddit spluttered to life, devoting two pages, here and here, to debating whether the virtual currency’s baby steps into the institutional investing realm is really good news or bad news for Bitcoin, whose meteoric rise has thus far been mostly successful in eschewing traditional finance.


Masters, co-principal of Global Advisors Jersey Ltd.—which trades up to $2 billion of energy and equities—is the latest of a handful of fund managers trotting out new Bitcoin investment funds in recent months, as investors clamor for innovative ways to skim the froth off the digital currency’s impressive, if often unpredictable, price pops and drops and, occasionally, collapses.


He believes Bitcoin’s prices will stabilize as the currency and technology mature—similar to what has happened over the past decade with oil—but in the meantime, he estimates the value of Bitcoin could rise to $2,000 or more. “Right now, Bitcoin has about 1,000 percent annualized volatility,” he says. “Compare that to oil at 15 to 20 percent and stocks at 10 to 15 percent.” In other words, the potential upside, in the eyes of an experienced trader, are too appealing to resist.


Speaking from CoinSummit in London, Simon Hamblin, CEO of Netagio, a year-old U.K. company that specializes in secure Bitcoin storage and is a custodian for the Bitcoin fund being launched by Masters, says any fund must take numerous precautions to guard against the loss of Bitcoins. “We keep our Bitcoin in cold storage, in different forms both physical and media, and always keep it offline, heavily encrypted and in multiple locations,” he told Newsweek.


This week, Netagio, based in the Isle of Man—a Crown dependency, like Jersey—announced the debut of a London-based Bitcoin exchange that will allow individuals to trade Bitcoin against the British pound and gold. Netagio spun off this spring from Jersey’s GoldMoney Network Ltd., which stores $1.4 billion of metals in five undisclosed locations for clients across Europe.

Argentina default could hurt JP Morgan and Citigroup, will be recovered from their pockets


  • Argentina’s expected default will be recovered from the pockets of Citigroup and JP Morgan, the CDS writers.
  • If the U.S. court’s ruling is fully enacted upon by the Argentinean government, a series of default will begin.
  • Citigroup failed the stress test of Fed; a red flag for the current and prospective shareholders.
  • Flawed mortgage securities issued in the past continue to teach a lesson to the big banks like Citigroup, Bank of America etc.
  • Risk management continues to be a serious issue for the group and requires urgent attention.

The epitome of a global bank, Citigroup Inc. (C), seems to be in a lot of trouble these days as it continues to get hit from every end. Although the bank is consistently working on ameliorating the efficiency of its core operations, the decisions made six to eight years ago continue to haunt the group with the ceaseless repercussions.

Read on.

Big Banks Slam the Brakes on Public Transit

Dale Burnett stood in the lobby of a Chase bank in downtown Chicago the morning of June 7 and explained why Chase and other big banks need to stop gouging millions from the city’s public transit system. A home care worker who cannot afford a car, Burnett’s job pays her poverty wages and she cannot afford fare increases or service cuts. In contrast, Jamie Dimon, CEO of Chase, has a $23 million compensation package this year. Nationally, 43% of transit riders make under 25,000 annually.

Burnett was among 50 Chicagoland transit riders and community activists who came to send a letter to CEO Jamie Dimon. Representing a coalition of transit riders and transit workers called ReFund Transit, they were asking him to renegotiate the credit default swaps (CDS) that are bleeding public transit across the USA. Simultaneous protests by ReFund Transit were held in other US cities.

Dale Burnett had this to say:

“We are here today because Chase and other big banks are ripping off money for our transit system…I live on the South Side of Chicago. I am a personal assistant for the Illinois Department of Human Services. I provide key life services so an individual can live in their home with dignity.Without me they cannot live and without them, I cannot live. We cannot make any more cuts for vital services, whether its health care, education and transit. I depend upon Chicago’s public transit system for my life.”

Credit default swaps were among a swarm of exotic securities that gestated inside of Wall Street and then burst forth to reproduce across the planet. What follows is the short version of how swaps work. For the long version please download this free report.

How Credit Default Swaps Work

To fund new projects with the swaps, the banks asked that cities and states pay the loans at a fixed rate, but the banks would pay back a variable rate that the cities and states could use to pay the interest. The swaps were kind of rebate, but a treacherous one.

Then came the 2008 Crash, the tax payer funded bank bailout, and the decision by the Federal Reserve to lower interest rates to near zero. Now the banks could borrow from the Fed almost for free, and their swap payments to cities fell to nearly zero. The cities were stuck with a fixed rate of anywhere of 3% to over 6%.

Read on.