Tag Archives: derivatives

Take Your Money Out Of The Bank

5 Sep

As we here at barnabyisright.com were first to document, Australia too has included plans to steal depositor’s money to “bail-in” the banks, in the 2013-14 Budget:

Australia Plans Cyprus-Style “Bail-in” Of Banks In 2013-14 Budget

Australian Banks “Welcome” Cyprus-Style Bail-In Plan

Australian Banks Demand Protection From Derivatives Losses Under Bail-In Plan

G20 Governments ALL Agreed To Cyprus-Style Theft Of Bank Deposits … In 2010

Australian Banks Demand Protection From Derivatives Losses Under Bail-In Plan

8 Aug

DeathStarFiring2

It has been well-documented by others that the Cyprus-style bank “bail-in” scheme that is presently being prepared right across the G20, is really all about derivatives — those “financial weapons of mass destruction” that were at the heart of the GFC in 2008 (see Derivatives Managed By Mega-Banks Threaten Your Bank Account).

To briefly summarise, a critical aspect of what the bail-in scheme is intended to do, is to prioritise the payment of banks’ derivatives obligations to each other, ahead of depositors. In other words, it is about stealing the public’s bank deposits, to pay out at least some of the big banks’ Death Star-massive — and toxic — derivatives positions.

Yves Smith of Naked Capitalism explains:

In the US, depositors have actually been put in a worse position than Cyprus deposit-holders, at least if they are at the big banks that play in the derivatives casino. The regulators have turned a blind eye as banks use their depositories to fund derivatives exposures. And as bad as that is, the depositors, unlike their Cypriot confreres, aren’t even senior creditors. Remember Lehman? When the investment bank failed, unsecured creditors (and remember, depositors are unsecured creditors) got eight cents on the dollar. One big reason was that derivatives counterparties require collateral for any exposures, meaning they are secured creditors. The 2005 bankruptcy reforms made derivatives counterparties senior to unsecured lenders.

Note carefully that last point about the “collateral” for derivatives exposures, which means that derivatives counterparties are deemed “secured” creditors, making them “senior” to unsecured “lenders”.

In layman’s terms, what all that means is that when banks take out a derivatives bet, the bank on the other side of that bet (the “counterparty”) requires some collateral to be put up. Thanks to deregulation of the financial system over the past couple of decades, banks have — unbeknown to the public — been putting up their customers deposits as collateral for their derivatives bets.

Now, because collateral (or “security”) has been put up for those derivatives bets (or “positions”), this means that those bets are considered “secured”. And in a bank “resolution” (ie, a “bail-in”), the secured creditor has seniority (ie, priority) over “unsecured” creditors (ie, depositors).

Got that?

The big banks are all counterparties to each other on their derivatives bets. They have pledged “collateral” — often, your deposits — as “security” on those derivatives bets. When a bank fails, and is “resolved” under the new, FSB-directed bail-in regime, payouts on those “secured” derivatives bets get priority over paying you back your deposit.

Here at barnabyisright.com, we have recently been looking at the documents going back and forth between the Australian Treasury and the Australian banks. And it is here that we find confirmation of what has been reported by Yves Smith and others.

In the Australian Financial Markets Association (AFMA) 11 January 2013 letter in reply to the Australian Treasury’s September 2012 consultation paper, Strengthening APRA’s Crisis Management Powers,” we see clearly that our banks consider the issue of how derivatives would be handled in a bank bail-in to be “critical”:

Legal certainty around the enforceability of the netting and collateral arrangements in connection with OTC derivatives is critical to the stability of the market.

AFMA, January 2013, page 14

AFMA, January 2013, page 14

In particular, what the banks are concerned with — so much so, they call it a “guiding principle” in their response to Treasury — is ensuring that the implementation of bail-ins in Australia will “include appropriate respect for…collateral rights”, with safeguards to protect their derivatives positions against “destruction of value”:

Governing our response to the Consultation Paper are three guiding principles:

Ensuring consistent treatment of transactional claims relating to derivatives and other financial instrument, including appropriate respect for netting and collateral rights, subject to safeguards to avoid destruction of value.

AFMA, January 2013, page 2

AFMA, January 2013, page 2

The international bankers (the Financial Stability Board) who are behind the G20-wide bank bail-in scheme, have sought to portray it as being designed to “resolve” failing banks, while at the same time, “protecting” bank depositors.

However, the truth is that the FSB bail-in scheme is really designed to ensure that the mega-banks — “systemically important financial institutions (SIFI)” — will receive priority for payout on their derivatives positions, in any “resolution” of a failing bank.

Because for the bankers, propping themselves and their compadres up is all that matters. What we call “theft”, they call “ensuring financial system stability”.

According to the RBA, our banking system holds $21.5 Trillion in “Off-Balance Sheet” derivatives exposures:

Screen shot 2013-07-10 at 6.24.32 PM

Over $15 Trillion of that is the “value” of derivatives betting on interest rates.

In the “bail-in” of an Australian bank, do you really think there would be anything left to pay you back your deposit, after the banks get “seniority” for payout on their “secured” derivative positions?

See also:

Australian Banks “Welcome” Cyprus-Style Bail-In Plan

IMF Tells Australian Lawmakers To “Prevent Premature Disclosure Of Sensitive Information” On Bank Bail-Ins

Australia Plans Cyprus-Style “Bail-In” Of Banks In 2013-14 Budget

Infographic: Visualising The Size Of Australia’s Carbon Derivatives Time Bomb

24 Apr

On July 1, 2012, the government’s Clean Energy Future scheme will officially begin.

You know it as the carbon “tax”. It has been called a “tax” over and over and over again, by politicians, economists, bankers, and other vested interests, for a simple reason.

There are many who want you to think that the scheme to “put a price on carbon” is safe; that the government’s implementation of a “carbon price” is careful, methodical, and prudent.  A “fixed price” on carbon dioxide for 3 years. And only after 3 years, a transition from a fixed price to a “floating price” emissions trading scheme.

But there is something very important that they are not telling you.

There is a Ticking Time Bomb Hidden In The Carbon Tax.

It is called “derivatives”.

Carefully buried in 1,000+ pages of legislation, just 2 tiny, opaque clauses (109A and 110) have been included that allow the banks to immediately begin creating and trading unlimited quantities of unmonitored, unregulated carbon “securities” (another term for “derivatives”).

What are “derivatives”?

SHORT STORY: Pick something of value, make bets on the future value of “something”, add contract & you have a derivative. Banks make massive profits on derivatives, and when the bubble bursts chances are the tax payer will end up with the bill. This [graphic below] visualizes the total coverage for derivatives (notional). Similar to insurance company’s total coverage for all cars.

LONG STORY: A derivative is a legal bet (contract) that derives its value from another asset, such as the future or current value of oil, government bonds or anything else. [Example] A derivative buys you the option (but not obligation) to buy oil in 6 months for today’s price/any agreed price, hoping that oil will cost more in future. (I’ll bet you it’ll cost more in 6 months). Derivative can also be used as insurance, betting that a loan will or won’t default before a given date. So its a big betting system, like a Casino, but instead of betting on cards and roulette, you bet on future values and performance of practically anything that holds value. The system is not regulated what-so-ever, and you can buy a derivative on an existing derivative.

Most large banks try to prevent smaller investors from gaining access to the derivative market on the basis of there being too much risk. Deriv. market has blown a galactic bubble, just like the real estate bubble or stock market bubble (that’s going on right now). Since there is literally no economist in the world that knows exactly how the derivative money flows or how the system works, while derivatives are traded in microseconds by computers, we really don’t know what will trigger the crash, or when it will happen, but considering the global financial crisis this system is in for tough times, that will be catastrophic for the world financial system…

Australia’s banks already trade in derivatives. Most of their derivatives bets are on movements in Interest Rates and Foreign Exchange Rates. And they have a total exposure to just these forms of derivatives, that is truly mind-boggling.

The numbers are so big, that no one can comprehend them.

You have to see it for yourself.

First, via the superb demonocracy.info website, here is an infographic to help you visualise what $1 Trillion looks like (click image to enlarge):

Click to enlarge | Graphic source: demonocracy.info

Got that?

$1 Trillion is a lot of money*.

The value of all Australians’ superannuation savings combined, is about $1.3 Trillion. As is the claimed annual “GDP” of the Australian economy.

Now, here is an infographic showing the Australian banks’ recent record high total “Off-Balance Sheet” derivatives exposure.  Remember, this is before the official start of a “price on carbon” allows the banks to start creating and trading carbon derivatives too (click image to enlarge):

Click to enlarge | Graphic source: demonocracy.info | Data source: RBA statistics

I want to emphasise the point made earlier.

Almost everyone incorrectly believes that no trading will happen until 2015. But the truth is, the banks can begin creating and trading in carbon derivatives from Day 1. Even though the scheme is supposed to be a “fixed price” scheme for the 3 years up to 2015.

Those 2 little clauses I mentioned earlier (109A and 110), are the reason why trading will begin from Day 1. Trading in carbon derivatives, that is.

They are opaque, easy-to-overlook clauses stating that the Clean Energy Future legislation does not prevent the creation of and trade in carbon “securities”.

The designers of the legislation (no, not the politicians), know full well that the banking industry can and does create and trade derivatives on everything.

Including the date of your death. That’s right. We have previously documented how banks are trading in Death Derivatives.

All that is needed, is for there to be a “price” put on some thing, effectively making that thing a “commodity”.

Once there is an underlying price, then banks can create a derivative.

Provided there is no law specifically preventing them from doing so.

It is that simple.

And that is why the Clean Energy Future scheme has those two little clauses buried inside. As Explanatory Memorandum 3.36 confirms, they are “included for the avoidance of doubt” that the government does NOT wish to prevent the banks creating carbon derivatives.

That is also why, just 3 days after the government released its draft legislation for “putting a price on carbon”, it was reported that:

Australian banks are eyeing opportunities to cash in on the proposed carbon tax by developing new financial products and services that capitalise on a market seen to be worth billions of dollars annually, according to a report by the Australian Financial Review.

Australian financial firms that have experience in European carbon markets, such as Macquarie Group Ltd, Westpac Banking Corp Ltd and ANZ Banking Group Ltd are particularly keen to establish their presence in the Australian market….

ANZ’s head of energy trading said the value of the derivatives carbon market would dwarf the $10 billion initially raised by the government, according to the AFR.

You have now seen just how mind-bogglingly enormous is our banks’ exposure to (mostly) Interest Rate and Foreign Exchange Rate derivatives.

$17.93 Trillion is equivalent to nine (9) skyscrapers made of pallets of $100 bills, each towering more than twice the height of the Sydney Harbour Bridge.

The $10 billion that the government will raise from forcing companies to buy carbon permits – the basic mechanism for “putting a price on carbon” – is almost nothing compared to the value of derivatives that banks will create and trade.

Unmonitored.

Unregulated.

Off-Balance Sheet.

The government’s claimed $10 billion in expected revenue from the Clean Energy Future scheme, is equivalent to just one (1) of the 10 x 10 squares of pallets forming the base of one (1) of those derivatives skyscrapers pictured above.

That’s one (1) storey in two hundred (200).

I hope that you now have a better idea – a clear picture in your mind’s eye – of what the ANZ Bank’s head of energy trading meant, when he gleefully said that the value of the carbon derivatives market would dwarf the $10 billion initially raised by the government.

A government that has followed the lemming-like lead of Ireland, by explicitly and implicitly putting taxpayers on the hook for the deeds (and misdeeds) of the banks, by placing the nation as guarantor for the solvency of the Australian banking system.

Meaning, just like the rest of the West, our banks are Too Big To Fail.

And from July 1, thanks to the Clean Energy Future scheme and those two little clauses, the government has handed the banks a licence to print.

It is really a licence to kill.

Tick.

Tick.

Tick.

Tick.

* If you wonder how it is possible that banks can have so much money just in derivatives bets, you might like to learn the truth. The “money” does not really exist. Almost all of the “money” in the world, is just electronic code in computers. And banks truly rule the world, by creating “money” (digits in computers) out of thin air, and lending it to you, at interest. Even the biggest central bank in the world, the Federal Reserve Bank, has admitted that this is how banking works. Learn more here.

Bankers’ Trojan Horse In Carbon Tax: Expert Confirms Breach Of Constitution

18 Apr

Your humble blogger recently sought legal advice from a prominent constitutional barrister, specifically concerning clauses 109A and 110 of the Clean Energy Act 2011.

Regular readers know that I have argued from before the release of the draft legislation in July 2011 ( Our Bankers’ Casino Royale – “Carbon Permits” Really Means “A Licence To Print” ), that the so-called “carbon tax” is in truth nothing more than a cleverly disguised, banker-designed and promoted derivatives scam ( Ticking Time Bomb Hidden In The Carbon Tax ).

Like the mortgage-backed derivatives that blew up the world financial system in the GFC, carbon-unit-backed derivatives are simply the next form of wholly unregulated, unmonitored, shadow banking artificial “money” creation that has had bankers licking their lips in anticipation from the moment the(ir) draft legislation was released:

14 July 2011, Business Spectator — Australian banks are eyeing opportunities to cash in on the proposed carbon tax by developing new financial products and services that capitalise on a market seen to be worth billions of dollars annually, according to a report by the Australian Financial Review.

Australian financial firms that have experience in European carbon markets, such as Macquarie Group Ltd, Westpac Banking Corp Ltd and ANZ Banking Group Ltd are particularly keen to establish their presence in the Australian market….

ANZ’s head of energy trading said the value of the derivatives carbon market would dwarf the $10 billion initially raised by the government, according to the AFR.

I have now been informed by the eminent barrister referred to above, that I am right.

If it is judicially accepted that the Clean Energy Act 2011 is a bill “imposing taxation”, then the two cleverly worded little clauses buried within 1,000+ pages of legislation that I have long identified as those that specifically allow the shadow banking industry to begin creating and trading (unlimited quantities of) carbon dioxide derivatives, are, in the barrister’s opinion, in breach of section 55 of the Constitution:

COMMONWEALTH OF AUSTRALIA CONSTITUTION ACT – SECT 55

Tax Bill

Laws imposing taxation shall deal only with the imposition of taxation, and any provision therein dealing with any other matter shall be of no effect.

As we have seen previously, there are numerous other areas of the legislation whose constitutionality is highly questionable and thus contestable, under section 55 and other sections too.

Indeed, a number of constitutional experts such as Professor Greg Craven have publicly affirmed as much.

Unfortunately, I am advised that private citizens have no legal standing to mount a challenge against the legislation in the High Court.

[EDIT: For the reason that private citizens are not directly subject to the legislation. This perhaps answers the question many have asked, as to why the government still refuses to release a definitive list naming who exactly are the “biggest polluters”. If those who will have standing to challenge the legislation in the High Court do not have confirmed proof of this, it would appear that they could not prove legal standing in order to file an injunction to prevent the bankster scam starting up in the first place. Doubtless this key information will not be made known until after the government has sent out billions in “compensation” bribes to households in May, and parked $10 billion in the banksters’ Clean Energy Finance corporation in such a way that it cannot be retrieved.]

Those in the best position to mount a legal challenge, who do have standing before the High Court, are the State governments.

Sadly, as we have also seen, the Liberal-National Premiers of NSW and Queensland are even more vile, despicable liars than Julia Gillard.

Having campaigned heavily for our vote on the back of a solemn promise to “fight” the carbon tax if elected, Barry O’Farrell and Campbell Newman have now shown their true colours.

As two-faced standard bearers.

For the predatory, parasitic banking industry that they depend on to help finance their election campaigns, thanks to our rigged and decrepit system of governance that means political parties do not get their hands on the public cash in proportion to their share of the popular vote, until after the vote count has been determined at each election.

For a political leader to promise not to foist a predatory bankster scam on the public, and then do it, is an unforgivable crime against basic human decency and integrity, and, an unforgivable violation of public trust.

But to present yourself as a saviour, and plead for our vote with a promise to fight a predatory bankster scam, only to weasel out of actually doing anything to fight it once elected, is, in the firm opinion of this citizen blogger, a far worse crime.

Indeed, I would go so far as to say that on this issue, Julia Gillard is arguably one rung higher from the bottom of the rancid sewer that is politicians’ “integrity”, than Barry O’Farrell, Campbell Newman, and any other politician who has deceitfully gained political capital by falsely presenting themselves as an opponent of and a fighter against the banksters’ CO2 derivatives scam.

UPDATE:

Speaking of constitutional expert Greg Craven, here’s an excerpt from a column he has written for The Australian today –

“MEAN” is never a good word. There are mean dogs, mean great-aunts and mean parking inspectors. They all bite professionally, and enjoy their work.

Right now, there is a mean electorate out there. People have never liked politicians. But this is the first time that the popular mood has graduated from profound disdain to frank sadism.

Take X-rated state election results. Kristina Keneally was the bad premier of a bad government, but the last act of public vengeance rivalling her defeat was the destruction of Sodom and Gomorrah. Anna Bligh was the fairish premier of a decrepit government, but she copped worse.

Federally, in terms of a normal electoral cycle, the Gillard government should now be contemplating whether a third term will be merely tough or downright heroic. Instead, ministers stockpile cyanide pills along with press releases.

It is easy to dismiss all this as the result of poor leadership, bad policy and weak personal hygiene. But the reality is that Australian politicians everywhere are now faced with a terminally jaded electorate, less inclined to pass judgment than automatic sentence of death…

#^&%(^$! oath.

UPDATE:

By Abbott’s own words, Liberal Party premier of NSW Barry O’Farrell and Liberal party premier of QLD Campbell Newman stand condemned.

From the Brisbane Times:

When quizzed on his personal integrity, Mr Abbott said he had strived throughout his two decades in politics to be authentic, and that people should never allow things within their control to break their promises.

Challenging the CO2 derivatives scam in the High Court is well within the control of the State premiers.

Yet they have brazenly broken their pre-election promises to the electorate.

Despicable scum.

Hey Tony, If Lib State Premiers Won’t Rise Up … STFU

16 Apr

From AAP:

Abbott urges revolt against carbon tax

Opposition Leader Tony Abbott has urged workers to “rise up” against Labor in protest at the carbon tax, which will come into effect on July 1.

Visiting a Melbourne bed-making factory on Monday, Mr Abbott said the carbon tax would act like a “reverse tariff” affecting Australian manufacturing while benefiting overseas competitors.

He said Labor purported to represent workers but was attacking their jobs.

“The carbon tax will go like a wrecking ball through the Australian economy,” Mr Abbott told reporters in Deer Park.

“This is why even now I call on the workers of Australia to rise up and say ‘no carbon tax’ to a government that still claims to represent them.”

Right.

The workers of Australia have said “no carbon tax”, loudly and clearly.

Over 88% of votes at the last election, went to parties promising that there would not be one (Labor, and the LNP).

You want US to rise up?! What exactly do you mean by … “rise up”?

Here’s an idea Tony.

How about the NSW and QLD LNP State premiers make good on their loud, solemn pre-election promises?

What’s that?

Your banker mates – including Joe Hockey’s wife, and Malcolm’s Goldman Sachs buddies, et al – won’t let you?

Because they are now within mere weeks of being able to start up their long-awaited, 100% unregulated, unmonitored, CO2 derivatives Ponzi scheme disguised as a “market mechanism” for “emissions reduction”?

Quelle surprise!

Green-Labor.

Liberal-National.

All useless, spineless, self-serving, dishonest, unrepresentative swill (h/t PJ Keating)

The Fix Is In – Premiers Bow To Bankers’ Carbon Derivatives Scam

16 Apr

You know those Liberal Party state opposition leaders, who promised to fight the carbon tax if only you would elect them premier?

As predicted here on this blog, they are all talk, no action, when it comes to actually fighting the bankers’ CO2 derivatives scam, despite plenty of expert legal advice that there are solid grounds to challenge the legislation in the High Court.

From the Age (emphasis added):

NSW drops carbon tax challenge

THE passage of the carbon tax has received a boost, with legal advice to NSW Premier Barry O’Farrell suggesting that a High Court challenge to block the tax would fail.

On Friday, Mr O’Farrell said NSW would consider joining a potential bid by Queensland to block the July 1 implementation of the carbon tax in the courts.

Note well: O’Farrell’s original, loud and oft-repeated pre-election promise was not conditional on having another State premier to hold his hand.

But The Sun-Herald understands Mr O’Farrell has already abandoned any thought of leading an assault on the Gillard government. Sources confirmed advice had come back that a legal challenge would be likely to fail in proving the carbon tax was unconstitutional.

So, advice that you are “likely” to fail is sufficient reason to not fulfill your pre-election promise, hey Bazza? Sounds like a convenient excuse from a twisting and turning liar to me.

Mr O’Farrell has made political mileage out of the carbon tax since it was announced. Last week, the NSW Energy Minister, Chris Hartcher, blamed the upcoming impost for the 16 per cent electricity price rises approved by the independent pricing regulator.

The reluctance of NSW to challenge the controversial tax is likely to slow momentum for a High Court bid. Victoria, like NSW, has said it would consider joining a Queensland bid.

The West Australian Premier, Colin Barnett, has stated publicly that his advice is that a bid would fail. The Queensland Premier, Campbell Newman, said he would not act without at least one other state with him in alliance.

The fix is in.

Unsurprising. And just what this blogger predicted.

Because when all the major political parties are beholden for the loans they need to run their election campaigns, to the banksters who are behind the global drive for a new, legal, yet wholly unregulated, unmonitored CO2 derivatives casino, you know in advance what the outcome will be.

Know thy real enemy.

Here Is Expert Legal Advice On Why The Carbon Tax Is Unconstitutional

13 Apr

Courtesy of the IPA, here is the Short Form of barrister Bryan Pape’s commissioned legal advice on a constitutional challenge to the Bankster-Green-Labor CO2 derivatives scam:

Click to enlarge

Click to enlarge

Will a Liberal State government challenge the legislation in the High Court, thus making good on their pre-election promises?

Will National Living Treasure Clive Palmer make good on his threat to do so?

In the case of the former, there is no excuse for failing to challenge.

NONE.

So naturally, I suspect that they won’t.

Because as we have seen previously, Australia is a kleptocracy … ruled by banksters.

And it is banksters (and their economist cheerleaders) who want a new global casino in unlimited, unregulated, unmonitored, CO2 derivatives trading.

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