- (EIRNS) -- Indications are growing that the top three
U.S. derivatives banks--J.P. Morgan Chase, Citigroup and Bank of America--have
been pushed to, if not over, the brink of "technical" bankruptcy
by problems in the derivatives markets. (See end section for background
on what derivatives are.--Mark) We say "technical" because the
top U.S. banks have long counted hundreds of billions of dollars of fictitious
assets on their books, making them bankrupt in reality, and solvent only
by perception.
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- Both Morgan Chase and Citigroup have shown up with uncanny
frequency as the top lenders to the current crop of exploding corporations
and are clearly facing huge losses on their loan portfolios. With corporations
and individuals going bankrupt at record rates and defaults soaring, the
loan problems at Morgan Chase, Citigroup and Bank of America go far beyond
what has publicly surfaced, but their loan problems pale in comparison
to the dangers lurking in their derivatives portfolio.
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- J.P. Morgan Chase, the world's largest derivatives bank,
is a prime example; a loss equivalent to less than 0.2% of its $24 trillion
derivatives portfolio would be enough to wipe out every last penny of the
bank's equity capital. {EIR} believes that Morgan Chase actually collapsed
in mid-2001, and is being secretly run by the Federal Reserve, similar
to the way the Fed took over Citicorp in 1989.
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- Morgan Chase is the result of the acquisition of J.P.
Morgan & Co. by the bigger Chase Manhattan. The deal, which closed
on the last day of 2000, has been an absolute disaster as measured in ordinary--and
therefore misleading--market terms. The market capitalization of the combined
Morgan Chase is now less than that of Chase alone on the day before the
merger, with Morgan (or at least its equivalent value) having simply vaporized.
This is not surprising, as it was likely a bankruptcy at Morgan, and perhaps
Chase as well, which led to the takeover of Morgan by Chase.
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- Citigroup may again be under Fed control as well, as
rumors of major derivatives losses circulate. Citigroup is the result of
the 1998 takeover of Citicorp by Travelers Insurance, creating what is
now the largest bank in the U.S., with just over $1 trillion in assets
and $9 trillion in derivatives. Former Treasury Secretary Robert Rubin
revealed on July 15 that he was retiring from his position as vice-chairman
at the bank, and three days later it was announced that Saudi Prince Alwaleed
bin Talal, Citigroup's largest individual shareholder, had invested another
$500 million in the bank, raising his holding to $10 billion. Alwaleed,
a nephew of Saudi King Fahd, obtained his initial stake in the bank shortly
after the Fed took it over in 1989 and began arranging a bailout. The latest
cash infusion raises suspicion that Alwaleed is performing a similar service
for Citigroup.
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- Not to be left out is Bank of America, whose $620 billion
in assets puts it third behind Citigroup's $1 trillion and Morgan Chase's
$713 billion. Bank of America's $10 trillion in derivatives puts it solidly
on the hot seat in any financial crisis, and it has also loaned heavily
to bankrupt companies. Rumors are flying that Bank of America has applied
to the Fed for a secret bailout.
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- Banking sources in Europe have confirmed to {EIR} that
a major derivatives crisis is underway, centered around the giant U.S.
derivatives banks, Morgan Chase and Citigroup in particular. Were one of
the big derivatives banks to explode, it could overwhelm the Fed's ability
to cover up the losses, triggering a chain reaction which could blow out
the entire global financial system.
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- Note to Rense.com readers from Mark Sonnenblick PressStaff@LaRouchePub.com
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- Financial derivatives are gambling instruments. Actually,
they are side-bets on future interest rates, exchange rates between currencies,
and a host of complex and obscure financial relationships. Unlike insurance
companies, the operators who play in this $400 TRILLION a year casino,
are almost totally unregulated. Derivatives are hidden or totally absent
from that big annual report you can get from your bank, even though the
bank has much more risk from them than from all its listed assets.
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- Have you hugged your bank today? It may be gone tomorrow?
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- Lyndon LaRouche warned that a derivatives collapse endangered
the entire U.S. banking and financial system. EIR staffers briefed every
office in Congress, including face-to-face education sessions with over
200 of them. He sought increased vigilance, and a tiny tax on them, which
would stop their volume from increasing.
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- Congress, including the likes of senators Joe Lieberman
(D-Connecticut) and John McCain (R-Arizona) who are now hyperventilating
about "corporate corruption," went the other way. The "bank
reform" passed almost unanimously last year, ripped up the protective
regulations which Franklin Roosevelt had enacted during the previous Great
Depression, and left it up to the "free market" to police itself.
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- Major American banks have become so addicted to derivatives
that many of them have exposures 100 times bigger than their capital and
reserves. That means that a 1% loss on their gambling would bankrupt them.
The amounts involved in the crash of even one of these big banks is many
times greater than the total reserves of the Federal Deposit Insurance
Corporation (FDIC). And, as LaRouche warned in 1974, one big collapse would
likely produce a chain-letter insolvency of the whole globalist financial
system.
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- Banking correspondent John Hoefle, wrote an in-depth
study, "The Downfall of J.P. Morgan Chase," which anticipated
the headlines in Saturday's Financial Times and other London media. Another
Hoefle article will be posted on our weekly Electronic Intelligence Review
(EIW) on Monday. A subscription to EIW is the best way to keep informed
on the death rattles of the financial system.
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- But, there will be no security for anyone without the
victory of the political battle, lead by Presidential candidate LaRouche,
for restoring the kind of relative economic sanity which prevailed from
the Roosevelt period until 1965.
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- EIR may be reached, toll-free, at 1-888-347-3258. Overseas
callers: 703-771-1907.
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