Don’t forget to thank your local hedge funds for screwing it all up
The banks are allowed to not hedge their exposures, but rather increase them by selling rather than purchasing credit derivative swaps against their counterparties.
They are selling credit default swaps to hedge funds instead of buying them which eliminates exposure. Walk Street keeps taking on catastrophic risks to dress up their profits and deliver fat annual bonuses to traders and top brass while counting on the taxpayer and the Fed to bail them out when they blow up.
For the last 14 years Morgan Stanley and Citigroup have been secretly bailed out by the Fed receiving around 10 trillion in no interest loans. Regulatory reforms, such as uncleared margin rules and mandatory clearing, were created to mitigate the build-up of dense interconnections and systemic feedback but instead has increased them. So when losses on uncleared derivatives occur they are fully borne by the bank which it cant handle so then its either let them all fail or save them. The banks are pretty much holding a grenade with all of us in the room with them saying give us the money or we all die. Why? Because we allow it.
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