SOS Too Big to Fail

Facts:

Notional derivatives value held by commercial banks in USA is about USD223 TRILLION.

95% of the derivatives is held by 5 banks:

1. JP Morgan USD 75 trillion


2. Bank of America USD45 trillion


3. Citibank USD44 trillion


4. Goldman Sachs USD41 trillion


5. HSBC USD6 trillion

Why Bernanke keeping the interest rate low?

Guess how much out of the derivatives is related to interest rates?

Try USD188 trillion.

What if 2% of this money is at risk and 10% of the 2% goes wrong, the entire equity of the 5 banks above will be wipe out.

2% of USD188 trillion is USD3.7 trillion and 10% is USD0.37 trillion or USD370 billion.

So, you may ask again, why Bernanke keep the interest so low? Not for the housing price, it is to prevent the implosion of the derivatives.

MyView

Doubtful he can do it by QE1 or QE2, it may slow down the crash in a year or two. The original problem is not resolves, DERIVATIVES.