The Crude Crash Comes To Wall Street: Counterparty Risks Rear Their Ugly Heads Again

The Crude Crash Comes To Wall Street: Counterparty Risks Rear Their Ugly Heads Again (ZeroHedge, Dec 13, 2014):

In late 2006, default rates on lower-rate subprime private MBS began to rise considerably. Though not a very transparent market to the mainstream media-watching world, bankers knew trouble was brewing as this had not happened before in such a benign house price decline. Banks, knowing what they had on their books, what they had sold to others, and what that meant for risk, began quietly buying protection on other banks as counterparty risk became a daily worry for desks across Wall Street.

The stocks of US financials continued to rise amid “contained” and “no problem” comments from the status quo but credit spreads for the major US banks kept leaking wider even as stocks rallied… then reality dawned on stocks and the rest is history.

20141213_cparty2

Today, US financial credit spreads (wider) have decoupled once again from stocks (higher) and that divergence began as oil prices started to slump.

20141212_EOD17

Are banks hedging counterparty risk once more ‘knowing’ what loans and exposures they have to the massively levered US oil industry? Or is it different this time?

1 thought on “The Crude Crash Comes To Wall Street: Counterparty Risks Rear Their Ugly Heads Again

  1. The banks have palmed off most of the MBS paper to the US government.
    They have been gambling like madmen, but much of it has ridden on low interest rates………….that is about to change, regardless what the FED says.

    The FED no longer controls or leads world banking systems. The US has become a nation of little financial significance in relation to the world economy. When over 70% of the growing world economies have abandoned the dollar, that ought to change the behavior of US banking leaders. When less than 30% of world nations use the dollar, that ought to tell sane people the game is changed.

    Instead, US leaders act as if this is still 1964, and the US was the leading economy…….they are in complete denial of the truth. The US has become one nation of many, no more or less.

    The entire concept of a world reserve currency has been rendered obsolete. Putin’s open basket of currencies allows all nations to trade with each other using their own currencies, leaving the dollar out. Technology, an electronic currency reader similar to the Sucre, translates the value of each currency at the time of transaction, making the need for any world reserve currency obsolete. US leaders are very unhappy about this, but are powerless to prevent it.

    OPEC’s refusal to cut production two weeks ago tells everyone they have already kicked the petrodollar to the curb……..all they have to do is say it openly.
    That leaves the EU in the US corner, but even France, Germany and the UK have found alternate trading systems to the dollar, and are using them. It is but a matter of weeks or months before the truth comes out to the forefront, and the dollar collapses.

    The US abused it’s status so much, broke all international laws, and is now seen as a rogue nation that must be stopped.

    That is the difference.

Leave a Comment