Saturday, December 13, 2014

Tax payers just got the shaft...Derivatives

With the spending bill that was passed yesterday, there were a few 'add-ons' included.  One tiny little section in the bill dealt with the FDIC being responsible for hedging and swap instruments carried on by its member banks.  No big deal except that the bank's exposure in the derivatives market is over $303 Trillion dollars.  That pales in size to the $18 Trillion national debt we have currently.  Essentially what this little add-on does is guarantee to back up the banks in the event they cannot meet their obligations in the derivative market by the US Tax payers.  

In the event of hedging against low oil prices, if a bank cannot meet its obligations, the taxpayers now own this obligation and must make good if they fail.  Essentially, its going to be a forced bailout of the banks - except this time the bailout won't be in the billions, but in the trillions.

With oil prices predicted to continue their slide and low prices, someone is going to be on the hook for the price hedges placed by the oil producers and investors.  As of yesterday, we know who that will be as we got the shaft once again by our legislators.  When the derivative market implodes, you can look back at this post and said at least you were warned ahead of time.  What you do with this knowledge is now up to you.

More info and charts and details here:

One thing for sure is that I won't be in any kind of bank or investment stock.

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