Thursday, March 3, 2016

Exposing Default Swaps and Int'l Banking

Here is a complex article outlining the exposure international banks have, and how they are now claiming to be leaving Asia, Africa to meet regulatory changes.  The article demonstrates this is nonsense.

But read the article with two things in mind:

1. Note how lending malcredit domestically, where banks privatize any profits and socialize any losses is precisely what is going on with int'l banks.  Again it leads to malinvestment (malcredit gets malinvested) and while the domestic (say USA) taxpayers suffer the loss,  the difference is the idled factory is sitting in Botswana.

2. Credit default swaps are mysterious affairs, with a plausible explanation.  In this article for me the penny dropped.  The swaps are not about "I want your interest rate vs mine, it is about "Your name on my balance sheet keeps the auditors fooled about what junk it is they cannot access, just as my name on yours returns the favor."

I shoulda known!

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