[abridged by me] WASHINGTON America's five largest banks, which already have received $145 billion in taxpayer bailout dollars, still face potentially catastrophic losses from exotic investments if economic conditions substantially worsen, their latest financial reports show.
Federal regulators portray the potential loss figures as worst-case. However, the risks of these off-balance sheet investments, once thought minimal, have risen sharply as the U.S. has fallen into the steepest economic downturn since World War II Because of the trading in derivatives, corporate bankruptcies could cause a chain reaction that deprives the banks of hundreds of billions of dollars The biggest concerns are the banks' holdings of contracts known as credit-default swaps, which can provide insurance against defaults on loans The banks' credit-default swap holdings, with face values in the trillions of dollars, are "a ticking time bomb, and how bad it gets is going to depend on how bad the economy gets," said Christopher Whalen , a managing director of Institutional Risk Analytics Berkshire Hathaway Chairman Warren Buffett ... ominously warned that derivatives "are dangerous" in a February letter to his company's shareholders. In it ... he wrote, "[derivitives] have made it almost impossible for investors to understand and analyze our largest commercial banks and investment banks . . . When I read the pages of 'disclosure' in (annual reports) of companies that are entangled with these instruments, all I end up knowing is that I don't know what is going on in their portfolios. And then I reach for some aspirin." Trading in credit-default contracts has sparked investor fears because they are bought and sold in a murky, private market that is largely out of the reach of federal regulators. No one, except those holding the instruments, knows who owes what to whom. Not even banks and insurers can accurately calculate their risks. "I don't trust any numbers on them," said David Wyss , the chief economist for the New York credit-rating agency Standard & Poor's . *** MONEY QUOTE *** Lehman's and AIG's failures put in doubt their guarantees on hundred of billions of dollars in contracts and unleashed a global pullback from risk, leading to the current credit crunch. The banks' credit-default portfolios have gotten little scrutiny because they're off-the-books entries that are largely unregulated ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~| Adobe® ColdFusion® 8 software 8 is the most important and dramatic release to date Get the Free Trial http://ad.doubleclick.net/clk;207172674;29440083;f Archive: http://www.houseoffusion.com/groups/cf-community/message.cfm/messageid:291189 Subscription: http://www.houseoffusion.com/groups/cf-community/subscribe.cfm Unsubscribe: http://www.houseoffusion.com/cf_lists/unsubscribe.cfm?user=89.70.5
