The Doc spoke with financial/metals analyst Harvey Organ this weekend to discuss the escalation of the European debt crisis, JP Morgan’s derivatives crisis, and the gold and silver markets.
Harvey believes that the panicked reactions of multiple federal regulatory agencies indicates that JP Morgan’s losses are likely much more critical and severe than the mere $8 billion lost in the IG9 tranche, and states the data indicates JP Morgan is unwinding a portion of its $50 Trillion in interest rate swaps.
Harvey fears that the losses on JP Morgan’s interest rate swaps could already be $100 billion, and ‘COULD BRING DOWN THE WHOLE FINANCIAL SYSTEM OF THE WORLD!‘
Harvey states ‘If JP Morgan’s involved it really is The Fed itself, and if The Fed’s blowing up that will just about be THE explosion heard throughout the world.‘
When asked what type of risk JP Morgan’s derivatives crisis currently poses to the financial system Harvey responded:
We’ve been following this (JP Morgan’s derivatives) for quite awhile. Rob Kirby in 2009 wrote a great paper The Elephant in the Room, where he describes the huge amount of interest rate swaps that JP Morgan has underwritten, and it’s probably in excess of $50 trillion- of the $70 trillion in derivatives that they hold.
These interest rate swaps are really a bet where they go long on long term rates (T-bonds), and short the short term treasury bills. That forces the purchase of bonds, which in turn causes long term rates to fall. That’s basically why long term rates are low for the United States, but Europe’s rates are higher: it’s because of the manipulation by JP Morgan.
What Jim Willie has shown is that JP Morgan right now is unwinding some of these interest rate swaps. If they’re unwinding these things, together with the huge losses from the IG9 (which were losses from the underwriting of the European credit default swaps), THIS COULD BRING DOWN THE WHOLE FINANCIAL SYSTEM OF THE WORLD!
If it’s $100 billion, then that blows up everybody. This is scary- and it probably will explain why JP Morgan was forced to come out on a Thursday night rather than let the world know on a Friday evening- the regulators certainly forced them to make their statement on Thursday. It probably will explain why the FBI are involved. JP Morgan probably told them what is coming, so the FBI is now doing a criminal probe. It will also explain why the CFTC has their enforcement arm coming in on the derivatives side. And the SEC also began a probe on these trades the moment it was announced.
So if you look at these trades and realize JP Morgan earned $20 billion, and all of a sudden announce a loss of $2 billion- that shouldn’t cause this much of a scare. But probably these regulators know the truth, JP Morgan probably told them ‘we have a major problem here’ , and that’s why all these other regulatory bodies have started coming in.
If JP Morgan’s involved it really is The Fed itself, and if The Fed’s blowing up that will just about be THE explosion heard throughout the world.
This is huge, and it will probably really explain why these three regulatory bodies all of a sudden came in all at once. JP Morgan’s been fooling around in all these derivatives for years and now they’re suddenly worried about the customers? The probe didn’t start with MF Global, I didn’t see the FBI coming in when JP Morgan stole customer money there! But they came in now, and it’s immediate!
There’s some strong merit here that JP Morgan’s losses are huge – NOT from the losses they had in Europe with the IG9 tranche, and $8 billion is so huge! But I think that the scare is the huge losses that are unwinding on their interest rate swaps.