“….The best guess – that’s right folks, it’s a “best guess” – is that the derivatives are now in the quintillions, whereas when the “crisis” broke a few years ago, it was estimated to be in mere quadrillions….That last number is the staggering figure: one quintillion five hundred quadrillion is the notional value of derivatives, giving that astronomical ratio of 21-1 in terms of derivatives to global gross domestic product”
Recently I did a News and Views about the derivatives sloshing around in the financial system, and about Ellen Brown’s thesis that – at it’s deepest darkest inner-most heart – the SillyCON Valley Bank failure was about derivatives. I have to call it “SillyCON” in view of all the stories and theories circulating out there about the bank. One of them concerns the story of its “risk management” or “risk assessement” officer which was found on the bank’s own website, and it truly has to be read to be believed:
Let’s focus on something from this announcement for a brief moment. At the very end of this article we read that the new risk assessment officer for the bank – Kim Olson – has the following “academic” degree:
Olson is based in SVB’s New York office. She holds a bachelor’s degree in political science from Santa Clara University and a master’s degree in public administration from Harvard University.
Ok… call me a bit old fashioned and traditional, but wouldn’t degrees in something like – oh, I don’t know – finance or accounting or business management or – perish the thought – maybe even in mathematics, be of more benefit to a major bank’s financial risk assessment officer than degrees in political science and public administration from Harvard? You know… a degree in something that tells you how to read actual graphs and charts and that if a bank is holding x billion dollars in Three Card Monte Bearer Bonds and x-n hundreds of millions of dollars in deposits (which your accounting or finance degree would have told you go into the liabilities column in your ledgers), then your bank might just possibly be on the razor’s edge of some very risky business.
But wait, there’s more. Having hired Ms. Olson, the bank reveals the following about her career in finance:
SVB, the financial partner of the innovation economy and parent of Silicon Valley Bank, today announced the appointment of Kim Olson as Chief Risk Officer (CRO). In this role, Olson will lead the Risk function and team, developing and maintaining SVB’s risk management framework and a culture of risk management across the company.
“Kim’s deep and multi-faceted financial services experience as a senior risk leader and former regulator and bank supervisor positions her perfectly to actively manage SVB’s financial and non-financial risks and to build and scale the firm’s risk management capabilities through our next phase of growth,” said Greg Becker, president and CEO of SVB.
With $213 billion in assets and more than 8,200 employees globally (as of Q3 2022), SVB’s mission is to increase its clients’ probability of success. SVB provides innovators, enterprises and investors with the services they need to succeed via four complementary businesses: Silicon Valley Bank, SVB Capital, SVB Private and SVB Securities. In 2023, SVB celebrates the 40th anniversary of its founding and four decades serving investors and the innovation economy. The company is located in nine countries and is widely recognized as a champion of the innovation sector, a leader in corporate social responsibility and a great place to work.
Olson has thirty years of financial services experience. She joins SVB from Sumitomo Mitsui Banking Corporation (SMBC), where she served as the Chief Risk Officer for SMBC in the Americas, and an Executive Officer of SMBC and Sumitomo Mitsui Financial Group.
Prior to SMBC, Olson held senior risk management roles at other leading global financial institutions. She also has rating agency experience,as well as experience in professional services advising large- and medium-sized financial institutions on evolving regulations, risk management and stress testing following the 2008 financial crisis. Olson began her career at the Federal Reserve Bank of New York, where over a period of 10 years she held a variety of senior policy, regulatory and examination roles in banking supervision.
Hummm… you don’t say… Sumitomo Mitsui Bank? Ratings agency experience? Financial stress testing? The New York Federal Reserve?
With degrees in political science and public administration?
You just can’t make this up folks.
Gee… I don’t know about you, but if this represents the type of hiring policies pursued by SillyCON Valley Bank, perhaps it is no wonder the bank went belly up. It’s the prior resume that gives one pause, for apparently the whole banking system is more concerned with political science and public administration than with ledgers, graphs, charts, and things like – oh, I don’t know – numbers.
Ahh… but all of that was just prelude, dear reader, because what I want to talk about are those Three Card Monte Bearer Bonds (i.e., derivatives) that SillyCON Valley Bank was exposed to and that I outlined in last week’s News and Views. In the course of covering that story years ago, I noticed something “a little odd” about the numbers being reported. You’ll notice something odd happened a few years ago after the 2008-2009 financial meltdown: derivatives quickly became a major story. Everyone was talking about them, and I spent a great deal of time in my book Babylon’s Banksters covering them, pointing out how the whole derivatives trend had started with some financialization of financialization, derivatives of derivatives and bundles and tranches of bundles and tranches of what were, at heart, mortgage-backed securities and credit default swa(m)ps and so on.
In short, the “business model” became a kind of sophisticated three card monte game. But it was never anything else more or less than three card monte. Before too close a look could be had, everything else quickly became financialized: weather derivatives, pandemic bonds… you name it, it was all financialized, in an effort to keep the original derivatives bubble afloat. Then talk of derivatives suddenly subsided, everyone took their “quantitative easing” and was happy. Estimates came out, however, for those curmudgeons like me still following the derivatives story, that the derivatives were … well… I’ll let you read what I blogged about it back in 2013 here:
As most of you know, I enjoy reading the articles of The Daily Bell, and occasionally comment on them here. This week(May 20-24), as I am pre-scheduling blogs well into June when this one will appear, there was a very interesting and thought provoking article at the Bell:
I had to do a double-take: Did I read that correctly? A billion trillion? Uhm… that’s 1,000,000,000,000,000,000,000 right? A one or some other coefficient followed by twenty-one zeros? Or one septillion? I read on, and apparently the Daily Bell wasn’t exaggerating, for with it’s usual tongue-in-cheek humor, it quipped “Not knowing how much of a billion trillion dollar market is unsecured and speculative would seem to be a problem.”
Then came the clincher: regulatory capture:
“…consumers should not count on regulation to protect them. Inevitably in modern governance those who are being regulated end up in control of the regulations.”
True enough: we’ve seen the results of regulatory capture of government agencies in the whole miserable saga of GMOs and the FDA, which is but a rubber stamp for the agribusiness and pharmaceutical corporations.
But septillions!?
At the time of the Daily Bell article I was citing in my blog, the US government’s estimation of the notional value of all derivatives in “the system” was this:
“And of course the entire global financial system is a giant bundle of debt, risk and leverage at this point. We have never seen anything like this in world history. When you step back and take a good, hard look at the numbers, they truly are staggering. The following statistics are from one of my previous articles entitled “Why Is The World Economy Doomed? The Global Financial Pyramid Scheme By The Numbers“…
“-$190,000,000,000,000 – The approximate size of the total amount of debt in the entire world. It has nearly doubled in size over the past decade.
“-$212,525,587,000,000 – According to the U.S. government, this is the notional value of the derivatives that are being held by the top 25 banks in the United States. But those banks only have total assets of about 8.9 trillion dollars combined. In other words, the exposure of our largest banks to derivatives outweighs their total assets by a ratio of about 24 to 1.
“-$600,000,000,000,000 to $1,500,000,000,000,000 – The estimates of the total notional value of all global derivatives generally fall within this range. At the high end of the range, the ratio of derivatives to global GDP is more than 21 to 1.”
That last number is the staggering figure: one quintillion five hundred quadrillion is the notional value of derivatives, giving that astronomical ratio of 21-1 in terms of derivatives to global gross domestic product.
The best guess – that’s right folks, it’s a “best guess” – is that the derivatives are now in the quintillions, whereas when the “crisis” broke a few years ago, it was estimated to be in mere quadrillions.
A septillion here, a quadrillion there…. In this context we’d do well to remind ourselves what one of the patriarchs of the self-appointed globaloney wise men said of his class:
“For more than a century ideological extremists at either end of the political spectrum have seized upon well-publicized incidents such as my encounter with Castro to attack the Rockefeller family for the inordinate influence they claim we wield over American political and economic institutions. Some even believe we are part of a secret cabal working against the best interests of the United States, characterizing my family and me as ‘internationalists’ and of conspiring with others around the world to build a more integrated global political and economic structure–one world, if you will. If that’s the charge, I stand guilty, and I am proud of it.” -Quotes from David Rockefeller’s Memoirs (Random House, New York, 2002) Chapter 27, pages 404 and 405
And let’s not forget this Rockefailure gem from the 1991 Bilderberg meeting, calling for “a supranational sovereignty of an intellectual elite and world bankers, which is surely preferable to the national auto determination practiced in past centuries.” (q.v. my Babylon’s Banksters, p. 59).
One quintillion, five hundred quadrillion in derivatives is preferable? His own words condemn him, and his fellow “global planners”: they’re simply nuts. Evil? yes. Well-intentioned? Maybe. Power-mad? Definitely. But most certainly, just plain nuts. They’ve been running this show, and the verdict is in. They’re just plain nuts.
Well, I’ve not changed my “just plain nuts” verdict, but it’s easy to see where the penchant for hiring financial risk assessment officers for banks from talent pools of graduates with degrees in everything but finance or economics or accounting comes from: it’s quite literally Mr. Globalooney’s policy.
Which brings us back to the numbers recently being touted for those derivatives. Consider the following two articles, both shared by M.D.:
Now, I don’t know about you, but something about these numbers doesn’t add up: 212 trillion, 525 billion, 587 million dollars in derivatives held by the top 25 US banks in 2013 alone, and anywhere from 600 quadrillion to 1 septillion and 500 quadrillion in the notional value of derivatives in the gl0bal system.
That was 2013.
Now, today, ten years later, we’re reading numbers of between 1 and 2.3 quadrillion. Assuming that all these numbers over all these years are accurate (and that’s quite an assumption I’ll grant you, because how could they be without some sort of “accounting superposition” borrowed from quantum mechanics: the derivatives are both “there” and they’re “not” and the system is safe so long as no one opens the box to determine if it’s is alive or dead) assuming all of that, then what the heck is going on? I have no ready answer to this question on why the numbers are so badly spread out over several orders of magnitude. I do suspect that there is massive, and deliberate, obfuscation of those numbers, and one way to do so is to do what derivatives actually do: bundle together several different types of derivatives under one name, and report on the resulting number, without reporting what definition of derivative is being used to do so. Just don’t open the box and peek inside.
No wonder, then, that degrees in political science and public administration are requirements, because those are perfect areas of competence for technocrats whose positions are designed to keep people from looking inside the box…
