Financial Press Shakes over Derivatives Blow-out
Aug. 30, 2016 (EIRNS)—"Banks Getting Ready For Economic Nuclear Winter," CNBC headlined a wire yesterday. If you thought the first half of 2016 was bad for the big international banks,
"speaking on the condition of anonymity due to the sensitive nature of the topic, a source from a major investment bank told CNBC that financial services firms have put together a strategy in place that takes into account the worst-case scenario that could happen by the end of this year."
CNBC’s source focused on the possible break-up of the European Union under its Article 50 clause,
"referendum in other European nations leading to a break-up of the euro or sterling hitting below $1.20 or lower. The banks are ready for anything now,’ the source said."
A Bloomberg wire from today worried: "Did Brexit Turn the Derivatives Market Toxic?" The case chosen to back up that headline is the looting of British small and midsize companies through rigged derivatives contracts similar to those which bankrupted municipalities around the world. Example: Jefferson, Alabama. A quarter of those sized British companies were hooked on exchange-rate derivatives contracts which have now blown-up in their face, because the value of the British pound plummeted 12% since Brexit vote. That drop triggered covenants in the contracts which force the companies to buy much more currency than they need, or to buy at horrible rates, leading to losses of $10-15 million.