Morgan Stanley insolvent

This is all I could find following on to yesterday's rumours

Morgan Stanley is Insolvent – Only a Matter of Time Before Total Financial Collapse

Occupy Corporatism,

30 August, 2012

The fall of the House of Morgan has begun as stock prices on the global market at Morgan Stanley (MS) begin to fall on the New York Stock Exchange (NYSE).

According to Rick Wiles : “I’m hearing rumors that another major financial house is going to implode. In fact, the name I’ve been given is Morgan Stanley . . . It’s going to be put on the sacrificial alter by the financial elite.”

MS, technically speaking, is classified as insolvent based on mark-to-market valuation. By selling off non-core assets, MS has been able to “reduce its European exposure” through the manipulation of hedge funds and allocation of funds to failing financial corporations. Some mainstream media outlets tout that the Federal Reserve Bank will come in and assist MS in their insolvency and that MS “just isn’t going out of business anytime soon.”

However, on the bond market, MS is being treated like “a junk-rated company.” Moody’s the rating agency that sells their ratings to whomever will pay for a triple A score, have announced they will downgradge MS’ ratings which would put all US banks at risk.

Otis Caset, director of credit research at Markit confirms: “What has driven that, obviously, is Europe. The perception is — correctly or incorrectly — that Morgan Stanley is one of the U.S. banks most exposed to Europe’s problems.”

In 2008, with the first pre-meditated financial explosion , the cause for the bailout of the banks was a large sum of cash needed quickly to repay China who had purchased large quantities of mortgage-backed securities that went belly-up when the global scam was realized. When China realized that they had been duped into buying worthless securitized loans which would never be repaid, they demanded the actual property instead. The Chinese were prepared to send their “people” to American shores to seize property as allocated to them through the securitized loan contracts.

To stave this off, the American taxpayers were coerced by former President Bush and former US Treasury Secretary Hank Paulson. During that incident, the US Senate was told emphatically that they had to approve a $700 billion bailout or else martial law would be implemented immediately. That money was funneled through the Federal Reserve Bank and wired to China, as well as other countries that were demanding repayment for the fraudulent securitizations.

To further avert financial catastrophe, as well as more debt or property seizure threats by the Chinese, the Euro was imploded there by plunging most of the European countries into an insurmountable free-fall for which they were never intended to recover.

MS exposure to mortgage-backed securities and derivatives fraud may have finally brought the financial implosion to America. As Otis points out, it is the exposure to the Eurozone that was the nail in the coffin at MS. This only furthers the fact that financial collapse is imminent in America and the repercussions are already laid out.

However, this planned implosion of the mega-banks only serves to fit the global Elite’s plans.

John Paulson recently traded in his stocks for 4.53 million shares in SPDR Gold Trust (GLD) while investing deeper into NovaGold Resources.

George Soros has also sold his shares and interest in JPMorgan (701,400 shares), Goldman Sachs (120,000 shares), and Citigroup (420,000). He has reallocated these funds to gold.

The insolvency of MS means that the customer funds that are held in MS can be hypothecated (or co-mingled) by the bank into their funds to be used to pay off any loans or debts owed by the bank.

Earlier this month, on August 9th, the 7th Circuit Court of Appeals (CCA) ruled that BNYM can be moved to first in line of creditors over the customers that had their funds stolen by Sentinel Management Group (SMG).

Before SMG collapsed in 2007, Eric Bloom, former chief executive, and Charles Mosely, head trader of SMG stole $500 million in customer secured funds and were indicted because they exposed customer segregated funds to “highly risky derivatives.”

The SMG ruling means that the Federal Deposit Insurance Corporation (FDIC) and Securities Investor Protection Corporation (SPIC) regulatory systems will not insure customer funds, investments, depositors and retirees who hold accounts in banks.

In fact, the banking institution is now legally allowed to use those customer funds deposited as collateral, payment on debts for loans made, or free use on the stock market to purchase investments as the bank sees fit.

When a customer deposits money into a bank, the bank issues a promise to have those funds available when the customer returns to withdraw the deposited amount.

With the SMG ruling, those funds become property of the bank once they are deposited. If the bank is insolvent, under duress or filed bankruptcy, those customer deposited funds can be co-mingled with the bank’s funds and used for the purposes of the bank without recourse to the customer.

As explained in Readiness Exercise 1984 (Rex84) the end of the US dollar combined with civil unrest would cause the US government to declare martial law in order to preserve continuity of government.

Since 2010, all the mega-banks in the US have filed resolution plans with the Fed describing how to liquidate banking assets without causing further damage to a failing financial system. By selling “non-core assets” without upsetting shareholders while protecting the monetary system, taxpayers and creditors is the work of the mega-banks who have contributed solely to the destruction of the global financial markets.

Both Bank of America and Citibank have already begun liquidity with the sale of their non-core assets proving that these two financial institutions are insolvent. Add to this list MS.

While mega-banks are unloading their assets under duress, they are acquiring smaller banks and keeping their names to fool the American public into thinking they are banking with an independent as they consolidate financial power in the US.

In response to the coming implosion, the Federal Reserve Bank is inventing electronic fiat. This keeps the Ponzi scheme going. On the surface it all appears to ok. However, undercover and out of the general public’s sight, the manipulation of insurance rates, market values, mortgages are directly contributing to the complete banking system collapse.

An estimated 70% of some of the mega-bank’s worth is provided by the government by subsidies; meaning that without the money provided by the US government, these banks would go under tomorrow. And by watching the financial climate as it is emerging, it appears that we are witnessing just that.

Combined with the solicitations of the Department of Homeland Security (DHS) for 1.8 billion rounds of hollow point bullets, 1400 pounds of highly dense explosives material and urban warfare drills being conducted across the nation, it is clear that this insolvency of MS is one more proof that marital law coinciding with financial collapse is dangerously close.

Rumours of Morgan Stanley collapse

This has come my way via Max Keiser's website, and now, from Aotearoa: a Wider Perspective.

These could always be rumours, but could also be indication of something very serious.

No doubt more of this to come

Rumours have it that JP Morgan Is On The Way Out

Over the past couple of days rumours are circulating that a big banks is on the verger of collapse and many of them associate that banks with JP Morgan.

MORGAN STANLEY IMPLOSION

The insider conversation, often called chatter when it become deafening in tone, is that Morgan Stanley faces imminent failure and ruin.  

Almost two weeks ago, the Jackass provided a tip to Bill Murphy of GATA to post on his popular LeMetropole Cafe that Morgan Stanley fund managers and high ranking employees were preparing for the firm’s implosion. 

A subscriber to the Hat Trick Letter has a good friend whose father works as a fund manager and provided the story. It was not detailed, and bore no follow-up after my request.  

The older employees are selling all of their stock, some legacy stock from one or two decades ago.Many workers are making contingency plans for their next positions in another firm. 

When Lehman Brothers was killed, thousands of employees had to find new jobs, some without success. 

In the last week, the shock waves are being heard from internal Wall Street sources in an unequivocal manner. The implosion is in progress, like the collapse of several platforms and structural cables.

For full article GO HERE

Here is a iconograph showing the exposure of the five to big too fail to the  derivatives bubble

Following on from that, this Zero Hedge article from last year may be of interest

Five Banks Account For 96% Of The $250 Trillion In Outstanding US Derivative Exposure; Is Morgan Stanley Sitting On An FX Derivative Time Bomb?

Zero Hedge,

24 September, 2011

The latest quarterly report from the Office Of the Currency Comptroller is out and as usual it presents in a crisp, clear and very much glaring format the fact that the top 4 banks in the US now account for a massively disproportionate amount of the derivative risk in the financial system. Specifically, of the $250 trillion in gross notional amount of derivative contracts outstanding (consisting of Interest Rate, FX, Equity Contracts, Commodity and CDS) among the Top 25 commercial banks (a number that swells to $333 trillion when looking at the Top 25 Bank Holding Companies), a mere 5 banks (and really 4) account for 95.9% of all derivative exposure (HSBC replaced Wells as the Top 5th bank, which at $3.9 trillion in derivative exposure is a distant place from #4 Goldman with $47.7 trillion). The top 4 banks: JPM with $78.1 trillion in exposure, Citi with $56 trillion, Bank of America with $53 trillion and Goldman with $48 trillion, account for 94.4% of total exposure. As historically has been the case, the bulk of consolidated exposure is in Interest Rate swaps ($204.6 trillion), followed by FX ($26.5TR), CDS ($15.2 trillion), and Equity and Commodity with $1.6 and $1.4 trillion, respectively. And that's your definition of Too Big To Fail right there: the biggest banks are not only getting bigger, but their risk exposure is now at a new all time high and up $5.3 trillion from Q1 as they have to risk ever more in the derivatives market to generate that incremental penny of return.

 

At this point the economist PhD readers will scream: "this is total BS - after all you have bilateral netting which eliminates net bank exposure almost entirely." True: that is precisely what the OCC will say too. As the chart below shows, according to the chief regulator of the derivative space in Q2 netting benefits amounted to an almost record 90.8% of gross exposure, so while seemingly massive, those XXX trillion numbers are really quite, quite small... Right?

...Wrong. The problem with bilateral netting is that it is based on one massively flawed assumption, namely that in an orderly collapse all derivative contracts will be honored by the issuing bank (in this case the company that has sold the protection, and which the buyer of protection hopes will offset the protection it in turn has sold). The best example of how the flaw behind bilateral netting almost destroyed the system is AIG: the insurance company was hours away from making trillions of derivative contracts worthless if it were to implode, leaving all those who had bought protection from the firm worthless, a contingency only Goldman hedged by buying protection on AIG. And while the argument can further be extended that in bankruptcy a perfectly netted bankrupt entity would make someone else whole on claims they have written, this is not true, as the bankrupt estate will pursue 100 cent recovery on its claims even under Chapter 11, while claims the estate had written end up as General Unsecured Claims which as Lehman has demonstrated will collect 20 cents on the dollar if they are lucky.

The point of this detour being that if any of these four banks fails, the repercussions would be disastrous. And no, Frank Dodd's bank "resolution" provision would do absolutely nothing to prevent an epic systemic collapse. 

...

Lastly, and tangentially on a topic that recently has gotten much prominent attention in the media, we present the exposure by product for the biggest commercial banks. Of particular note is that while virtually every single bank has a preponderance of its derivative exposure in the form of plain vanilla IR swaps (on average accounting for more than 80% of total), Morgan Stanley, and specifically its Utah-based commercial bank Morgan Stanley Bank NA, has almost exclusively all of its exposure tied in with the far riskier FX contracts, or 98.3% of the total $1.793 trillion. For a bank with no deposit buffer, and which has massive exposure to European banks regardless of how hard management and various other banks scramble to defend Morgan Stanley, the fact that it has such an abnormal amount of exposure (but, but, it is "bilaterally netted" we can just hear Dick Bove screaming on Monday) to the ridiculously volatile FX space should perhaps raise some further eyebrows...

Morgan Stanley bonds trade at junk pricing

Morgan Stanley Bonds Trade at Junk Pricing, Downgrades Coming;Will Morgan Stanley Survive? Top 5 Banks Collectively Have 45:1 Leverage

Mish'sGlobal Economic Analysis,

2 June, 2012

Morgan Stanley's corporate borrowing costs are already way higher than Goldman Sachs and more downgrades are likely in the works.

The Fiscal Times explains How Morgan Stanley sank to junk pricing

 The bond markets are treating Morgan Stanley like a junk-rated company, and the investment bank’s higher borrowing costs could already be putting it at a disadvantage even before an expected ratings downgrade this month.

Bond rating agency Moody’s Investors Service has said it may cut Morgan Stanley by at least two notches in June, to just two or three steps above junk status. Many investors see such a cut as all but certain.

Even before any downgrade, the bank is suffering in the bond markets. Prices for Morgan Stanley’s bonds and credit derivatives have been trading at junk levels since last summer, according to Moody’s Analytics. Prices moved further into the non-investment-grade category over the past two weeks amid troubles in Greece and other Euro zone nations.

"The numbers have changed for the worse," said Otis Casey, director of credit research at Markit. "What has driven that, obviously, is Europe. The perception is – correctly or incorrectly – that Morgan Stanley is one of the U.S. banks most exposed to Europe’s problems."

Morgan Stanley’s problems were compounded by its handling of the Facebook IPO – its high price and large size, and selective disclosure of an analyst’s reduction of his forecasts for the social network’s revenue and earnings. Facebook shares ended regular trading at $27.72 on Friday, down 27 percent from their offering price of $38.

"A bank with a near-junk rating is in ‘no man’s land,’" said Edward Marrinan, credit strategist at Royal Bank of Scotland Group in Greenwich, Connecticut. "Banks rarely thrive with non- or borderline investment grade ratings."

In a May 7 securities filing, Morgan Stanley said it might have to post $7.2 billion worth of additional collateral and termination payments in the event of a downgrade to Baa2, the second lowest investment-grade rating, up from a $6.5 billion estimate it provided three months earlier.

But bond markets are not waiting for a downgrade. On Friday, it would have cost Morgan Stanley 1.20 percentage points more to raise five-year debt than its chief rival, Goldman Sachs Group Inc. The bank would even have to pay a little more than much-smaller competitor Jefferies Group.

"The Street is pretty efficient and is really moving ahead of the ratings agencies," said Carret Asset Management’s Graybill. "It’s never good in this business to have a disadvantage against a strong competitor."

Will Morgan Stanley Survive?

My answer is the same as I said about Citigroup in 2007: Not in one piece. And in spite of shedding numerous pieces over the years, Citigroup and others still have shedding to do.

JP Morgan added fat to the fire with massive derivatives losses, bringing the Volcker Rule back in the spotlight.

Top 5 Banks Have 45 Times Leverage

Reuters reports JPMorgan case puts Volcker Rule and SIFIs back in the spotlight

 The massive losses which resulted from JPMorgan Chase hedging its positions against derivatives has once again cast the spotlight on the Volcker Rule and whether systemically important financial institutions (SIFIs) are too big to fail, industry observers said. Questions have also been raised about the firm’s hedging strategy, and what constitutes hedging in the first place.

Industry officials in Asia suggested that JPMorgan’s $2 billion hedging losses might embolden regulators to strengthen the Volcker Rule, on the premise that it would be of benefit to SIFIs. The rule, named after former Federal Reserve chairman Paul Volcker, forms part of the Dodd-Frank Wall Street Reform and Consumer Protection Act and has proposed the separation of proprietary trading from commercial banking activity. Most notably, it has argued against investing in derivatives or using derivatives as a hedge on investments. The rule has, however, faced strong opposition from many of the large global financial institutions.

Top five SIFIs’ OTC derivatives exposures

A look at the 2011 fourth quarter bank trading and derivatives activities report released by the U.S. Office of the Comptroller of the Currency (OCC) showed that the top five SIFIs — Bank of America, Citibank, Goldman Sachs, HSBC and JPMorgan — collectively accounted for more than 50 percent of the $700 trillion OTC derivatives trades worldwide in total notional value. JPMorgan alone accounted for more than $70 trillion of the $700 trillion, the report said. “That [$70 trillion] represents one-tenth of the global OTC derivatives exposures. This is what I call concentration of risk and what is defined as an institution that is too big to fail,” an industry official told Thomson Reuters on condition of anonymity.

The official said he found it alarming that, when the top five banks’ assets and total exposures to derivatives activities were added up, they showed a leverage of one to 45 times. The OCC report showed that JPMorgan Chase North America has total assets of $1.8 trillion to cover $70 trillion worth of OTC derivatives exposure. JPMorgan Chase & Co has total assets of $2.26 trillion, the report also stated.

“Five to 10 years ago, a leverage of one to 10 times was considered scary but now we are talking about a leverage of one to 45 times. The questions to ask JPMorgan are: ‘Were you using these derivatives for speculation or for hedging purposes?’ and ‘Can you qualify your definition of hedging?’” he said.

If regulators get really serious about enforcing the Volcker rule, none if the top financial institutions will survive in one piece.

Actually, they will all breakup regardless. At some point, the derivatives time-bomb will go off taking care of matters so to speak.