Official...this is what leaning over the US financial abyss looks like. Take a peek...

The word "trillion" used to be the preserve of an elite group of physicists working on the Large Hadron Collider (atom smasher) project at CERN in Swizerland. Even the hallowed bods at NASA did not need to cope with this number. Its mission frontier, Mars, was a mere 55 - 401 million km from Earth depending on where these planets were in their orbit around the sun. It's 2008 budget was earmarked for only US$17.3 billion. A billion we can visually relate to - one thousand million; the sum a Columbian Medellin drug lord can be worth if he is lucky enough to evade the US DEA (Drug Enforcement Agency).

The world was formally introduced (some would say saturation-bombed) to the "trillion" in October 2008. That was after Fannie Mae, Freddie Mac, Lehman Brothers and AIG collapsed in quick succession and new soundbites were quickly required for the US news networks after editorial staff found it too "lengthy" to utter the "thousands of billions" when tallying up the total losses and bailouts.

First, to understand the severity of this financial debacle, one can take a peek at the graphic below. It gives a perspective of the financial problems confronting the US today, measured in comprehensible billions. In proportion, the bigger the square the bigger the number.






A little known report from the goverment's Office of the Comptroller of Currency (OCC) is published each quarter on the total value of derivatives. This little needle in the digital haystack highlights:
- a US$ 203 trillion notional (face-value) derivatives' position in the US banking system. 97% of this is held by five US banks (JP Morgan Chase, Goldman Sachs, Bank of America, Citibank and Wells Fargo). HSBC North Americas is ranked number 6.
- Net Current Credit Exposure(NCCE) is US$555bn; this is the net amount owed to banks if all contracts were immediately liquidated today.
- Potential future exposure (PFE) is US$ 670bn; an estimate of what the current credit exposure (CCE) could be over time, based upon a supervisory formula in the agencies’ risk-based capital rules.
- Total Credit Exposure (TCE) of US$1.2tn (1,225 bn); the sum of NCCE and PFE.
Wasn't it in March that HSBC alerted worldwide markets to its £12.5bn (US$20bn) rights issue? Can the HSBC boardroom sleep soundly with US$3 trillion derivatives' on its books? Using a TCE/Notional-Value risk ratio of 0.62% calculated from the above figures, HSBC's exposure is approximately US$19.5bn, assumimg conditions do not worsen. Just blaming it on unpopular sub-prime mortgages is not the whole story.


http://www.occ.treas.gov/ftp/release/2009-114a.pdf


The OCC report does not get coverage in the major US news networks. GE owns CNBC and NBC. Time-Warner owns CNN. Disney owns ABC. Westinghouse owns CBS. News Corporation owns Fox Networks. It's in everyone's interests to both manage the news and the share price.

US media ownership list dated 2003 and still relevant:
http://la.indymedia.org/news/2003/04/47530.php


What follows below is an interview with Janet Tavakoli, one of the foremost experts on structured finance with over twenty years Wall Street experience. She has written a book "Dear Mr. Buffett: What An Investor Learns 1,269 Miles From Wall Street". She states the derivatives mess is not over and the meltdown risk is now even higher than in 2007. That was not a typo.





Imagine what NASA would do with a trillion dollars? We really could be on another planet. For HSBC stock earthlings...how they exit North America will be just as critical as beaming their Scotty CEO up to Hong Kong.