By Kent Lyndon
Hello, again. I promised I would return, amid the “frosty” conditions of Mother Nature, to give you a few updates about the ongoing derivatives and accompanying LIBOR rate scandals around the country.
Allow me to begin by informing you that the Treasury Department Office of Financial Research has compiled its list of the riskiest banks in the country. The basic criteria, making these institutions worthy of scrutiny, was having fifty billion dollars or more in assets. Thirty three banks qualified.
The five winners were reported by Doug Buchanan of the Columbus Business First: Morning Edition on 2-18-15. You’re going to be so bored when you go on-line and check it out. Yep. It’s the same names we have been dealing with for a year: the top ten list of companies who took the lion’s share of the sixteen trillion dollar secret bailout listed in that 2011 GAO report on which I have commented several times.
So let’s move on.
You expect me to tell you about the underreported problems of state and local governments where derivatives have hampered their abilities to perform their duties. What about healthcare institutions? The Wall Street Journal published an article on 7-7-2010, penned by Ianthe Jeanne Dugan, with the headline, “Hospitals’ Wall Street Wounds”. Ms. Dugan informs us that over five hundred non-profit hospitals have entered into interest rate “swap” agreements. Among the institutions who have encountered serious losses include the Owensboro Medical Health System of Kentucky, Tri-City Medical Center in Oceanside, Ca., and the Sarasota Memorial Hospital System.
Let’s not leave Pennsylvania out of the discussion. The Associated Press reported on 1-8-13, that the Pennsylvania State Turnpike lost 109 million in interest rate swaps. Sharon Ward writes for the Pennsylvania Budget and Policy Center. She penned a lengthy work on 1-17-12 titled, “Too Big To Trust? Banks, Schools, and the Ongoing Problem of Interest Rate Swaps”. Oh my……don’t get her “started”. She chronicles the derivatives blowouts throughout the state, especially Philadelphia and Bethlehem.
Author Steve Denning writes for Forbes and, on 1-8-13, penned “Big Banks and Derivatives: Why Another Financial Crisis Is Inevitable.” This article introduces many of you to the term “Variable Interest Entities” or VIEs. He reminds us that hundreds of trillions of dollars in derivatives trading take place each year: several times the total of global economic output.
Michael Lewitt writes for the ETF Daily News. (ETF stands for Exchange Traded Fund, a basket of securities that trade on the exchange like a stock). He wrote a curious article on 1-22-15 titled “Why Bank Stocks Are So Cheap”. (I purposely omitted the names) He offers that those bank stocks currently trade at a collective PE (Price/Earnings ratio) of twelve versus a PE of sixteen for the NYSE as a whole.
He tries to answer the big question with this quote: “But these bank stocks are cheap for a reason. Banks are different than industrial companies-their balance sheets are enormously leveraged, complex, and opaque, and they contain all kinds of hidden land mines”.
Watch where you walk. Ha! Until next time……………..