The following table shows the amount of such swaps in millions of dollars ($42 trillion dollars at JPM).  Note the leverage of total assets to swaps and the high percentage of derivatives which are swaps.  The leverage is the ratio of total assets to derivatives.

What is a credit default “swap?”   When government entities or corporations issue bonds, they may buy credit default insurance for those bonds to pay in case of default.   This insurance allows a lower rate of interest and enables many investment funds to buy this “safe” debt as required by their rules.  This insurance cost is paid out of the initial proceeds of the bond offering and is made by some large entity, which could pay off, if necessary.  The five large US banks see this as a great cash generator with any liability to come in future years, after the present executives are retired.  In order to spread the risk to others, these banks trade shares of this liability for losses (credit defaults) with other banks, hence called a swap.

Credit defaults are liabilities not assets, which you trade for another liability.  Banks trade or can pay money to the acquirer of such credit default shares.  The receivers of such credit default swaps are other financial institutions or hedge funds.  Or, I’ll trade one Greek credit default share for for four of your Widget Corp bond credit default shares.

As already reported, some Greek debt has already defaulted and the insured parts of those losses will be spread around to all the holders of those Greek swaps.  JPMorgan, after making many unidentified swaps, was left with a $2 billion dollar assortment of lower value credit defaults claimed to be in corporate bond credit defaults.  Did JPMorgan try to dispose of its Greek, Spanish and Italian credit defaults and got stuck with worse junk?   JPMorgan’s losses are just the tip of the coming credit default losses on Greek and other EU nation’s debt which will be absorbed by the many players in credit default swaps.

Enter the government clowns and scoundrels, aka politicians and bureaucrats, looking to assigning blame:  Under Dodd-Frank law, a Volker rule is to be put in place in July to limit speculative bets using a bank’s capital.   The SEC is investigating JPMorgan losses.  But as reported here, Schumer and Eric Holder are the hyenas in charge of the financial chicken coop.   Did the smartest man in the room, aka Obama, learn about credit default swaps in his affirmative action “Finance Simplified” course?  Does Tim Geithner, who was unable to correctly answer the question whether he had earnings outside of the USA on his Federal Income Tax program, understand credit default swaps?  Will Jamie Dimon, CEO of JPMorgan, who is on the NY Federal Reserve Board resign as requested by Massachusetts Senate candidate, “Pocahontas” Warren?   Will the Federal Reserve bailout any of the five too-big-to-fail banks for losses from credit defaults exceeding capital?  Does Ron Paul understand credit default swaps or the supervision of banks? Where is Ron Paul on credit default swaps in his House Committees?  Were the moral hazards of profits from credit default fees received up-front with possible losses much later or bailed-out by the Federal Reserve too great? 

Just ahead:  “Greece’s deputy prime minister has said the country will run out of money in six weeks unless it honours its bitterly-disputed EU bailout deal.“    Alexis Tsipras, former student Communist leader, whose party took second place in elections, “insists Brussels and Berlin will not force Greece out of the euro because of the contagion effect this would have on Portugal, Ireland and Spain.”   What happens when the holders of defaulted insured Greek and other EU defaulted bonds want payment on their insurance?    The issuing bank may claim they swapped the obligation to pay to other parties, like hedge funds or then insolvent banks.  Instead of receiving insurance payouts, the holders of insured debt could become parties to Federal legal actions involving the issuing US bank and all the other holders of those swapped credit defaults.    Three heads rolled at JPMorgan, including Ina Drew, 55, one of two women on the operating committee at JPMorgan.    Will other bank weasels be allowed to escape?  Were the credit defaults offered in swaps already known ready to default and thus frauds/crimes by the traders as may be claimed by final holders of the swaps?  Or were the swaps innocent errors due to incompetence, or greed?

The winners:  the lawyers get richer.  The losers: the defaulted bond holders, un-defaulted bond holders due to rising interest rates, banks, bank stocks and the taxpayers paying through the Federal Reserve or with another TARP bailout.   Did you believe that losses in Greek and other European defaults would stay in Europe?  Look at the graph above to see who holds most all of the derivatives.   Will derivatives become weapons of mass destruction for the five too-big-to-fail US banks?  See the latest opinion on Zero Hedge, “the problems facing the EU (Spain and Italy) are too large to be bailed out. There simply aren’t any funds or entities large enough to handle these issues.”     Quo vadis, Romney?   

This is especially distressing to some of us “ordinary people” whom were told that we could expect assistance, not that all of us wanted a hand-out. The gesture, at least, would’ve been nice.

The president and his Democrat leadership have now told us that certain institutions need this bloated stimulus package sooner in order to save jobs. Whether they’re right or not will be for historians to decide, but unless you did some early hand-washing, you may be SOL.

$302.28 billion was given to select businesses that were supposedly important to the financial solvency of our nation. However, after that sizable cash infusion, the economy continued to tank. The handling of our economy over last eight years has been blamed politically, while presidential candidates (in order to differentiate themselves from an opposing party’s incumbent) in unison talked-down the economy, calling it the worst since the Hoover Administration. Add to that the simmering Democrat Fannie Mae and Freddie Mac-socialist experiment run amok, “bad bookkeeping” fraud, things went downhill.

We were told certain institutions couldn’t be allowed to fail, and they received no-strings attached TARP money. Now let me ask you; when was the last time (aside from receiving a tax refund) did the government ever give us something without any guidelines or laws directing us how to utilize what they gave us? Yet it was done and then some, given the perks, junkets, and parties our money allowed them.

Here’s one theory why: the recipients washed the hands of politicians.

For example, the Bank of America (incl. Merrill Lynch) received $45 million. Why would they get that kind of money, no strings attached? Maybe because Kenneth Lewis, Chairman and CEO of Bank of America, washed some hands, giving $56,300 to Republicans and $15,163 to Democrats. Stan O’Neal, Merrill Lynch Chairman and CEO from 2003-2007, donated $5,000 to Republicans and $7,800 to Democrats, including Barack Obama and Hillary Clinton. Current chairman John Thain has given $234,800 to Republicans, $18,000 to Democrats, and $108,750 to special interests.

Citigroup received $45 million, and I’m sure the fact that their 2002-2007 chairman and CEO‘s campaign donations got them some attention. Charles Prince gave $53,100 to Republicans and $100,700 to Democrats, including Barack Obama, the DNCC, and Charlie Rangel. Citigroup’s chairman-designate Richard Parson has donated another $259,850 to Republicans and $17,300 to Democrats. Current chairman Vikram Pandit gave $40,000 to Republicans and $5,000 to Democrats.

AIG received $40 million of TARP money, and the fact that CEO Edward Liddy gave $14,100 to Republicans and $250 to Democrats probably didn’t hurt.

$25 million dollars went to Wells Fargo, and Chairman Richard Kovacevich donated $181,500 to Republicans, $32,200 to Democrats, and $42,920 to special interests. Quite the coincidence….

And don’t let the party disparities fool you. That money was clearly meant as insurance, either way.

Another $25 million was used to keep yet another fine financial institution up and running. Jamie Dimon, JP Morgan Chase Chairman and CEO, gave $46,800 to Republicans and $491,700 to Democrats, including Hillary Clinton, Chris Dodd, Mark Warner, Steny Hoyer, Harry Reid, Rahm Emanuel, the DNCC, Mary Landrieu, and Barack Obama.

Remember all the outrage that was the automotive hearings, when our elected officials let the Big Three have it? It would appear that was probably all for show.

General Motors received $14.284 million after Chairman Rick Wagoner gave $17,100 to Republicans, $18,800 to Democrats, and $76,932, mostly to the GM Political Action Committee (which lobbies politicians).

Goldman Sachs got $10 million as Chairman and CEO Lloyd Blankfein gave $5,000 to Republicans and $130,290 to Democrats, including the DSCC, Chris Dodd, Hillary Clinton, Jon Corzine, John Kerry, Tom Daschle (reported?), Chuck Schumer, Bob Torricelli, and Al Gore.

You get the idea. It’s clear as day that to get any “assistance” from our lawmakers, you got to pay to play.

After months of anger and anxiety, our part in the Rick Senninger saga will be over on Monday when our house is sold from under us. I didn’t pay off any politicians requesting special treatment when our world was falling down around us, and we don’t have anything near the world of opulence like those mentioned above.

The good thing is, that unlike those CEOs and chairmen, we can sleep well over the coming days and weeks knowing that we’ll not have to continue paying out big sums of money to the elected just to keep them off our backs, or to get their attention when we need a boost.

As this vitally-important pork-payoff stimulus plan edges towards implementation, remember that those who washed hands will be the first ones helped. Those of us unwashed will be the ones to bear the brunt of the economic fiasco created by the very ones who now say they know how fix it.

For a price….