Harvey fears that the losses on JP Morgans interest rate swaps could already be $100 billion, and COULD BRING DOWN THE WHOLE FINANCIAL SYSTEM OF THE WORLD!
When asked what type of risk JP Morgans derivatives crisis currently poses to the financial system Harvey responded:
Weve been following this (JP Morgans derivatives) for quite awhile. Rob Kirby in 2009 wrote a great paper The Elephant in the Room, where he describes the huge amount of interest rate swaps that JP Morgan has underwritten, and its probably in excess of $50 trillion- of the $70 trillion in derivatives that they hold.
These interest rate swaps are really a bet where they go long on long term rates (T-bonds), and short the short term treasury bills. That forces the purchase of bonds, which in turn causes long term rates to fall. Thats basically why long term rates are low for the United States, but Europes rates are higher: its because of the manipulation by JP Morgan.
What Jim Willie has shown is that JP Morgan right now is unwinding some of these interest rate swaps. If theyre unwinding these things, together with the huge losses from the IG9 (which were losses from the underwriting of the European credit default swaps), THIS COULD BRING DOWN THE WHOLE FINANCIAL SYSTEM OF THE WORLD!
If its $100 billion ( the losses on JP Morgans interest rate swaps), then that blows up everybody.
Harvey believes that the panicked reactions of multiple federal regulatory agencies indicates that JP Morgans losses are likely much more critical and severe than the mere $8 billion lost in the IG9 tranche, and states the data indicates JP Morgan is unwinding a portion of its $50 Trillion in interest rate swaps.