Dear President Donald Trump.
Please read my letter of the 18 April 2025 on Banking from 1996 to 2025.
So that you understand how interest rate swap derivatives were the cause of the 2008 Global
Financial Crash and will be the cause of the next GFC please read the following.
Deregulation of banking in the USA was a gradual process that began in the 1970s and
accelerated in the 1980s and 1990s
In 1970, the concept of interest rate swaps as we know them today did not exist. Interest rate
swaps, which involve the exchange of interest rate payments between two parties, first emerged
in the Eurobond market in late 1981. Therefore, there would have been no outstanding interest
rate swap derivatives in 1970.
In 1980, interest rate swaps were not yet widely used, as the first interest rate swap was signed
in 1982. Therefore, there would have been essentially no outstanding interest rate swap
derivatives in 1980.
In 1990 the total notional principal value of interest rate and currency swap contracts
outstanding reached approximately $2.889 trillion.
In 2008 outstanding interest rate swap derivatives were $US356Trillion.
In 2024 outstanding interest rate swap derivatives were $US469Trillion
My experience with interest rate swap derivative was in Australia in 1996 when I was the CFO of
a Bank. The new CEO from oversea was on a large remuneration and benefits package which
included a mega bonus based on profits net of interest and tax. The only way he was going to
increase profits was to securitise Treasury Funds which included Depositors’ money.
At that time Treasury Funds were sacrosanct, could not be speculated and put at risk. There was
no legislation to bail in depositors’ money to bail out the Bank. Treasury was not a profit centre
and not included in the remuneration of the Board, CEO and other executives.
With my team I prepared the Bank’s annual budget and a monthly forecast for the Board and
Executive, I had been in the Profession as an Auditor for 11 years including of large Pastoral
Groups and Finance Companies and as a Finance Executive and MD in industry for 28 years. I
had learnt not to follow the interest rate forecast of the US Federal Reserve and the Australian
RBA. Based on my research I prepared the interest rate forecast which was included in the
monthly forecast provided to the Board and CEO.
When short term investment interest rates fall below long-term investment fixed interest rates,
interest rate swaps are entered into to swap out the original borrowing fixed interest rate for a
lower fixed interest rate. These derivatives get traded in the market including by unregulated
finance and insurance companies. On the maturity date of the derivative the holding party must
pay it out. If they cannot pay, the liability goes down the line to the next counter party and
ultimately the originating Bank with the risk of insolvency. This is what I understand happened to
Lehman Brothers and Washington Mutual and was the real cause of the 2008 GFC and will
be the cause of the next GFC.
If you are to MAGA your immediate priority needs to be
1. Legislate an END to the securitisation and speculation of Bank Treasury Funds including
Depositors’ money.
2. Legislate the disclosure by the Banks etc of their risk exposure to outstanding Derivates
and the expensing of all deferred derivative fees and costs.
3. Have Elon Musk and me PLAN the research and implementation of LIBERTY TAX.
Please read my letter of the 15 April 2025.
There are no greater priorities for the USA and the Western World.
Make my day.
Derek Smith CA
Your worried Aussie Mate.
Please see and SHARE
https://drive.google.com/file/d/1qWZ3T0YEYaKqrMCJuXzYFdNAvJNzrfDy/view?usp=sharing