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Ground Zero Established for OTC CDS.

The Depository Trust and Clearing Corporation (OTC:DTCC) announced on Wednesday February 10, that the Federal Reserve Board has approved it's application, to form a subsidiary of the Federal Reserve System, responsible for the Trade Information Warehouse (TIW), for over-the-counter (OTC) credit derivatives, under the umbrella of the Warehouse Trust Company (WTC). 

This is not good news for the American tax payer, since all OTC derivative contracts that trade through the TIW/Warehouse Trust Company  (which is now an arm of the Fed), will be backstopped by you, Mr. & Mrs. John Q. Public. These are no small beans we are talking about here (what is these days when it comes to credit), the 2.3 million credit derivative contracts,have a gross notional value of $25.5 trillion.

So the next black swan meltdown coming in the financial sector, could see the tax payer on the hook for trillions in credit derivative contracts gone sour. Look to the Warehouse Trust Company coming to the Fed soon, with hat in hand asking for a bail out, since the Federal Reserve Bank (your tax dollars) is now the guarantor in this game of backstopping the derivative market.

Disclosure: No Position.