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Here's How Messed Up Our Financial System Is


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With regards to the $38Tr CDS market, there needs to be a thorough audit right now as to who issued what contracts on what assets, who bought them and what premiums were paid.

That would expose the fraud in the system and be the start point for mass prosecutions - and a return of the vast wealth that has been stolen.

Where assets have been insured for more than their value those organisations who accepted CDS premiums in excess of the asset value would be ordered to return them and cancel the contract. There would also need to be a investigation into whether the premiums paid for the CDS were a true reflection of the risk.

This $38Tr value would deflate very quickly indeed.

Edited by Dave Spart
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Seriously, what's your qualification to talk about this?

You are talking as if you are an expert, but your content makes it evident to anyone who actually knows anything about financial markets that you are completely clueless in this area.

That's funny. The Untouchables was on TV last night. Well, one thing I'm not is a bankster's apologist.

"It's difficult to get a man to understand something when his salary depends upon his not understanding it." (Upton Sinclair)

You can think about that when your bosses beat the rap.

Edited by Dave Spart
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This story was reported over a month ago originally. It is quite funny though.

I'm not saying that CDS don't need some extra regulation but the problem is that half the reason that so many of them were done is because there weren't enough corporate bonds in the world to satisfy the people who want to buy them, so people started selling CDS on corporates instead.

Basically what you are saying here is that there is either too much money or not enough real investment going on, or both.

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Heavens to Murgatroyd! They must have been reading this thread!

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From Yahoo Finance

By Anne Flaherty, Associated Press Writer

On Friday July 10, 2009, 12:20 pm EDT

Geithner says derivatives blindsided the gov't

Treasury secretary says power, risks of explosive derivatives market blindsided the gov't

. . .

Geithner's defense, before a joint hearing of the House Financial Services and the Agriculture committees, came in the midst of his call for greater government control over the generally unregulated but complex derivatives market, that he said contributed to the financial crisis.

"Establishing a comprehensive framework of oversight is crucial," Geithner said in his opening remarks to a joint hearing by the House agriculture and financial services committees.

Despite apprehension among Republicans, the effort to add government restrictions to these more freewheeling financial instruments has gained support within the Democratic-controlled Congress.

"Clearly, we're going to be significantly expanding regulation of derivatives," said Rep. Barney Frank, the chairman of the Financial Services Committee.

Derivatives are financial instruments whose value derives from something else, such as a mortgage-backed security or a commodity like oil. The allure of the over-the-counter derivative, as opposed to those swapped on exchanges, is that it can be individually negotiated and tailored to meet the specific needs of the buyer.

Geithner said the ease with which derivatives were bought and sold in an era of easy credit encouraged financial institutions and investors to take on too much risk. At the same time, government regulators weren't given the proper tools to mitigate those risks and protect the American consumer, he said.

"The complexity of the instruments overwhelmed the checks and balances of risk management and supervision," he said.

The administration's proposal, part of a broader overhaul package, has run up against much of the financial industry, which says it would raise costs and squash innovation.

Some lawmakers and federal regulators say they are skeptical, too.

"My fear is that the administration is going down the path of shifting risk not to the investors and the dealers, but ultimately to the taxpayers," said Rep. Spencer Bachus of Alabama, the top Republican on the Financial Services committee.

Edited by Dave Spart
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