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Dave Spart

Derivatives: How The Usual Wall Street Suspects Prevented Their Regulation

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Yesterday Ben Bernanke rather ridiculously stated that any attempt to audit the Fed

" . . . would destabilise markets and raise the cost of servicing US debt for current and future generations"

Fifteen years ago the same excuse was used to prevent the regulation of derivatives:

(From Wikipedia)

Born and the OTC Derivatives Market

Born was appointed a member of the CFTC, on April 15, 1994, by President Bill Clinton. While on the commission and after becoming its chair two years later, Born sought comments on the need to regulate derivatives, specifically swaps that are traded at no central exchange, known as the dark market, and thus have no transparency except to the two counter-parties (no actual regulatory scheme was proposed at the time). The request for comments, called the "Concept Release," stated that the growth of trade in derivatives had prompted the CFTC to re-examine its regulatory scheme. [8] The request for comments was opposed by Federal Reserve chairman Alan Greenspan and Treasury Secretaries Robert Rubin and Lawrence Summers.[9] Specifically, on May 7, 1998, former SEC Chairman Arthur Levitt joined the other members of the President's Working Group Treasury Secretary Rubin and Federal Reserve Board Chairman Greenspan in objecting to the issuance of the CFTC's concept release, in which Born attempted to shed light on the dark market, citing grave concerns about the possible consequences of the CFTC's action. In particular, these concerns focused on the risk that such discussion would increase legal uncertainty concerning swaps and other OTC derivative instruments and, thus, reduce their value. They claimed potential turmoil created by the report and concerns about the imposition of new regulatory costs also might have stifled innovation and pushed transactions offshore.[10] As the financial crisis of 2008 gained momentum, newspapers began reporting on what might be some of its causes, including the adversarial relationship Greenspan, Rubin and Levitt had with Brooksley Born, [11] with Greenspan leading the opposition, and how Born's recommendations were suppressed.[9] She is retired from Arnold & Porter and until recently had declined to comment on the unfolding crisis and her efforts to rein in the growing market for derivatives. "The market grew so enormously, with so little oversight and regulation, that it made the financial crisis much deeper and more pervasive than it otherwise would have been." The disagreement has been described as a classic Washington turf war. She now laments the influence of Wall Street lobbyists on the process and the refusal of regulators to discuss even modest reforms. [12]

In 2009 Born was awarded the John F. Kennedy Profiles in Courage Award in recognition of the political courage she demonstrated in sounding early warnings about conditions that contributed to the current global financial crisis. According to the John F. Kennedy Presidential Library, "...Brooksley Born recognized that the financial security of all Americans was being put at risk by the greed, negligence and opposition of powerful and well connected interests... The catastrophic financial events of recent months have proved them [born and Sheila Bair] right. Although their warnings were ignored at the time, the American people should be reassured that there are far-sighted public servants at all levels of government who act on principle to protect the people's interests."[13]

If your blood is now boiling you won't be the only one.

Edited by Dave Spart

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Also this from the Washington Post

Greenspan had an unusual take on market fraud, Born recounted: "He explained there wasn't a need for a law against fraud because if a floor broker was committing fraud, the customer would figure it out and stop doing business with him."

Greenspan's sociopathic tendencies are clear to see. He simply didn't give a damn about fraud.

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Its blatantly obvious that these bankers are just looting the country. Yet it seems the white house is completely dominated by the same bankers responsible for it.

As the pain moves from the commoners up the food chain, to the state governments, and big businesses.. it seems some resistance is building. Or at least other authorities starting to question what the banksters are doing, especially as the stimulus fails to stop the decline.

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Its blatantly obvious that these bankers are just looting the country. Yet it seems the white house is completely dominated by the same bankers responsible for it.

As the pain moves from the commoners up the food chain, to the state governments, and big businesses.. it seems some resistance is building. Or at least other authorities starting to question what the banksters are doing, especially as the stimulus fails to stop the decline.

Yep, I can quite clearly remembering about year 2000 a report on Newsnight saying that the then new Bush Administration was keen to cut as much red tape and bureaucracy as possible.

Now we know why.

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In the United States, four big banks control more than 90 percent of derivatives markets: JPMorgan Chase, Bank of America, Citigroup and Goldman Sachs.

$700 Trillion (now just under $600T iirc) - the vast majority of which are rate swaps (I think).

There's such a ridiculous ongoing mismatch between the value of contracts extant and the supporting capital base of these 4 players to make any regulation pretty much pointless. Geithner's just playing good cop whilst they get their ducks in a row. AIG were 'regulated'. RBS/HBOS/NRK were 'regulated'.

Same sh1t, different day.

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The only regulation we need is to allow the bad institutions to go bankrupt and to not bail them out.

Vince Cable and many others support government bailouts of bad institutions.

The "myth" that we can solve things by having better regulations or legislating new powers really needs to be exposed as does the myth that those evil financial people aren't regulated enough

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The only regulation we need is to allow the bad institutions to go bankrupt and to not bail them out.

...

Just so long as you don't mind losing everything you own as well that's fine by me. It is, if nothing else, a logical "free market" solution". Perhaps we will one day get to the same point, but it will take a while. A new cliché is needed:-

"never pay back today what you can put off until the next generation"

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My understanding of the role played by Derivitives, Credit Default Swaps etc was greatly improved by John R Talbotts The 86 Biggest Lies on Wall Street. Its worth reading regardless of your level of understanding about what is happening and in fact is a good introductory read.

Talbott makes a reasonable case for how bad things are and will become in the future.

Has anyone else read it ?

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My understanding of the role played by Derivitives, Credit Default Swaps etc was greatly improved by John R Talbotts The 86 Biggest Lies on Wall Street. Its worth reading regardless of your level of understanding about what is happening and in fact is a good introductory read.

Talbott makes a reasonable case for how bad things are and will become in the future.

Has anyone else read it ?

Will try to now. I'm interested in reading up on stories of the Old West - gamblers, gals and gunslingers etc - to find how the next banking hustle will engineered. The theft, decpetion, murdering and general criminality of those times is legenrdary and simply cannot have disappeared that easily.

I suspect non-Americans like myself fail to appreciate how the chicanery of those times still lingers to bear its ugly influence today.

Edited by Dave Spart

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Yesterday Ben Bernanke rather ridiculously stated that any attempt to audit the Fed

" . . . would destabilise markets and raise the cost of servicing US debt for current and future generations"

Fifteen years ago the same excuse was used to prevent the regulation of derivatives:

(From Wikipedia)

If your blood is now boiling you won't be the only one.

Same stunt that Paulson pulled when the debt servitude plan was going to blow up in the banksters faces and the tapayer needed to be squeezed for the money. Mind you the FED have been playing this game form the start.

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