Tag: derivatives

No Reason to Believe

Cross posted from The Stars Hollow Gazette

Why would anyone believe ratings or projections by the S&P or Moody’s after their part in crashing the economy?  

Rather than assess risk accurately, two major rating agencies sold their top seals of approval to their investment bank clients, blessing products that the agencies themselves knew to be undeserving, the Senate Permanent Subcommittee on Investigations concluded in a report released Wednesday. By repeatedly debasing their standards, these agencies helped banks sell shoddy securities to unsuspecting investors, inflating the value of assets that turned out to be worth far less, the report has found.

The senate panel, led by Carl Levin (D-Mich.) and Tom Coburn (R-Okla.), levels a two-part charge against the rating agencies: Not only did these companies help inflate a dangerous bubble, the report says, but they also bear responsibility for popping it, as their abrupt downgrades of mortgage-linked securities in 2007 helped set off the panic that caused markets around the world to collapse.

Wall St. wants more austerity and and their puppets in Congress will help them every step of the way. So why should anyone take this seriously? Susie Madrak at Crooks and Liars reminds that “the banks liked the recession”

You’d think, considering the part played by Standard and Poors, Moody’s and Fitch in covering up these stinking piles of crap inadvertently rating mortgage derivatives as sound and crashing our economy, they would have the good grace to shut up and sit down.

But since nothing happened to hold accountable any of these craven clowns, what possible incentive do they have to tell the truth? And what reason do we have to believe them? After all, they’ve already displayed their willingness to sell their ratings to the highest bidder.

Let me remind you that bankers actually like the recession. They like the falling wages and the weak job market. The only thing that really worries them is inflation, and only because it raises wages and depresses the value of their holdings. Don’t trust anything that comes out of their mouths, or the feckless minions who sell their souls to them.

No reason to believe them now.

Unpluggable Leak In Gulf Between You And Wall Street

Twenty months after the financial meltdown of 2008, the U.S. congress is moving ahead with its financial system reform. In the following weeks, the Senate and House bills will be combined. While many details are still to be ironed out around issues like derivatives and consumer protection, it is clear that the legislation will not break up the massive banks that are blamed with the crisis. President Obama says the legislation will ensure the U.S. taxpayers never again bailout Wall Street, but Public Citizen’s David Arkush says that until the banks influence on Capitol Hill is broken up or countered, there is no way to guarantee an end to bailouts.



Real News Network – May 29, 2010

Banks still the powerhouse in DC

David Arkush: Bank lobbyists outnumber reform lobbyists 11 to 1 on derivatives legislation alone

Senate Subcommittee: The Role of Credit Rating Agencies

I saw Krugman on the TVeee over the Weekend. Something he said, made me think the Goldman Email Gate, was a big Mis-Direction.

So I decided to follow up on that hunch; I took to the Intertubes, and began to follow his trail of breadcrumbs …

Berating the Raters

By Paul Krugman, NYTimes — April 25, 2010

No, the e-mail messages you should be focusing on are the ones from employees at the credit rating agencies, which bestowed AAA ratings on hundreds of billions of dollars’ worth of dubious assets, nearly all of which have since turned out to be toxic waste. And no, that’s not hyperbole: of AAA-rated subprime-mortgage-backed securities issued in 2006, 93 percent – 93 percent! – have now been downgraded to junk status.

What those e-mails reveal is a deeply corrupt system. And it’s a system that financial reform, as currently proposed, wouldn’t fix.

Derivatives: An Investment on Nothing!

Warren Buffet gave a prophetic pronouncement back in 2003 about the Derivatives market, seeing the exponential dangers of this “paper-thin” type of investment.

Buffet did not mince words. He called them “financial weapons of mass destruction“:

Buffett warns on investment ‘time bomb’

BBC – 4 March, 2003

The derivatives market has exploded in recent years, with investment banks selling billions of dollars worth of these investments to clients as a way to off-load or manage market risk.

But Mr Buffett argues that such highly complex financial instruments are time bombs and “financial weapons of mass destruction” that could harm not only their buyers and sellers, but the whole economic system.

[…]

Some derivatives contracts, Mr Buffett says, appear to have been devised by “madmen”.  […]

http://news.bbc.co.uk/2/hi/bus…

With Derivatives, you can Bet on anything — Even the Weather!

Introduction To Weather Derivatives

by Felix Carabello, Associate Director, Environmental Products, Chicago Mercantile Exchange

Weather: Risky Business

It is estimated that nearly 20% of the U.S. economy is directly affected by the weather, and that the profitability and revenues of virtually every industry – agriculture, energy, entertainment, construction, travel and others – depend to a great extent on the vagaries of temperature. […]

In a 1998 testimony to Congress, former commerce secretary William Daley stated, “Weather is not just an environmental issue; it is a major economic factor. At least $1 trillion of our economy is weather-sensitive.”

[…]

If there were only some way, to “Hedge that Bet” — against the ever present risk of Foul Weather.

No WorriesWhere there’s a Market Risk, there’s always a Wall Street Way!

Obligations of Debt — Collateralized

How does your Obligation to make your Mortgage Payments, turn into some unseen Investor’s “Income Stream”?

Easy — thanks to Derivatives and CDO’s (Collateralized Debt Obligation).

For the mere Price of Admission, those unseen Investor’s get to divvy up your Mortgage Payments, among themselves — long as they “promise to pay off” that Debt, WHEN, for whatever reason, you are no longer able to make those Obligatory Payments …

Piece of Cake!

Geesh … WHAT could ever go wrong with this picture?

Mortgage Fraud — just another Scheme of the Shadow Bankers

Bill Gross, head of PIMCO, is credited with coining the term “Shadow Banking System”. A few years ago he warned about its reckless behavior and how they could wreck the Economy.

Bill Gross Calls it “Shadow Banking System”

Bill Bonner, The Daily Reckoning Australia — Jan 22, 2008

Banks recognize that not all their loans will be repaid. They operate on margins of safety, with reserves set aside for when things go wrong. But in the worlds of swaps, hedge funds and derivatives…slick operators can invest billions with no margins of safetyand no reserves. The result, Gross says, could be catastrophic.

Turns out this blunt-speaking Mutual Fund Manager — WAS Right!

Take Action to Keep America Safe from Wall Street

We've got to stop Wall Street from bringing us another economic disaster — before it happens.

Tell your U.S. Senators to crack down on Wall Street now.

A real financial reform package must include an independent Consumer Financial Protection Agency, restoration of the Glass-Steagall Act, and strict new limits on the derivatives market.

To protect citizens from rapacious banks, we need a Consumer Financial Protection Agency to stop abusive mortgages and credit card terms, and other predatory financial schemes.

The Glass-Steagall Act, which separated commercial and investment banking, was enacted after the financial crash of 1929, but it was repealed in 1999. It is crucial to preventing the reckless investing by commercial banks that caused some of the greatest financial disasters in U.S. history.

Rampant speculation in the unregulated derivatives market was a major factor in the collapse of the global financial system. We need tough new restrictions on the derivatives market, or speculators will continue to imperil our country's economic stability for short-term profit.

Tell your U.S. Senators today: support strong financial reform now!

Fed Chief calls for breakup of ‘Too Big to Fail’ Banks

Dallas Fed chief calls for breakup of ‘too big to fail’ banks in New York speech

BRENDAN CASE, The Dallas Morning News – March 4, 2010

Federal Reserve Bank of Dallas President Richard Fisher traveled to New York to trumpet a message he’s told Texas audiences before: Banks that are too big to fail are too big to exist in the first place.

Speaking Wednesday at the Council on Foreign Relations, Fisher said big, systemically important banks should be dismantled before regulators have to deal with another crisis like the one that nearly brought down Wall Street and the rest of the U.S. financial system in late 2008.

The dangers posed by too-big-to-fail banks are too great,” he said.

Fed Chairman Ben Bernanke and others have said Congress should pass a law giving regulators “resolution authority” to close down failing financial companies.

http://www.dallasnews.com/shar…

That is Good News, sort of.

Should Wall Street Speculators, have to pay their Fair Share? w Poll



H.R. 1068
, the Let Wall Street Pay for Wall Street’s Bailout Act.

Wall Street Transaction Tax Proposed by Democrats

Ryan J. Donmoyer

Dec. 3, 2009 (Bloomberg) — A group of congressional Democrats proposed taxing large transactions in stocks and derivatives, an idea that has received a cool reception from the Obama administration. […]

.25 Percent for Stocks

The measure would be based on legislation DeFazio proposed in the House that would apply a tax of 0.25 percent or 25 basis points to stock transactions in excess of $100,000, and a levy of 0.02 percent or 2 basis points on derivatives including futures, options, swaps and credit default swaps.

Harkin and DeFazio said the proposed new levy is backed by more than 200 economists, the AFL-CIO labor union federation and business leaders including Warren Buffett and Vanguard Group Inc. founder John C. Bogle, now president of Bogle Financial Markets Research.

http://www.bloomberg.com/apps/…

Ratigan reviews Frontline’s Warning, labels Wall Street as Legalized Gambling

If you missed Dylan Ratigan’s interview today with Senator Maria Cantwell (D-WA) — well you missed a lot!

They spell out in stark relief the very REAL need for serious Wall Street Regulation — NOW!   (and still!)

Or we risk a repeat of the same Bubble-driven collapse of Trillion Dollar Derivative Bets, that occur in the dark, beyond the reach — or even the Watch — of any Govt Regulator, or even the Public scrutinity.

Nothing has changed, they can STILL Gamble Trillions in Derivatives, and let US the Taxpayers pick up the Tab, whenever their Bets GO Bad!

Link to MSNBC Clip to the Ratigan Cantwell Interview

Definitely a “Must See”, in my opinion.

So much so, I transcribed much of it, to help peak your interest …  

FRONTLINE Presents: The Warning (on the economic meltdown)

FRONTLINE INVESTIGATES THE ROOTS OF THE FINANCIAL CRISIS

FRONTLINE Presents

The Warning

Tuesday, October 20, 2009, at 9 P.M. ET on PBS

In the devastating aftermath of the economic meltdown, FRONTLINE sifts through the ashes for clues about why it happened and examines critical moments when it might have gone much differently.

In The Warning, airing Tuesday, Oct. 20, 2009, at 9 P.M. ET on PBS (check local listings), veteran FRONTLINE producer Michael Kirk (Inside the Meltdown, Breaking the Bank) unearths the hidden history of the nation’s worst financial crisis since the Great Depression. At the center of it all he finds Brooksley Born, who speaks for the first time on television about her failed campaign to regulate the secretive, multi-trillion-dollar derivatives market whose crash helped trigger the financial collapse in the fall of 2008.

http://www.pbs.org/wgbh/pages/…

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