Wall Street Demands Derivatives Deregulation In Government Shutdown Bill

Short answer:

Yes, derivatives allow farmers to lock in prices for their crops before they are harvested. They let businesses protect themselves against a rise in interest rates on their debt. There are numerous examples of how they are good and useful. They can be used prudently or inappropriately. There are so many types of "derivatives" that it hardly makes sense to lump them all into the same category. That's like putting oranges, apples, grapefruits and canteloupes in one basket.

IMO we do need more structure and regs for credit derivatives aka credit default swaps. Things like contract standardization, clearing house requirements, fuller disclosure. They were implicated in the 2008 financial crisis because AIG (an insurer, not a bank) sold them widely as an insurance product. Look up Joseph Cassano and the AIG Financial Products division in London. Cassano was a dumbfuck who didn't understand the product (credit default swaps) he was selling. Personally I am quite comfortable with 90% of derivatives but I still have issues with CDS.

Re. the current rider amending Dodd Frank, there are legitimate reasons the banks support it and there may be valid arguments against it (from adults like Sheila Bair, not childish idiots like Elizabeth Warren). I would need to hear both sides. What it's NOT about is gambling on the taxpayers' dime. The FDIC is funded with bank insurance premiums, not taxpayer dollars.

As for your question "how will it be different" - well, every economic or financial downturn is different. In 1998 it started with a Russian debt default and spread to a hedge fund named Long-Term Capital Management. In 2000/01 the tech bubble burst. In 2008 it was triggered by rising defaults on subprime mortgages. I can't tell you HOW the next crisis will be different, just that it will be. The business cycle will live on and regulators will again be fighting the last war. Capitalism isn't perfect but it beats the hell out of all the alternatives.

What is different and very dangerous this time around is that power-hungry left-wing demagogues and faux populists like Elizabeth Warren are exploiting false narratives about the financial crisis to push their dirigiste and redistributionist agendas. "Never let a crisis go to waste." That's what needs to be stopped.

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Short answer:

Yes, derivatives allow farmers to lock in prices for their crops before they are harvested. They let businesses protect themselves against a rise in interest rates on their debt. There are numerous examples of how they are good and useful. They can be used prudently or inappropriately. There are so many types of "derivatives" that it hardly makes sense to lump them all into the same category. That's like putting oranges, apples, grapefruits and canteloupes in one basket.

IMO we do need more structure and regs for credit derivatives aka credit default swaps. Things like contract standardization, clearing house requirements, fuller disclosure. They were implicated in the 2008 financial crisis because AIG (an insurer, not a bank) sold them widely as an insurance product. Look up Joseph Cassano and the AIG Financial Products division in London. Cassano was a dumbfuck who didn't understand the product (credit default swaps) he was selling. Personally I am quite comfortable with 90% of derivatives but I still have issues with CDS.

Re. the current rider amending Dodd Frank, there are legitimate reasons the banks support it and there may be valid arguments against it (from adults like Sheila Bair, not childish idiots like Elizabeth Warren). I would need to hear both sides. What it's NOT about is gambling on the taxpayers' dime. The FDIC is funded with bank insurance premiums, not taxpayer dollars.

As for your question "how will it be different" - well, every economic or financial downturn is different. In 1998 it started with a Russian debt default and spread to a hedge fund named Long-Term Capital Management. In 2000/01 the tech bubble burst. In 2008 it was triggered by rising defaults on subprime mortgages. I can't tell you HOW the next crisis will be different, just that it will be. The business cycle will live on and regulators will again be fighting the last war. Capitalism isn't perfect but it beats the hell out of all the alternatives.

What is different and very dangerous this time around is that power-hungry left-wing demagogues and faux populists like Elizabeth Warren are exploiting false narratives about the financial crisis to push their dirigiste and redistributionist agendas. "Never let a crisis go to waste." That's what needs to be stopped.

. Originally Posted by lustylad

Thanks.

What I've read about AIG's role in the 2007 meltdown was they believed they were getting "free money" from the banks, and its corporate managers didn't perceive that they were at risk. Plus, it was AIG, more than any individual bank's failure, that would have taken the whole system down.

Any company deemed too big to fail should be considered a trust per se. They should be broken up into smaller pieces so they will have to be run efficiently, or fail.

Short answer:

Yes, derivatives allow farmers to lock in prices for their crops before they are harvested.




. Originally Posted by lustylad

years ago, I was in the hog raising business. We bought feeder pigs, baby's and paid farmers in Iowa to raise them to 250#s. When we bought so many feeders pigs, we locked in the profit by selling a futures market short.

I wrote a very good program that showed where we stood live animals vs the futures market, so hence derivatives. Here is a pic of a real pig, so do not confuse the pic with Eva

Any company deemed too big to fail should be considered a trust per se. They should be broken up into smaller pieces so they will have to be run efficiently, or fail. Originally Posted by CuteOldGuy

So COG, are you following the roll-out of Dodd Frank? They are designating certain banks and financial companies as being "too big to fail". If it's a cushy deal to have the government declare you will never be allowed to fail, then why are so many of them trying to avoid this designation? It doesn't mean they get broken up, but it does have a lot of other implications, some good, some bad.

Also, the banking system in Canada is much more concentrated than in the US - yet the Canadian banks sailed through the 2008/09 financial crisis without harm. If bigness per se is bad, how do you explain this?

Finally, how did many of the US banks become "too big to fail"? One reason is because during the crisis, they were pressured by the Fed, the Treasury and regulators to acquire other weaker institutions. (Look up the history of the BoA-Merrill Lynch merger.) Now you want the government to turn around and instruct the banks to get rid of the same companies it stiff-armed them into buying 5 years ago?

I'm not saying it's a bad idea to break up the big boys sometimes, but the question is much more complicated than you think.

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The man on the street just loves to bail out the fat cats when they fuck up.

So COG, are you following the roll-out of Dodd Frank? They are designating certain banks and financial companies as being "too big to fail". If it's a cushy deal to have the government declare you will never be allowed to fail, then why are so many of them trying to avoid this designation? It doesn't mean they get broken up, but it does have a lot of other implications, some good, some bad.

Also, the banking system in Canada is much more concentrated than in the US - yet the Canadian banks sailed through the 2008/09 financial crisis without harm. If bigness per se is bad, how do you explain this?

Finally, how did many of the US banks become "too big to fail"? One reason is because during the crisis, they were pressured by the Fed, the Treasury and regulators to acquire other weaker institutions. (Look up the history of the BoA-Merrill Lynch merger.) Now you want the government to turn around and instruct the banks to get rid of the same companies it stiff-armed them into buying 5 years ago?

I'm not saying it's a bad idea to break up the big boys sometimes, but the question is much more complicated than you think.

. Originally Posted by lustylad

So it's complicated. Do it anyway.

So it's complicated. Do it anyway. Originally Posted by CuteOldGuy

Are you being glib or just stupid? Are you capable of engaging in a serious discussion or do you only grasp sound bites and superficial talking points?

That's what you were doing, LustyLady. You weren't inviting discussion, you simply wanted to defend the statist status quo by dismissing my comment by saying "It's complicated." What is this? You take it no more seriously than a Facebook relationship status. Where did I say it was simple? Do you want corporations to be able to control and make demands on taxpayers because if they failed the economy would collapse? That is too much power. Companies only gain that much power through cronyism. Yes, it's "complicated" but if we want a free country, it must be done. That part is not complicated.

That's what you were doing, LustyLady. You weren't inviting discussion, you simply wanted to defend the statist status quo by dismissing my comment by saying "It's complicated." What is this? You take it no more seriously than a Facebook relationship status. Where did I say it was simple? Do you want corporations to be able to control and make demands on taxpayers because if they failed the economy would collapse? That is too much power. Companies only gain that much power through cronyism. Yes, it's "complicated" but if we want a free country, it must be done. That part is not complicated. Originally Posted by CuteOldGuy

The FDIC is funded with bank insurance premiums, not taxpayer dollars.



. Originally Posted by lustylad

Yes but the implied trust that they are backed in full faith by the United States Government is what sustains that institution.

So you think a Federal Insurance program is good for banks but not for the health insurance program for it's own citizens is bad?

http://www.garynorth.com/public/6025.cfm


One pro-Bair site as late as October 15 wrote this of her position.

The fact that Sheila Bair--the only top regulator in this country who's been outspoken about the causes of the crash--can't turn to either the Obama administration or to Congress to replenish the FDIC's fund is a symptom of just how sick our system is. She's betting that things will get better between now and next year, that new financial regulation will be in place, that the economy will turn a corner, and that Congress and the American people won't view a request from her to replenish the FDIC's fund with taxpayer money as a taxpayer bailout that marks her as the same kind of leach as Kenneth Lewis of Bank of America or Franklin Raines of Fannie Mae.

By that time, the FDIC was already receiving funds from the government. The press

That's what you were doing, LustyLady. You weren't inviting discussion, you simply wanted to defend the statist status quo by dismissing my comment by saying "It's complicated." What is this? You take it no more seriously than a Facebook relationship status. Where did I say it was simple? Do you want corporations to be able to control and make demands on taxpayers because if they failed the economy would collapse? That is too much power. Companies only gain that much power through cronyism. Yes, it's "complicated" but if we want a free country, it must be done. That part is not complicated. Originally Posted by CuteOldGuy

You disappoint me, CrankyOldGirl. I most certainly was inviting discussion. You let the first 3 paragraphs of my post (#20) go in one ear and out the other because it is easier to focus on my conclusion rather than the points leading up to it. If you want to advance the discussion, you should go back, think about and then address the questions I posed in the first 3 paragraphs. Why don't you give it a shot?

It's way too simplistic and formulaic to say “any company designated too big to fail... should be broken up into smaller pieces...” Have you thought that through? Do you really want to give the federal government and regulators the power to break up any private firm it chooses? If you started a business and it became highly successful, should the government have the right to come in and arbitrarily force you to break your business up? Isn't that “too much power”? Does that sound like “a free country”? By your own standards you contradict yourself. My point is you can't boil everything down to a mindless slogan or an arbitrary rule. That's being too simple-minded. Unless you think breaking up Fannie Mae is the same as breaking up General Motors.

And it is a fundamental misreading of the history of the 2008/09 financial crisis to say corporations made “demands on taxpayers”. I don't recall that at all. I do recall the Big 3 automakers going to Congress with hat in hand (well, 2 out of 3 since Ford didn't take any bailout money). But the CEOs were humbled and humiliated. They didn't “demand” anything and their requests could have been denied. It is even more of a misreading of events when you look at what happened to the banks. In October 2008, Hank Paulson summoned nine bank CEOs to his office, locked them in a conference room and forced each to sell pre-determined amounts of preferred stock to the US Treasury. By all accounts, most of the CEOs didn't want to do this but found it hard to say “no” to the US Treasury Secretary. Nobody made “demands on taxpayers”. With the exception of Citigroup, most had to be sweet-talked or stiff-armed into taking the TARP money and couldn't wait to repay it ASAP afterwards. The Treasury and US taxpayers were fully repaid and earned a handsome profit on their investments.

http://www.nytimes.com/2008/10/15/bu...15bailout.html

“It was a take it or take it offer,” said one person who was briefed on the meeting, speaking on condition of anonymity because the discussions were private. “Everyone knew there was only one answer.”

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Of course they were making demands on taxpayers, where were the bailout funds coming from? Why are you defending robbing taxpayers so corrupt CEOS and middle managers can keep their salaries and bonuses for running their companies so poorly. The corporations should face the same rules that apply to everyone else. That's what the bankruptcy court is for. When you overextend, you file bankruptcy.. The goal of the BR court is rolling insure fair treatment of creditors. When the government steps in its only objective is to preserve their political cronies and pass out deals to their voters. The auto industry bailout is a perfect example. So what if the auto companies had gone under. You know own what would have happened? People would still want cars. Entrepreneurs could have picked up the plants at bargain prices, dropped a lot of unnecessary baggage, and started building some better American cars. As GM proved, we bailed them out, and they still produce shit.They learned nothing. The free market will work. Cronyism will always fail.

Yes but the implied trust that they are backed in full faith by the United States Government is what sustains that institution.

http://www.garynorth.com/public/6025.cfm Originally Posted by WTF

You're right, WTF, and your point is well taken. However, your link is from 5 years ago and the FDIC never blew through its bank-funded insurance reserves or asked for taxpayer money. One reason I like Sheila Bair is because she steered the FDIC through the crisis without taking a dime from taxpayers. Now, that doesn't mean it can't happen in the future but you would be more persuasive if you cited the failure of the FSLIC two decades ago. Why the fuck do I always figure out how to take the other side of any argument better than you can?

Of course they were making demands on taxpayers, where were the bailout funds coming from? Why are you defending robbing taxpayers so corrupt CEOS and middle managers can keep their salaries and bonuses for running their companies so poorly. The corporations should face the same rules that apply to everyone else. That's what the bankruptcy court is for. When you overextend, you file bankruptcy.. The goal of the BR court is rolling insure fair treatment of creditors. When the government steps in its only objective is to preserve their political cronies and pass out deals to their voters. The auto industry bailout is a perfect example. So what if the auto companies had gone under. You know own what would have happened? People would still want cars. Entrepreneurs could have picked up the plants at bargain prices, dropped a lot of unnecessary baggage, and started building some better American cars. As GM proved, we bailed them out, and they still produce shit. They learned nothing. The free market will work. Cronyism will always fail. Originally Posted by CuteOldGuy

Ok, find me a single link where a bank or company “demanded” taxpayer money. I just provided you with a link documenting how most of the 9 largest US banks not only failed to demand (or even request) TARP money but actually objected when it was doled out to them in October 2008. So where's your counter-link?

And why do you describe the bailouts as “robbing taxpayers” when you know the TARP money was 100% repaid? If you came to me and forced me to take a loan I didn't want, arguably didn't need at the time, and repaid as quickly as possible, would that mean I robbed you? I don't follow your logic at all.

And where do you get off insinuating that all CEOs and middle managers are corrupt? Yes, some are incompetent and deserve to lose their jobs. But the good ones (and there are plenty) don't deserve to be tarred as either corrupt or incompetent.

By the way, GM did go through bankruptcy. It was a “pre-packaged” bankruptcy that allowed the Obama administration to structure it as a giant give-away to the UAW. Even though it was overseen by a bankruptcy court, it failed miserably to “ensure fair treatment of creditors”. So BK does not protect creditors from cronyism or violation of their property rights by the government. I like letting the free market work. In the case of the auto industry, time was of the essence and credit was frozen. I would have preferred a pre-packaged bankruptcy that was fair to creditors and didn't reward the unions who did so much over the years to make the industry uncompetitive.

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