The Dow decreased 299.64 points, or 4.2 percent, to 6,763.29. The Standard & Poor’s 500 Index dropped 4.7 percent to 700.82, it slowest close since October 1996.
and they are talking about the issue with AIG, CDS's, Citigroup and systemic risk if AIG is just allowed to outright fail and same with Citigroup.
But what bothers me is why, since that was the entire point (supposedly) of TARP I, to mitigate systemic risk and contagion.....are they not really addressing this head on?
a typical recession and applying the same rules of any past recessions and comparing data to look for those similarities perhaps a case can be made.
However, I think we are beyond the typical recession where the old comparisons no longer work. CA has an umemployment rate of 10.1% which should tell you that we are now in a soft depression even by the governments watered down calculations.
The trends and solutions of a depression are quite contrasting to that of a recession.
Housing values are still over priced to todays diminished incomes and the majority of the corrections have taken place in the subprime neighborhoods covered under F & F loans. We have yet to see the next level of correction in the Jumbo markets and areas where there were higher credited borrowers. Those of the Alt-A variety.
Until the excesses of debt/leverage are worked out of the system, I expect any recovery (recovery meaning positive numbers, i.e., a lack of further deterioration) to be anemic.
Yes, there are no regulations on CDSs. I can buy 1 fire insurance policy on my house, and you may not buy any. If I could buy 10 on my own house, I would have a conflict of interest.
You can buy 10 CDSs on my bonds. This is the equivalent of you buying 10 fire insurance policies on my business. This is a bad idea.
it does seem that with enough screaming and shouting the Obama administration can be influenced.
I have a funny feeling Congress is going to raise bloody hell and maybe the people do too.
Plus we have so many experts, world renowned economists doing the talk circuits, blogging, public speaking...
to bring more pressure on the Obama administration to abandon this and nationalize (aka Sweden) the financial sector to basically wipe out these toxic assets plus bring down the financial oligarchy, who clearly have their players in the Obama administration (and Congress) itself.
Of any major issue though, so far they are impervious so I don't know what it's going to take.
Have we reached a point where we have invested/wasted too much money already in this failed financial system to turn back?
It seems like we have tied our survival and well being of future generations to this failed financial system. Or maybe that is how they want us to think?
When it comes to regulation. As soon as it is put inot law there are people looking for the loopholes. Trying to game the system is the thought process. It even happens when it comes to laws .... tell me, convince me... that the entire lunacy about what is, and what is not torture wasn't a way to "justify torture?"
I'm not so sure about P/E ratio, JV would be good to comment on this but in terms of credit ratings agencies, such as S&P, Moody's, they are clearly a major part of the problem and scant attention is upon their methods.
Some of the tricks on how AIG could have a AAA credit rating when about to cause a global financial meltdown have been mentioned but reforms, I have not read much!
It's incomprehensible to me they would not be regulating derivatives, structured finance and especially CDS.
That's a huge reason of the global financial meltdown!
"free flow of capital" that's just a smoke screen. In this day of electronic financial systems it's easy to put regulations into the system itself.
Anyone with half a logical brain can see these CDOs and CDSes are beyond financial risk, pure scam, fraud, gambling and need to be regulated. They also need to examine the particular "product" being sold as a new investment vehicle itself. Some of these things should have never been allowed on the market, one can see clearly they are based on seriously flawed models.
So, wanting to perpetuate the shadow banking system is just throwing fire on the fire they are supposed to put out.
The idea that if we "regulate" then "they will figure out a way to get around it" as a justification to not regulate is absurd. There wouldn't be swarms of corporate lobbyists if this were true. And if they find another loophole, well, plug that up too with new legislation.
Glad you watched the entire hearing. This one is flying right under the radar and is yet another major piece of the reform puzzle which instead of being addressed...is seemingly attempting to perpetuate a system that can cause global economic collapse and increase contagion.
Michael Hudson is an excellent economics historian, and a former Wall Street economist. He published an interesting essay recently at Counterpunch which supports your recommendation and explains why it is so important to do so.
Prof. Hudson was interviewed in London recently relating to this as well (h/t Barry Ritholtz).
I'm glad you were able to find the committee hearing video. I thought the last 30 minutes or so were most interesting. Some key points IMO:
Harkin
1. All of these derivatives are based on the possibility of some future event happening, or not. Therefore, they are all futures and so why not subject them all to CFTC oversight and require trading through a regulated clearinghouse.
2. He had education loans, car loans, mortgages, etc. back in the day before these exotic instruments were even dreamed up. So, do we even need them at all.
3. Should emphasize efficient flow of capital be maintained when looking at what regulations are needed.
Chambliss
1. Still concerned that too much regulation will stifle the free flow of capital.
2. These are awfully smart people who will ultimately find a way around the regulations.
Gensler comes across very well for the most part, assuming he is sincere in his admissions of how wrong he and others were 10 years ago when they deregulated everything. Still, it is disconcerting that he believes that the credit default swaps and the other derivatives should be regulated separately from their underlying commodities and also be allowed to continue to be traded over the counter. That just seems like half a loaf to me.
One also wonders if using earnings multiples methods to valuate companies now is not also part of the problem. It is hard not to question the underlying assumptions such a system relies on. Again, what is the nature of real value?
"It is purely based on the assumption that credit default swaps are correctly priced and accurate."
And that corporate entity which determines the so-called value:
Markit, originally Markit Parnters, originally financed by JP Morgan Chase, Goldman Sachs, Citigroup and BankofAmerica.
What two guys were the primary traders in derivatives used in oil/energy, commodities and precious metals trading on their InterContinental Exchange: Goldman Sachs & Morgan Stanley.
What three banks handle 90% of the North American derivatives market?
Why, of course, JP Morgan Chase, Citigroup and BankofAmerica (50% with JP Morgan, and the other 50% split between Citigroup and BankofAmerica).
What is the crux of AIG's problem and why will their downfall cause the global economy (not to mention America's) to unravel in a most destructive manner? An infinite number of credit default swaps written against an incredibly shrinking number of borrowers.
And, oh yes, that electronic exchange where the bulk of credit default swaps are traded: Markit Wire (owned, of course, by Markit -- formerly SwapsWire).
See the connections? See also why capitalism is dead (you were sooo correct Mr. Covington and Mr. Marx) and why the economy is over?
Greenspan used that famous term on December 5, 1996.
Now, 13 years later, we have arrived...again.
Just heard on CNBC that over half of all stocks are valued below $10.
Tell me the Zombie banks are not eating the economy brains.
and they are talking about the issue with AIG, CDS's, Citigroup and systemic risk if AIG is just allowed to outright fail and same with Citigroup.
But what bothers me is why, since that was the entire point (supposedly) of TARP I, to mitigate systemic risk and contagion.....are they not really addressing this head on?
a typical recession and applying the same rules of any past recessions and comparing data to look for those similarities perhaps a case can be made.
However, I think we are beyond the typical recession where the old comparisons no longer work. CA has an umemployment rate of 10.1% which should tell you that we are now in a soft depression even by the governments watered down calculations.
The trends and solutions of a depression are quite contrasting to that of a recession.
Housing values are still over priced to todays diminished incomes and the majority of the corrections have taken place in the subprime neighborhoods covered under F & F loans. We have yet to see the next level of correction in the Jumbo markets and areas where there were higher credited borrowers. Those of the Alt-A variety.
It has always been about class warfare.
Until the excesses of debt/leverage are worked out of the system, I expect any recovery (recovery meaning positive numbers, i.e., a lack of further deterioration) to be anemic.
Thank you for your efforts.
But, wouldn't a severe credit contraction be a big factor in determining what kind of recovery we have?
For the number of houses destroyed each year?
Thanks.
Yes, there are no regulations on CDSs. I can buy 1 fire insurance policy on my house, and you may not buy any. If I could buy 10 on my own house, I would have a conflict of interest.
You can buy 10 CDSs on my bonds. This is the equivalent of you buying 10 fire insurance policies on my business. This is a bad idea.
it does seem that with enough screaming and shouting the Obama administration can be influenced.
I have a funny feeling Congress is going to raise bloody hell and maybe the people do too.
Plus we have so many experts, world renowned economists doing the talk circuits, blogging, public speaking...
to bring more pressure on the Obama administration to abandon this and nationalize (aka Sweden) the financial sector to basically wipe out these toxic assets plus bring down the financial oligarchy, who clearly have their players in the Obama administration (and Congress) itself.
Of any major issue though, so far they are impervious so I don't know what it's going to take.
Have we reached a point where we have invested/wasted too much money already in this failed financial system to turn back?
It seems like we have tied our survival and well being of future generations to this failed financial system. Or maybe that is how they want us to think?
See: http://www.bloomberg.com/avp/avp.htm?clipSRC=mms://media2.bloomberg.com/...
When it comes to regulation. As soon as it is put inot law there are people looking for the loopholes. Trying to game the system is the thought process. It even happens when it comes to laws .... tell me, convince me... that the entire lunacy about what is, and what is not torture wasn't a way to "justify torture?"
BTW Robert -
It has always been about class warfare.
I'm not so sure about P/E ratio, JV would be good to comment on this but in terms of credit ratings agencies, such as S&P, Moody's, they are clearly a major part of the problem and scant attention is upon their methods.
Some of the tricks on how AIG could have a AAA credit rating when about to cause a global financial meltdown have been mentioned but reforms, I have not read much!
It's incomprehensible to me they would not be regulating derivatives, structured finance and especially CDS.
That's a huge reason of the global financial meltdown!
"free flow of capital" that's just a smoke screen. In this day of electronic financial systems it's easy to put regulations into the system itself.
Anyone with half a logical brain can see these CDOs and CDSes are beyond financial risk, pure scam, fraud, gambling and need to be regulated. They also need to examine the particular "product" being sold as a new investment vehicle itself. Some of these things should have never been allowed on the market, one can see clearly they are based on seriously flawed models.
So, wanting to perpetuate the shadow banking system is just throwing fire on the fire they are supposed to put out.
The idea that if we "regulate" then "they will figure out a way to get around it" as a justification to not regulate is absurd. There wouldn't be swarms of corporate lobbyists if this were true. And if they find another loophole, well, plug that up too with new legislation.
Glad you watched the entire hearing. This one is flying right under the radar and is yet another major piece of the reform puzzle which instead of being addressed...is seemingly attempting to perpetuate a system that can cause global economic collapse and increase contagion.
Michael Hudson is an excellent economics historian, and a former Wall Street economist. He published an interesting essay recently at Counterpunch which supports your recommendation and explains why it is so important to do so.
Prof. Hudson was interviewed in London recently relating to this as well (h/t Barry Ritholtz).
I'm glad you were able to find the committee hearing video. I thought the last 30 minutes or so were most interesting. Some key points IMO:
Harkin
1. All of these derivatives are based on the possibility of some future event happening, or not. Therefore, they are all futures and so why not subject them all to CFTC oversight and require trading through a regulated clearinghouse.
2. He had education loans, car loans, mortgages, etc. back in the day before these exotic instruments were even dreamed up. So, do we even need them at all.
3. Should emphasize efficient flow of capital be maintained when looking at what regulations are needed.
Chambliss
1. Still concerned that too much regulation will stifle the free flow of capital.
2. These are awfully smart people who will ultimately find a way around the regulations.
Gensler comes across very well for the most part, assuming he is sincere in his admissions of how wrong he and others were 10 years ago when they deregulated everything. Still, it is disconcerting that he believes that the credit default swaps and the other derivatives should be regulated separately from their underlying commodities and also be allowed to continue to be traded over the counter. That just seems like half a loaf to me.
One also wonders if using earnings multiples methods to valuate companies now is not also part of the problem. It is hard not to question the underlying assumptions such a system relies on. Again, what is the nature of real value?
"It is purely based on the assumption that credit default swaps are correctly priced and accurate."
And that corporate entity which determines the so-called value:
Markit, originally Markit Parnters, originally financed by JP Morgan Chase, Goldman Sachs, Citigroup and BankofAmerica.
What two guys were the primary traders in derivatives used in oil/energy, commodities and precious metals trading on their InterContinental Exchange: Goldman Sachs & Morgan Stanley.
What three banks handle 90% of the North American derivatives market?
Why, of course, JP Morgan Chase, Citigroup and BankofAmerica (50% with JP Morgan, and the other 50% split between Citigroup and BankofAmerica).
What is the crux of AIG's problem and why will their downfall cause the global economy (not to mention America's) to unravel in a most destructive manner? An infinite number of credit default swaps written against an incredibly shrinking number of borrowers.
And, oh yes, that electronic exchange where the bulk of credit default swaps are traded: Markit Wire (owned, of course, by Markit -- formerly SwapsWire).
See the connections? See also why capitalism is dead (you were sooo correct Mr. Covington and Mr. Marx) and why the economy is over?
Whenever someone from Wall Street is whining about regulation it is a good thing.
CDS cannot be left unregulated. Either naked CDSs are banned or require margin requirements or some sort of net capital requirement.
A small quibble, I can't tell where the quotes about actions taken by Bushco in 2008 came from, even after searching the links.
But the analysis is great. And scary.
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