The Evil Doers of the Financial Crisis

Many folks are asking what the hell is going on, how did we get here and who is responsible?

The Washington post has named names on what and who are responsible for this disaster.

The issue at hand was regulation of the derivatives market and Brooksley E. Born wanted to regulate it. This is 1998, the Clinton administration.

It seems Federal Reserve Chairman Alan Greenspan, Treasury Secretary Robert E. Rubin and Securities and Exchange Commission Chairman Arthur Levitt Jr. didn't want any regulation on the growing shadow banking system called derivatives.

In spite of the stand off, Rubin, Greenspan and Levitt won. Derivatives would not be regulated. Later, Larry Summers, Rubin's successor continued the fight to keep regulation out of the derivatives markets.

Born - A lack of basic information allowed traders in derivatives to take positions that may threaten our regulated markets or, indeed, our economy, without the knowledge of any federal regulatory authority.

After shutting up Born the lobbyists got their ultimate bill, The Gramm-Leach-Bliley Act. The final blow was done by slipping in a huge amendment after the 2000 election called the Commodity Futures Modernization Act of 2000.

Remember this is 1998. Take a look at this dark monster and it's Godzilla economic proportions:

The global derivatives market topped $530 trillion as of June 30 this year, including $55 trillion in the suddenly popular credit-default swaps; that $530 trillion represents all contracts outstanding. The total dollars at risk is much smaller, but still a hefty $2.7 trillion, according to an estimate by the International Swaps and Derivatives Association.

The Senate Banking, Housing and Urban Affairs Committee held a hearing today where Arthur Levitt testified. Note not a mention from him on the fact he was in on the cause or derivatives. He simply blames Cox, current head of the SEC.

Now why is this important in terms of this election? Rubins is advising the Obama campaign, Jason Furman, Obama's top economic adviser is a Robert Rubin clone and part of the Hamilton Project. Larry Summers, (remember when he claimed girls can't do math and was ousted from Harvard?) is also involved with Obama.

On the McCain side, Phil Graham was heavily involved in his campaign earlier. Senator Richard Lugar, who both campaigns claim to consult, was also involved.

Note: One thing we do not hear on the campaign trail is anything about derivatives and how they are causing this mess.

The European Tribune has also picked up on the evil doers of the financial crisis.

Meta: 

Comments

Any moron could have saw this coming

I read When Genius Failed about a year ago. The derivatives market was the leading cause of the failure of LTCM in 1998.
So what did they do? They completely deregulated the market.

You must have Javascript enabled to use this form.

Senate hearing

I didn't even bother to cover it for it appears they are completely ignoring the topic....Chris Dodd should probably get a little expose here as well as Barney Frank.

You must have Javascript enabled to use this form.

Greed

The morons were too busy making obscene amounts of money to worry about a small thing like the systemic failure of the financial system.

You must have Javascript enabled to use this form.

School Districts Buying Swaps? Excessive Fees

Just saw this article:

- The U.S. Securities and Exchange Commission is investigating a Pennsylvania school district's derivative trades with JPMorgan Chase & Co. and Morgan Stanley that paid at least $8 million in fees to the banks and advisers.

The Bethlehem Area School District received a request from regulators in Washington last month for records on interest-rate swaps it entered into with the Wall Street banks, said Don Spry, the school district's solicitor. He said the SEC sought the records as part of a broader examination.

``Bethlehem's not the only one,'' he said. ``I understand they are doing it to a lot of other governmental entities.''

What were schools doing in derivatives trades in the first place and check out the fees.

Does this just sound completely odious to you? Seriously what is a school district even doing in the derivatives market?

The racket is explained:

The derivatives sold to school districts are known as interest-rate swaps, in which two parties agree to exchange periodic payments whose amounts are based on an underlying bond issue. The contracts are usually paired with municipal bonds whose interest rates are reset sometimes daily. The derivatives are designed to protect customers against the risk of higher interest rates, though they also can be used to speculate on movements in global lending rates.

You must have Javascript enabled to use this form.