Geithner announces plan to regulate derivative trading

Treasury Secretary Timothy Geithner just announced that

Today, ... the Obama Administration proposes a comprehensive regulatory framework for all Over-The-Counter derivatives.

Moving forward, the Administration will work with Congress to implement this framework and bring greater transparency and needed regulation to these markets. The Administration will also continue working with foreign authorities to promote the implementation of similar measures around the world to ensure our objectives are not undermined by weaker standards abroad.

Unregulated, un-reported, and un-collateralized derivates are a huge part of the reason behind the biggest financial crisis since the Great Depression in which we find ourselves.

I have been very critical of President Obama and Secretary Geithner previously for their kowtowing to banksters, but the framework unveiled this afternoon is Big News, and it is (yes, truly) Good News. The text of the announcement and some instant analysis below.

Friday Movie Night - Bad Math Edition

hot buttered popcorn It's Friday Night! Party Time!   Time to relax, put your feet up on the couch, lay back, and watch some detailed videos on economic policy!


Earlier this week I took a first pass look at a flawed probability model behind various types of derivatives.

With that in mind I went looking for information on further mathematical follies which resulted in economic collapse.

Two films goes over Black–Scholes as well as the hedge fund debacle Long Term Capital Management and it's use of mathematical models, bounds and assumptions, which caused it's demise.

Tales From the Financial Crisis Conference - Psychokillers, Bad Math & Burn Baby Burn

On Friday there was a conference on the financial crisis. It was held at Columbia University. Some very good interviews came from Economists Stiglitz, Volcker, Phelps and Bhide.

Below is an interview with Economist Joseph Stiglitz clearly stating the United States is putting good money after bad money. This is a fact we, those insignificant regular folk, have been saying for some time. Stiglitz also reviews what should be done with insolvent banks, discussion of Treas. Sec. Geithner's stress test and why a stress test based on a bad model or wrong assumptions is a problem.

In defense of securities and derivatives

While recovering from another illness I read an interesting piece on Daily Kos. I originally was writing this up as a response to Billmon's excellent article today, Chocolate Covered Cotton. For the record, he makes some very valid points. The whole system is now burnt, and we the average citizen has to pay for what really is fraud on a massive scale. Saying all this, I have to take issue on the idea on the concept of CDOs, Swaps and the entire idea of securitization of loans being total junk. That isn't to say that whats out there isn't toxic, but I'm looking forward.

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.

Friday Movie Night - Derivatives De' Ride!

hot buttered popcorn It's Friday Night! Party Time!   Time to relax, put your feet up on the couch, lay back, and watch some detailed videos on economic policy!   Well, not really this evening.  It is more like time to breath. We need an educational catch up on the real causes of this financial crisis and resulting bail out, which is derivatives (and not falling housing prices per say).

This weeks video clip theme is education on derivatives and credit default swaps (CDS). These vehicles are so complex frankly it's tough to find material which explains them clearly.

Derivatives- Investment Vehicles No One Understands

When you bite down into that hamburger, do you know what's in it?   Well, the new mystery meat is the massive financial black box (what's inside is anyone's guess!) world of derivatives and credit default swaps.

Finally, the New York Times writes a detailed article, What Created This Monster, and exposes even world leading economists do not know what derivatives are or in most cases, the details of how they work.

These products are virtually hidden from investors, analysts and regulators, even though they have emerged as one of Wall Street’s most outsized profit engines. They don’t trade openly on public exchanges, and financial services firms disclose few details about them