Sunday, February 28, 2010
Money talks and humanity walks
Slowly, slouching toward the next economic disaster brought to us by the likes of Goldmine Sachs and J P Morgan Chase and their Magical Mystery Swaps. And here we are three years after those lovelys, many acting in a clearly fraudulent manner, brought down the world economy and disappeared $7 Trillion, no one has been perp walked and those big swinging dicks are still playing with their financial dynamite. Gretchen Morgenson looks at why this is so.
DERIVATIVES are responsible for much of the interconnectedness between banks and other institutions that made the financial collapse accelerate in the way that it did, costing taxpayers hundreds of billions in bailouts. Yet credit default swaps have been largely untouched by financial reform efforts.During Prohibition, Al Capone made enough money to run soup kitchens in the Depression and still buy the politicians in Chicago and Illinois. Taking a page from his book, Goldmine and J P Morgan are buying every politician that can have any effect on their gravy train. And when the price of politicians is pennies on the dollar of profit, if that much, the only way to stop another derivatives disaster is to shoot the traders.
This is not surprising. Given how much money is generated by the big institutions trading these instruments, these entities are showering money on Washington to protect their profits. The Office of the Comptroller of the Currency reported that revenue generated by United States banks in their credit derivatives trading totaled $1.2 billion in the third quarter of 2009.
Congressional “reform” plans for credit default swaps are full of loopholes, guaranteeing that another derivatives-fueled financial crisis awaits us. According to the Bank for International Settlements, credit default swaps with a face value of $36 trillion were outstanding in the second quarter of 2009, the most recent figures available.
Credit default swaps are “a way to increase the leverage in the system, and the people who were doing it knew that they were doing something on the edge of fraudulent,” said Martin Mayer, a guest scholar at the Brookings Institution and author of 37 books, many of them on banking. “They were not well-motivated.”
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