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Congratulations chumps! You are now on the hook for $303 Trillion in Derivatives

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Congratulations chumps! You are now on the hook for $303 Trillion in Derivatives

Daily Kos 12/15/14

Before Glass-Steagall was repealed in 1999, Wall Street was on the hook for bad bets with derivatives. During the real estate bubble the taxpayer was on the hook for these casino chips.

Then came the 2008 meltdown and Dodd-Frank was pushed through. The taxpayer was off the hook for six years. But now Congress rolled over for Wall Street and the taxpayer is on the hook again…..

Did Wall Street Need to Win the Derivatives Budget Fight to Hedge Against Oil Plunge?

naked capitalism 15 Dec 2014

Conventional wisdom among banking experts is that Wall Street’s successful fight last week to get a pet provision into the must-pass budget bill (or in political junkies’ shorthand, Cromnibus) as more a demonstration of power and a test for gutting Dodd Frank than a fight that mattered to them. But the provision they got in, which was to undo a portion of Dodd Frank that barred them from having taxpayer-backstopped deposits fund derivative positions, may prove to be more important than it seemed as the collateral damage from the 40% fall in oil prices hits investors and intermediaries….

 

Cromnibus Pension Provisions Gut Forty Years of Policy, Allow Existing Pensions to Be Slashed

naked capitalism 15 Dec 2014

The Kline-Miller amendment allows multi-employer pension benefits to be cut. Shouldn’t Warren Democrats be against that? ….

Banks Bailed Out By American Taxpayers- Paying Us Back By Shorting Our States and Cities

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by Washington’s Blog Global Research, April 29, 2010

Americans bailed out the giant banks. So how do the too big to fails re-pay the American taxpayers?

By betting that American states and cities will fail.

As the Wall Street Journal notes:

As U.S. cities and towns wrestle with financial problems, investors are finding a new way to profit on their misery: by buying derivatives that essentially bet municipalities will default.

These so-called credit default swaps are basically insurance contracts that have long been available to protect holders of corporate bonds against default. They became available a few years ago for municipal debt, allowing investors to short sell—or bet against—countless cities, towns and bridges, and more than a dozen states, including California, Michigan and New York.

The derivatives are still thinly traded, but their existence has the potential to make investors skittish.

Commenting on the story, Huffington Post points out:

Offered by banks like JP Morgan, Bank of America, and Citigroup, the so-called municipal credit default swaps can be used by investors to bet that insurance contracts protecting holders of municipal bonds will default.

Some states say the derivatives not only scare away potential buyers of municipal bonds by creating a perception of risk, but ultimately drive up states’ borrowing costs. Others contend that the instruments are traded too thinly to affect municipal bond markets or a state’s credit rating.

The California treasurer is just one of a number of state treasurers that have launched a probe into the sale of these derivatives and the sale of municipal bonds by big Wall Street firms that might reveal “speculative abuse of CDS in the muni market,” says one regulator.

Of course, if states or cities go bust, Uncle Sugar will need to bail them out.

So by letting the bailed out gamblers on Wall Street run amok, Summers, Geithner, Bernanke and the gang are increasing the odds that the states and cities of America – you know, the actual constituent parts which make up the United States – will need to be bailed out.

Of course, bailing out the states and cities in the first place would have given more bang for the buck than throwing money at the giant banks, especially given that the Federal Reserve has intentionally created incentives to ensure that banks will not loan out money back into the economy.

Obama’s phony banking “reform”

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The Elite at the hub of our financial crisis have established themselves in positions of preeminent wealth and power without actually contributing anything useful to America’s economy.  They make and do nothing,  just taking bites out of what others have produced. Since they have so little stake in our society, it is not surprising that their corrupt system built the bubble and arranged to profit when it collapsed.

The revolving door between Wall Street Banksters and the government meant to regulate them means no real change is likely without a sustained outcry of the American people.

Photo by Rich Tatum

Obama’s phony banking “reform”

Barry Grey 27 April 2010

Debate on the Senate version of the Obama administration’s bank regulatory overhaul is expected to begin shortly. The House of Representatives passed its banking bill last December.

Neither bill does anything to curb the power of the banks or limit their parasitic and socially destructive activities. What the media is calling the “most sweeping overhaul” of the banking system since the Great Depression in reality sanctions the ever greater monopolization of the financial system by a handful of Wall Street giants, imposes no limits on executive pay, and allows the banks and hedge funds to continue gambling on exotic and largely unregulated securities such as collateralized debt obligations and credit default swaps.

The so-called bank “reform” is an exercise in mass deception—an attempt to placate popular hostility to the banks and provide the government with political cover while it continues to do the bidding of Wall Street.

The bills have been drawn up in the closest consultation with bankers and bank lobbyists. This collusion has been widely reported in the press and presented as a perfectly normal and acceptable fact of political life. The front-page lead article in Monday’s Wall Street Journal describes the intensive lobbying being carried out by billionaire investor Warren Buffet to alter the Senate bill’s provisions on derivatives.

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Financing World Hunger: How the financial markets create hunger and make huge profits

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“Food is produced by farmers everywhere in the world; but it is mostly bought and sold as commodities by ‘middlemen’, now mostly big corporations that trade globally, not just in a commodities market, but also in an elaborate financial derivatives market that pushes food prices up and creates price volatility.”

The Institute of Science in Society

Dr. Mae-Wan Ho and Prof. Peter Saunders

World food crisis rerun?

Food prices have been rising since 2003. By mid-2008, the food commodity price index peaked at 230 percent of its 2002 value, with most of the increase due to the grain prices. Corn and wheat both reached 350 percent and rice 530 percent respectively of their 2002 values [1]. The United Nations declared 2008 the year of the global food crisis even before prices peaked [2], and an estimated 150 million were added to the world’s hungry that year [3]. Although food prices have fallen from their peak, they remained well above 2002 levels;. By the end of 2009, more than a billion people are critically hungry, with 24 000 dying of hunger each day, over half of them children [3, 4]. The UN Food Programme faces a budget shortfall of US$4.1 billion.

The UN’s special rapporteur on the right to food Olivier de Schutter blames [5] “inaction to halt speculation on agricultural commodities and continued biofuels policies”, and warns of a rerun of the 2008 food price crisis in 2010 or 2011. What happened in 2007-8 was a “price crisis, not a food crisis”, he says, precipitated by speculation in the financial market that was not linked to insufficient food being produced.

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