Congress Questions GS and JPM Bosses About Derivatives Beast

Fascinating: the Congressional hearings about the financial collapse.  I could watch a short bit each morning before going out for the rest of the day so I miss most of the hearings but the tiny bits I did get to see are most fascinating. I wonder if Congress will impose strict controls and much greater ‘transparency’ in the very opaque Derivatives Beast business.  Tying all these things together with the epidemic corruption in Congress is the real story and of course, Congress will be mute about the role election finances play in all of this business.

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C-SPAN2 Live Stream – C-SPAN

BBC News – US financial crisis panel begins

The US Financial Crisis Inquiry Commission has begun the first of its public hearings. Goldman Sachs chairman Lloyd Blankfein told the panel that US government support was critical in the crisis. “We benefited from it,” he said. The panel was set up by Congress to examine the causes of the crisis. Executives from JPMorgan Chase, Bank of America and Morgan Stanley bosses are also testifying about their banks’ role in the financial crisis.

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I really, really wanted to listen in on these hearings all the way through but my husband’s health problems forced me to go out nearly all day yesterday. I did get to watch one hour of these hearings and below is a streaming commentary I wrote before leaving the house:

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Blankfein was being questioned about the Derivatives Beast.  He spent nearly the entire time hammering on two themes: he didn’t know much about this business and he didn’t use AIG as a means of defrauding investors.  Funny, he called Over the Counter contracts ‘The plumbing…’   Blankfein thinks the derivatives market worked BETTER than we had a right to expect…it worked SO WELL in the crisis…!!!

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HAHAHA.  Not only did it work better (and how could it be worse?) it also caused the housing bubble to blow so huge.  That is, this AIG insurance was the fundamental basis for reckless lending and the irresponsible packaging of risky bonds to be resold internationally.

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Goldman Sach’s president, Blankfein even had the audacity to say that GS  settled and cleared and hedged risks and protected THEMSELVES and ‘This worked better than we thought…and we were LUCKY…WE DIDN’T HAVE  A DERIVATIVES CRISIS.’  Wow.  So, according to Blankfein, there may have been a total collapse of not just the OTC and CDS markets but this still didn’t cause any problems at all because all losses from the collapse of the value of these bonds was made whole so GS and the other holders of derivative insurance contracts were made good….BUT THIS WAS DUE TO RAIDING THE TREASURY!

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The AIG business collapsed! And Lloyd B. knows this perfectly well.  He didn’t mention this immense detail because he is a lying bastard.  Several times, while watching him, I noticed he did classic ‘liars liars pants on fire’ gestures like looking with just one eye while talking about derivatives (I tried to get the screenshot and it is sort of there, in the above photo…it was always his right eye he kept closing whenever he was lying).  My evaluation of the psychological discomfort level of these gnomes: all of them literally were squirming in their seats like naughty boys.

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All of the banking executives who run 89% of the derivatives markets were stuttering and gulping hard while trying to talk about this monster.  They were all very visibly sick to their stomachs as they were grilled about derivatives.  I would suggest that this is due to them all knowing perfectly well that the entire wealth machine’s operations that enable them to get very, very rich depends very, very much on using the concept of derivative risk shifts is what really caused the entire collapse.  They want to keep on doing this now that the US government is capitalizing 100% of AIG’s losses.

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Here is some more quotes from Blankfein:  ‘AIG was BENT on collecting risk’…. Blankfein rubs his nose as he talks about margins and mark to market derivatives….He mentions oil hedges which make sense but not his sort of hedging he did with GS.

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Also there yesterday was Mr. Mack the Knife: he complained that the markets shrank the NOTATIONAL value of the Derivatives Beast, therefore, after all of this mess, it would be OK if the government regulates it  OTC.   Congress then asked about how much exposure these investment banks have in the OTC markets.  I nearly fell out of my chair when  none of the guys at the hearing would admit to knowing their own OTC exposure or percentage of standardized contracts (versus made up contracts).  According to Mr. Dimon a Dozen:  ‘Bespoke contracts drive out ‘standardized’ contracts.  70-80% of these go to clearing houses.

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The term, ‘bespoke contracts’ is like nearly all derivative language, from the real world, not the banking world: Bespoke Contracts

Bespoke support contracts are prepaid tailor made contracts that suit an individual client’s needs and requirements that comprise two or more of the standard contract support options. The cost of this contract is based upon the size and type of the infrastructure being supported.

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Each bespoke contract also contains an SLA (Service Level Agreement) which outlines the roles and responsibilities of both parties. This gives you a guaranteed response time to a request for support. The standard is a 4 hour response although, if specified and if both parties are in agreement, this can be lower for critical devices. You can be assured that the skill / knowledge level of the engineer is always of a very high standard.

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The nature of the growth of these ‘bespoke’ contracts is where much of the banking chaos churned up everything.  All of these various deals were ‘tailor made’….TO HIDE WEAKNESSES AND FRAUDS!  This is why they chopped up all those contracts and built up all those ‘tranches’: it was to disguise the true level of risk of default in repaying loans.  This, in turn, allowed GS and JPM and the others cobbling together these OTC deals to hide the true potential for losses and thus, get AAA ratings for junk bonds.  I said, long before the markets collapsed, that this enabled fraud.

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Blankfein talks about counterparty risks and controlled OTC markets —pretending these gnomes really wanted controls!!! HAHAHA

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A democratic Congresswoman wants all hedging trade risk deals including revenues and profits of the last 4 years…oopsie  the chair assured that their trade secrets will be protected…hahaha…when Congress looks at their books.  Frank asks for help in ‘educating’ congress and the people about derivatives beast activities.  The big bankers look very pissed off as he talks about prying into secrets.  I would guess that every one of these guys were thinking, ‘Wait until you come to me hat in hand for more money to run for office!’

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Of course, they know that this is all Kabuki Theater.  When the actual bills to get things under control go into secret meetings to hammer out the final bill out of view of the public, it will be chopped up and all controls minimized as much as possible.  But in public, there has to be a pretense of trying to stop the Derivative Beast gravy train.

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‘Was this a man made or natural storm?’ is asked by one Congressman.  He then notes, ‘I think this is very much like “Murder on the Orient Express”…everyone did it.’  HAHAHA.  This wasn’t a natural storm, it was a gnome tornado.  The sexual lusts of these creatures is so great, they will seek out the most destructive ways of doing business in order to get maximum profit for minimum work so they can run out and party with prostitutes a la Tiger Woods.

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Another Congressman is more direct:  ‘You were not just a market maker, you SECURITIZED and you kept selling moving these CDOs etc did YOU fail to understand these loans you passed on…????’  Obviously, like naughty boys caught breaking windows and shooting cats for fun, these little brats who run the biggest investment houses have to pretend they are clueless as to how their own businesses run.  Like a child who jumps into the car, puts in mommy’s car keys and then put the car into motion, ‘I didn’t know this would happen!’  I was waiting for someone in Congress to say the obvious: if these gnomes are so clueless as to how their own businesses operate, arrest them for fraud.

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Obviously, they are paid for doing nothing useful!  They are cheating the Board of Directors!  They are flim flam men! HAHAHA.  Worse, I know of their exposure in Derivatives markets simply because I go look at the quarterly Derivatives Report of the Bank of International Settlements and also the Comptroller of the Currency reports!  Duh!  I am waiting for Goldman Sachs to call me….one of them owns a weekend retreat right next door to my own property…and they can hire me to run their Derivatives division.  Gads.  Madoff tried that scam: pretending he was totally innocent as to how his fraud really worked.

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Blankfein: ‘We underwrote to sophisticated buyers. We didn’t know what would happen next’….HAHAHA.  Right.  Asked if Blankfein looked into what he was selling.  B. lies about his team’s research.  Claims they were too dumb to understand what was going on.  He does admit he bears some responsibility for the mess.  B. admits there should be MORE REGULATION.  I find this most astonishing.  If he and his crew are as dumb as rocks, why aren’t they being fired today?  Obviously, buried very deep below the surface in GS is some computer nerd who is solely responsible for understanding and running all the systems attached to the Derivatives Beast.  And I bet, this person doesn’t take home immense pay checks.  Which is even more fraudulent.  I hope the computer nerds who toil deep inside with little compensation, attack their billionaire bosses who are obviously stupid and deserve to be taken down.

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Anyone willing to fight Blankfein?  Punch him in the snout in an elevator inside of the Goldman Sachs fortress in lower Manhattan?  Actually, all the real people who do all of the real work in this business are in Jersey City in the Goldman Sachs building on the other side of the River.

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Right now, on Cspan, the hearings continue.  Instead of a parade of male gnomes, these are all women who are all regulators and whistle blowers.  Brooksley Born is one of the people grilling them and they discussed derivatives and all of them are in full agreement that derivatives caused much of the chaos and contributed immensely to the growth of the housing bubble, for example.  Incidentally, not one of the women are stuttering or shifting in their chairs or squinting one eye, etc.

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Ms. Shapiro blames the OTC and other derivatives market for the entire collapse, too.  ‘We have to have transparency in this market’.  She says, ‘If we could see the size of positions of this market, we would see this is like Enron’.  Yes, obviously!  This business was all about attempting fraud, not a healthy market set up to make things safer.  She points out the need for ‘sufficient capital’ for the OTC markets.  HAHAHA.

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And at the bottom of this Derivatives Beast’s entire ability to grow to infinity was the fact that this entire thing was NOT capitalized by anything directly attached to the physical world.  The women being grilled today are discussing tightening up all systems to prevent easy lending.  This is the only way to prevent a bubble, of course.  ‘Instead of being pilloried, regulators should be supported,’ says Linda Blair.

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I find is very funny the sexual dynamics at work here: the male gnomes are being opposed by mostly females and this amuses me no end.  All the Mommies are trying to prevent the Naughty Boys from misbehaving.  This yin/yang business of the women calling for more visibility and more openness and the men wanting secrecy mirrors some broken marriages like Woods: the guy hides his many mistresses while the wife goes into shock when she learns the extent of the betrayals going on behind her back.

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‘Manipulative short selling’ is now mentioned.  Blair says this is still being investigated heavily.  ‘Rumor mongering’ is mentioned as a major problem.  These hearings are not the end of this process but the beginning. One hopes reforms can be instituted that can be formulated and can survive future assaults on preventing any controls or regulations which the richest men on earth will engineer in secret.  Campaign finance reform, a dead letter issue, comes to mind here: Congress has proven utterly unable to fix its own systems which is the core problem here.

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AIPAC, for example, has nearly all of Congress in their back pocket and therefore, will fight tooth and nail, any reforms.  As well as all lobbyists on K Street and of course, international investment houses.  This is why we don’t take down all those pirate islands using our idle navy.  This is also why we don’t see any protections of our manufacturing base from foreign intrusions.  The entire corrupt system is why the US isn’t really protected from anything.  Including financial scams like Enron or Goldman Sachs.

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