NYT Editorial Wants Derivatives Beast Regulated By Congress

The NYT saw fit to write an editorial from the owners about how derivatives should be regulated.  The editorial doesn’t talk about the different derivatives and how they operate, naturally.  It looks to me as if the owners of the Times want the commodity markets under control.  Well, they are under market controls today: they reflect real inflation.  We are not a ZIRP economy, we are in a ZIP economy: zipping along to potential infinity.  Meanwhile, the Derivatives Beast grows bigger and bigger and eventually will hit infinity just in time to see the value of paper currencies fall to nothing.

 

Naturally, since billionaires either own or are our government (Mitt Romney is merely one of many) we see no reforms that might interfere with their funky ways of getting rich which mainly consists of creating paper things that grow rapidly in monetary value while doing nothing useful.  A Long Road to Regulating Derivatives – NYTimes.com

 

Even if they don’t cause a meltdown, unregulated derivatives are still an economic threat. That’s because derivatives have become deeply embedded in the economy. Pension systems use them to hedge investment risk. Food companies use them to lock in crop prices. Airlines and manufacturers use them to lock in prices for fuel or metal. But because there is no central exchange where derivatives’ prices are listed, no one knows if the prices banks charge are reasonable.

What is known is that the banks make billions of dollars a year on derivatives deals — lush profits that are surely higher than they would be if the market were transparent and competitive. Overcharging means that bankers are enriched with money that companies could otherwise invest in their businesses and that consumers could otherwise keep in their pockets.

 

The danger is, derivative paper deals that swap risks are replacing capital.  I often write about how capital is disappearing.  Everyone is pretending they are socking away savings here and there and using these savings for lending, etc.  But this isn’t what is happening.  When true capital is less than 1% of the monetary creation base, we get inflation and inflation shows up not everywhere at once but in select venues one at a time.  Right now, it is showing up in education costs for college students, grocery stores, medical care costs and energy.

 

Most inflation was socked away by other governments wishing for a weaker currency than the dollar so, to maintain trade advantages, they would shovel trillions of US dollars into their FOREX holdings and then use this to fund loans to export industries.  This process, over 40 years, has destroyed the US internal industrial base.  But the derivatives game didn’t cause this, it grew out of this.  Stripped of true capital, the US engineered the derivative swap game to replace it with this vapid form of capital which has no basis in reality so whenever any payoffs have to happen in these swaps, there is nothing in the holdings so the swap deal collapses into nothingness.  Here is my response to the editorial:

 

Elaine Meinel SupkisBerlin, N.Y.
The problem isn’t trades in various commodity derivatives, etc. Well over 90% of all derivatives are INTEREST RATE SWAPS.

The Office of the Comptroller of the Currency used to regulate derivatives and still tracks them and this is the only way we know a tiny bit about these intra-bank deals in the interest rate swap meet.

But they only issue quarterly reports all of which, for over two decades, simply tracked the monstrous growth which saw these things go from less than a billion dollars in deals to over $600 trillion.

This entire system is now insane. When AIG went bankrupt, it was the entity supposedly used for insuring these same derivative-dealing banks from losses due to a bankruptcy but when Lehman Brothers went down, the entire derivative interest rate swap mess collapsed.

The Federal Reserve and EU central banks saved the world banking system from mass bankruptcy and now the entire mess hobbles along painfully. It can’t grow to infinity.

So what is it going to do? Exactly that: grow to infinity if at all possible. I say, eliminate interest rate swaps entirely, forever. Before they eliminate themselves via mass collapse.

Here is a great comment and there was more than one to this editorial, explaining things:
joe  ny

It is complete fiction to say that there derivatives, properly regulated, help to stabilize the economy. The only thing they have ever stabilized were the price of wheat, etc, farmers but that was before bankers were allowed to play. Financial derivatives have never, ever been regulated and have caused calamities repeatedly since the mid-90′s. When Brooksley Born first suggested regulating them under Clinton she was read the riot act. After the passage of the Commodities Futures Modernization Act of 2000, the OTC market exploded to gargantuan size. The market in these deceptive instruments, particularly the customized variety, depends on opacity. Regulate them and their profit disappears, both from a fee standpoint and from a tax-evasion standpoint.That’s why Dodd-Frank is so worthless.
The latest calamity is the worst one derivatives have caused, by far, multiple trillions in wealth destroyed and transferred across the globe, and it is ongoing. That the Obama administration and pathetically captured and corrupt legislators have left Americans and the economy STILL at risk in order to keep the secret gamblers happy is beyond criminal and unforgivable.

 

Former employees working on Wall Street also chimed in to explain how the entire derivatives swap game is a hoax.  Time to end it.

sunset borger

 

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18 Comments

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18 responses to “NYT Editorial Wants Derivatives Beast Regulated By Congress

  1. rcaruth

    All of the “Big” players including Bernanke know the truth(in secret) of what Elaine is saying here. I have been following this since we went Paper in 1971,and it’s been quite a ride.
    The problem is,in my opinion,there is no option to fix it. It’s like we Nuked Moscow by accident in 1959,and then tried to stop WW3.
    Any attempt to fix this this mess will cause mass chaos,hunger,unemployment,war,the Four Horsemen,you name it.
    So we have to hit Infinity/Bottom(same thing),and then rebuild.
    IOW,it’s not fixable.

  2. rcaruth

    OPPS,My Bad,
    There is one solution,we reenact the French-Russian Revolution on Wall Street. When the Carnage is finished,we take the Assets of the 1%ers,and refold them back into the economy,get a Gold Standard,and basically recreate Capitalism that works.
    Anything less than that,at this juncture,will create more pain for the 99%ers. No more cake for Romney and his thousands of close friends.

  3. Being There

    One way or another there will be blood. It’s a question of kicking this beast down the road or facing the disaster now. No politician wants to be the one to reside over that, trust me. There’s no incentive to change this.
    I was going to mention the PBS Frontline show on Brooksley Born called “The Warning” from a few years ago and well worth watching.

    http://www.pbs.org/wgbh/pages/frontline/warning/interviews/born.html

    The Clinton administration was horrendous. Lucky for him Bush the elder’s tax increases worked for him and the personal computer was taking off and nobody noticed how screwed up the economy was getting.

    Let’s put it this way, any individual who doesn’t have a vested interest in something taking place can see very easily that it’s a disaster waiting to happen. In the world of group think, all logic falls apart and they are too greedy and selfish to care about the writing on the wall.

  4. JT

    I like that Brooksley Born.

    You should give her a budget of 1 billion and go after the bankers.

  5. JT

    And give this Elizabeth Warren another billion.

    I think you need a woman to teach the boys some basic manners and how to behave.

  6. JT

    http://www.thedailyshow.com/watch/tue-january-24-2012/exclusive—elizabeth-warren-extended-interview-pt–2

    I love her very much.
    I should move to Massachusetts and vote for her.

    Although Massachusetts is a word I cannot pronounce.

  7. Mr Bill

    Here is a recent article that show the CPI index (inflation) between 1800 and now. The chart certainly looks like one of those hockey stick curves from about 1970 forward. This suggests that inflation has been raging since then. The article links to the source at the Federal Reserve. The Fed data appears to be reflected in the chart except the Fed set the CPI = 100 in 1967 and the article set CPI index = 100 in 1800.

    Hmm, where does Bernanke get all his basis that ” inflation is not too bad now”.

    http://www.whatamimissinghere.com/archives/39943

  8. onion

    It wasn’t interest rate swaps that caused the AIG meltdown. It was credit default swaps.

  9. Joseppi

    Infinity or bust – Capital starving Ouroboros vainly devouring debt diet devoid of nutrition and calories is the mythic systematic theme here.

    The future bodes an unpleasant ending for all of us. Practical preparation and sufficient simplicity is the theme in my neighborhood.

  10. JT

    @onion

    “It wasn’t interest rate swaps that caused the AIG meltdown. It was credit default swaps.”

    What about the Greek 160% interest rates?
    That has to hurt someone (who the hell knows who but someone).
    The interest rate swaps are just as bad.

  11. I think the elite are well aware there is no stopping, or controlling, this economic monster. As one of the comments hinted at – anyone trying to point out that the emperor has no clothes is swiftly shouted down and shipped out of town.

    The elite has put all it’s money into it and have decided to preserve this machine at all costs, come hell or high water. Everything they have done for three or four decades points to this. They are supremely entrenced in their systems and do not allow anyone to come close to changing the momentum where their actions are taking them.

    I don’t think they have any particular plan, it is more that the momentum of their collective decisions is taking them down this road; so this road is the way they have to go, since they are unable to face the reality of chosing not to take this road. It is planning by kicking cans down the road and once they have started they have to keep kicking and kicking and kicking.

    They have all kinds of systems in place to deal with the fall out should the populace at large start to demand genuine changes. And they are implementing new such tools on practically a daily basis. The elite have decided they will be and remain the elite or otherwise they will take the world with them to hell. There will be no ‘perestroika’ or ‘glasnost’ in the west – the western elite is way too insane for that. They are drunk on power and unlike the Russians and much of Europe they have not tasted defeat. They will in the end, as they must, but the real question is what price will they force the world to pay before they regain their senses.

  12. RobG

    Good observation about the latest Executive Order, that it is preparation for Hyperinflation. Read the article over at the fofoa blog: Link

    Why? Because the wording indicates the dollar is irrelevant. For example:

    Sec. 201. Priorities and Allocations Authorities. (a) The authority of the President conferred by section 101 of the Act, 50 U.S.C. App. 2071, to require acceptance and priority performance of contracts or orders (other than contracts of employment) to promote the national defense over performance of any other contracts or orders, and to allocate materials, services, and facilities as deemed necessary…

  13. Being There

    I don’t think they have any particular plan, it is more that the momentum of their collective decisions is taking them down this road–Christian W.

    Although I agree with you on most of your comment, I think full spectrum dominance in the military and monetary global realm is the model.

    I think they do have a plan. It’s been done over and over again, if you read the Shock Doctrine, The Rise of Disaster Capitalism by Naomi Klein, you’ll get the gist. They go around the world getting countries in debt and then they sell off the public assets for pennies and private interests make a killing. They will do it here too.

    They are making the government and the social contract with the people irrelevant. There are no barriers to entry for low-priced products made in low-wage countries, so all our wages will plummet. They want to control all the world’s wealth and resources. Control of food, water and all things pertaining to life itself.

    Banks and transnationals will have the power, governments only there to serve their interests. The dye is cast and has been moving the goal post in this direction for 38 years.

    Every president has been involved in making the road smoother for this to happen. Anyone who wastes their time complaining about Obama is not focusing on each administration since Nixon.

    Try to trace every decision made throughout that time period from what we did in Chile, and moving out of the gold standard down the line and you’ll see what I mean.–There are no accidents here.

  14. @being there

    Very true and indesputable. My comment was a bit to broad I guess. I meant they do not seem to consider anything outside of their framework of this idea of keeping their control, looting and domination machine going at all costs, such as consequences for other people, social contracts etc. The plan is to keep this machine going no matter what. Within this framework they will do whatever it takes and then the can kicking and improvisation starts – with improvisation I mean they will grab whatever tool they think will do the job when faced with a crisis. And now they are down to torture, assassinations, spying, various incestuous forms of money printing and financial scams, invasions and occupations of other nations etc etc. But there is no denying that the American system is an extremely fine tuned looting machine, this is the ‘System’ I was talking about.

  15. floridasandy

    elizabeth warren did a great job chairing the TARP oversight-not.

    suckers.

    i swear someone just needs to say that they are for the poor, and the poor jump on board. they are a very easy group to swindle-just promise them something. (like obama proved, you don’t even have to deliver-just promise)

  16. Being There

    Floridasandy—you are absurd

    Elizabeth Warren is about bringing things back to the balance we had before the no regulation–Milton Friedman crowd brought the most dangerous pernicious financial weapons of mass destruction into a black box where nobody could track what was going on.

    It’s not easy to deliver anything when the system and the people in it are so out of whack.—It’s not about one or two individuals–although, they could be leaders–it’s about changing the whole culture of criminality, which doesn’t happen in a coupla years.

    If you think the other side of the aisle is any better, then you’re the sucker!

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