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Hope And Cave: SEC and CFTC Fold on Regulating “Financial Weapons Of Mass Destruction”

4:24 pm in Uncategorized by DSWright

 

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Remember that financial crisis we had four some odd years ago – the one that brought America and the world economy to its knees – a crisis that so shook the foundations of America’s faith in the system that millions voted for Change? Well one of the primary catalysts for the epic meltdown was a financial instrument known as a derivative. Or rather unregulated derivatives. So not surprisingly many Americans – experts and non-experts alike – demanded derivatives be regulated and given the outrage and fear the federal government almost seemed like it would side with the people over moneyed interests, almost.

Rather than real reform, the country got another dose of kabuki theater with Swiss Cheese legislation, known as Dodd-Frank. In theory Dodd-Frank would put the lid on what Warren Buffett called “financial weapons of mass destruction”. In practice the bill left the fine tuning and consequential decisions to federal agencies long captured by Wall Street.

So what happened next is really no surprise.

 

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From HuffPo:

Corporate America, with help from the Obama administration, has struck yet another blow against the scary financial regulations it claims will hurt the economy.

On Wednesday they undercut new regulations on derivatives, which the detail-obsessed among us might point out didn’t just hurt the economy but nearly destroyed it. Just a few years ago.

Under heavy pressure from the energy industry and other corporate interests, the Commodity Futures Trading Commission and the Securities and Exchange Commission are retreating from a plan to regulate many reaches of the U.S. trade in financial derivatives known as swaps, including the credit derivatives that nearly brought down the financial system.

Yes, because why learn from your mistakes when you can just repeat them?

The decision boils down to who, for the purposes of regulation, will be considered a “Swap Dealer” and who will not be. Swaps or in the specific case of the 2008 Financial Crisis Credit Default Swaps, are bets taken out on someone or some organization defaulting on a loan or some other financial obligation. Essentially gambling on someone busting.

In fact, swaps resemble gambling so much that Wall Street successfully lobbied to have swaps legally exempt from state gaming laws:

The Commodity Futures Modernization Act of 2000 (“CFMA”), signed by President Clinton on December 21, 2000, created a “safe harbor” by (1) preempting state and local gaming and bucket shop laws except for general antifraud provisions, and (2) exempting certain derivative transaction on commodities and swap agreements, including credit default swaps, from CFTC regulation.

Nice try state and local governments, Wall Street will run this casino… well until it all comes crashing down then Wall Street is going to need taxpayer money paid by your residents. Suckers!

Back to the SEC and CFTC’s decision on who is and who is not a “Swap Dealer.” The original regulation was going to set the bar at $100 million, as in anyone that handled swaps less than $100 million a year was not a dealer. This was unacceptable to Wall Street. To be clear, under the original proposed regulation if you, or rather your firm, handled $99 million per year in swaps you were not regulated as a swaps dealer.

After Wall Street was done twisting arms the level was moved, to a whopping $8 billion. To be clear, if you or rather your firm handles $7.9 billion per year in swaps you are not any longer a “Swaps Dealer” and subsequently not subject to regulation as a swap dealer. An unbelievable and ridiculous cave to Wall Street by the public’s regulators.

And just in case it was not clear that Wall Street will continue to do exactly what it did before the crisis, another loophole was created by the regulators. Firms can rename their swap trades to bypass regulation. If a firm decides to call their trades “hedges” which takes them out of the $8 billion cap to be regulated:

After heavy lobbying from energy companies and big commodity traders, the final version bumps the threshold up to $8 billion for most asset classes as an initial phase-in. Eventually, that threshold could drop to $3 billion.

The CFTC also added a more explicit exemption for swaps that are done to hedge market risks, such as reducing exposure to interest-rate fluctuations or oil price moves. Those trades will not count toward the threshold that triggers the swap dealer designation.

For the love of God, really? So let me rephrase my previous statement to include the new loophole – a firm can handle $7.9 billion in swaps per year and another $7.9 billion (or more!) in swaps that it calls “hedges” and still not be subject to regulation. So really, there is no regulation of swaps. Or to put it another way, Wall Street has won again.

Americans For Financial Reform, weighed in on how worthless the regulation now is with a public comment:

Under an $8 billion de minimis exemption, a swaps entity could advertise itself as a dealer to the market and conduct 1,600 such transactions a year, without any requirement to register with the either the SEC or the CFTC. Commodity companies able to take advantage of the hedge exemption, or hedge funds and commodity trading desks able to use a possible own book trading exemption, could expand even further without designation.

Occupy The SEC, previously addressed swaps and the threshold in its public comment:

Risky products, such as illiquid bonds, credit default swaps (CDS), and other complex derivatives, were precisely those instruments that contributed to the financial crisis in 2008, and those that this legislation sought to expel from federally-backstopped banking entities. We find it disingenuous to suggest that this was not commonly understood by the banking entities, the regulators, and the public long before this Proposed Rule was drafted…

Consensus on the measurement of trading account size does not currently exist among the global regulators. The Market Risk Capital Rules referred to in the trading account definition in § _.3 refer to the current proposed Market Risk Capital rules. There is considerable debate among regulators and practitioners about appropriate measurement methodologies for structured products like credit default swaps. Therefore, should the Agencies decide not to require reporting across all banking entities, the final reporting trigger should be set low enough to compensate for these measurement shortcomings

But let’s face some facts, the failure to regulate Wall Street is not due to a lack of comprehension or nuance by the regulators. Wall Street is not subject to regulation because it is regulating the regulators with political influence bought with campaign cash.

As long as political leaders are concerned more with the welfare of Wall Street than the welfare of the country, regulating Wall Street will be a dream deferred. The crony capitalism now endemic in our system guarantees Wall Street a free pass on crimes and any societal restraints on its power. As long as money rules, Wall Street will remain above the law.

Record Military Suicides: The Price of A Daydreaming Empire

2:06 pm in Uncategorized by DSWright

Baseball was once America’s favorite cultural pastime. Today, in politics at least, nothing is more fashionable than praising and celebrating “the troops.” I Support the Troops serves as continual shibboleth that the ever scrambling political class recites and riffs on in the pathetic attempt to convince the public that they take public service seriously. Those in power, in what could only be described as a tragic paradox, are constantly callously searching for ways to be authentic, or at least to appear to be authentic. This has lead to ever increasing heights of hair-pulling, clothes-tearing, and histrionics when praising the troops and their sacrifices. As the horrors of war become increasingly difficult to justify “the troops” become ever more celestial and divine as if praise is a substitute for care and passionate veneration a substitute for actual living.

President Obama even went so far as to make troops the role model for Americans in his State Of The Union, though he was shrilly attacked for it by the Right, Obama was merely taking the game to its next logical step.

But do Americans really Support The Troops? Do they really even care? No, not really.

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I am sorry if that is an upsetting message, but it is none the less true. A truth not gleaned from public statements or opinion polls or sound bites on the news but from actions and the easily understood consequences of those actions.

Politifact, somewhat discredited by recent rulings, recently decided to “fact check” a public statement Congressman Rush Holt made on military suicides:

U.S. Rep. Rush Holt (D-12th) cites a grim statistic relating to military service: 18 veterans commit suicide daily across the country.

That would mean 126 veterans a week or more than 6,000 a year — and Holt isn’t wrong, a PolitiFact New Jersey investigation found.

A number of organizations — including the U.S. Department of Veterans Affairs — say that statistic is the best estimate available.

No, it is not wrong. Nor is it just veterans, as according the New York Times Active-Duty Soldiers are committing suicide at record levels:

Suicides among active-duty soldiers hit another record high in 2011, Army officials said on Thursday, although there was a slight decrease if nonmobilized Reserve and National Guard troops were included in the calculation…

Active-duty Army suicide rates have been higher than civilian rates since 2008, when there were nearly 20 suicides per 100,000 in the Army, compared with close to 18 suicides per 100,000 in a civilian population that was adjusted to be comparable to Army demographics. The Army projects that final 2011 numbers will be more than 24 suicides among active-duty soldiers per 100,000, another record high.

It is also worth noting that given the stigma of suicide many service-members, their families, commanders and others often try to make suicides seem like accidental deaths – the real numbers may be even higher.

Is it so hard to understand why men and women involved in some of the most horrifying, nakedly imperialistic, and wasteful wars might want to leave this world sooner rather than later?

But wait, America has a way out, a loophole in the social contract. We all get to praise the troops and their service which means what they were ordered to do in our name, under our authority, and with our money is irrelevant. It is a rather nice arrangement if you do not want to deal with the issue. Unfortunately “the troops” lived it and can not say a few benign words and walk out into the sun for another day of self-glorification.

What have we ordered “the troops” to do, and what were the consequences?

In the Iraq War alone their were over 100,000 civilian deaths according to one study, and according to leaked Pentagon records:

According to official figures, 3,884 US soldiers died between 2004 and 2009, an additional 224 soldiers from allied nations, well over 8,000 members of the Iraqi security forces (reasonably reliable figures are missing for 2004) and 92,003 Iraqi civilians whose deaths are documented by at least one source. Together, this makes more than 104,111 deaths, a figure that approximates the number of victims reported dead in these documents, namely 109,032

Getting killed, maimed or killing and maiming tens of thousands of innocent people by mistake or purposely – that must do wonders for mental health.

Afghanistan, now America’s longest war, has seen 2,800 Americans killed, 27,000 Americans maimed, and over 30,000 civilian deaths.

While we aimlessly deploy “the troops” to far away lands to perform grizzly tasks to maintain our ruthless empire – where is the American people’s focus? What, in our attention economy, have we deployed our own resources towards? Ourselves of course!

While other (usually poorer) Americans fight and die for “freedom” other (usually richer) Americans are busy pursuing fantasy. Movies, TV, Video Games, Novels, Social Media Aps, Role-Playing games, or just the all consuming narcissism of moi … as one of the co-creators of the internet Robert Cailliau noted, if these trends continue the future is likely to be like the Matrix but worse. A people daydreaming their lives away while the cruel realities necessary for their position and place are borne but others – others whose only reward is posthumous praise.

 

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Is this a system worth killing so many innocent people for? Is this a system worth dying for?

There is no simple answer to those questions or to other questions I have raised, but there is one thing that seems crystal clear regarding the tragic state of our military service members – if you really want to Support the Troops Bring Them Home.

Donald Rumsfeld Uhhh Tim Geithner May Not Serve In Obama 2nd Term

12:24 pm in Uncategorized by DSWright

 

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(Timothy Geithner by J Wohland)

 

Sometimes Presidents make horrible cabinet choices.

Bad cabinet choices can wound a good administration or damage one already spiraling down. It is easy to see how it could happen – someone comes highly recommended, with an impressive resume and lots of other credentials. They do well in the interview process and have a good rapport with the President-elect and his trusted aides or maybe he or she is a trusted aid. Given that dynamic, it’s not hard to see why George W. Bush chose Donald Rumsfeld and its not that hard to see why Barack Obama chose Tim Geithner. But in both instances Presidents made tragic errors.

Though I’m sure Bush was warned by people about Rumsfeld, it is well known Obama had a warning almost immediately from Senator Byron Dorgan that Summers, Geithner and crew were the wrong choices for his economic team, from New York Magazine:

There’s a poignant moment of sorts in December 2008 when the North Dakota senator Byron Dorgan implores the president-elect not to go with his economic team. “I don’t understand how you could do this,” he tells him. “You’ve picked the wrong people!” As indeed Obama did, under the tutelage of Robert Rubin, who also tried to finagle a White House guru role for himself, not unlike the perch from which he helped wreak havoc at Citigroup during its subprime orgy

Indeed, possibly the worst mistake of the Obama presidency. Larry Summers and his former Deputy Tim Geithner were the embodiment of the economic establishment that lead to the 2008 financial crisis. In fact, Summers and Geithner lead the campaign to oust Brooksley Born from the Commodity Futures Trading Commission – why? Because Mrs. Born wanted to regulate derivatives thinking they were dangerous and would lead to a financial meltdown. Summers, Geithner, Greenspan and Rubin destroyed Born then supported legislation that further deregulated derivatives. Woops.

Presidents also don’t like to admit they made a horrible mistake (who does really?) and so the most tacit admission is found when they dump people in the second term. This is what happened with Rumsfeld and why Tim Geithner is now, surely with White House consent, hinting he won’t be back:

Treasury Secretary Timothy F. Geithner said he doesn’t expect President Barack Obama to ask him to stay in office if he’s re-elected, and dismissed Wall Street’s concerns about financial regulations.

“He’s not going to ask me to stay on, I’m pretty confident,” Geithner said in an interview with Bloomberg Television today. “I’m confident he’ll be president. But I’m also confident he’s going to have the privilege of having another secretary of the Treasury.”

I’m confident if Obama isn’t re-elected Geithner will be one of the reasons why.

There are many good reasons to dump Tim Geithner like him being a blatant Wall Street puppet, not paying his taxes and being in charge of the IRS, having his fingerprints all over the Bankster give away that has people in the streets…but an even more compelling reason for Geithner to go is this -

 

What if Elizabeth Warren Becomes a Senator?

 

No one did more in the Obama Administration to undermine Elizabeth Warren than Tim Geithner.

From HuffPo:

Treasury Secretary Timothy Geithner has expressed opposition to the possible nomination of Elizabeth Warren to head the Consumer Financial Protection Bureau, according to a source with knowledge of Geithner’s views.

The financial reform bill passed by the Senate on Thursday mandates the creation of a new federal entity charged with protecting consumers from predatory lenders.

But if Geithner has his way, the most prominent advocate for creating the agency may not be picked to lead it.

Simon Johnson:

And having Ms. Warren on the scene — providing an alternative, pro-consumer perspective — may not be to his liking.

President Obama missed his best opportunity to reform the financial system when advisers — including Mr. Geithner – recommended in March 2009 that he defer to top bankers

But forget the backroom, the contention became clear as day during the Financial Crisis Inquiry Commission when Warren grilled Geithner on his role in the bailouts and why AIG received 100 cents on the dollar and why banks are now MORE concentrated not less.

 

Needless to say relations would be much better between the White House and Massachusetts’ newest Senator if Tim Geithner was not the Treasury Secretary.

The tragedy of time or at least humans existence within it is the inability to go back and fix mistakes. Summers, Geithner and crew were bad choices that not only secured the power of Wall Street to keep putting the country at risk but deeply damaged the public’s trust in the Obama Administration and government generally.

Kicking Geithner to the curb after re-election will not undo what has been unfortunately done, but it will be a good start. What needs to happen for America to heal is not just a repudiation of certain individuals like Tim Geithner and Larry Summers but a repudiation of the philosophy they brought to government – that a Wall Street Elite should ruthlessly operate America for their own interests only stopping to confer with society through its representatives in DC with a check and a message “We own you.”