Wednesday, April 14, 2010

Repugs Say to Dems-Hands Off!-Save Wall Street So It Can Kill Again

If you ever wondered whether the Wall Street Journal's news coverage had been slanted by Rupert Murdoch's grip on the paper (of course, the editorial pages were always virulently conservative but the news used to be untainted), all you have to do is look at the front page story , "Banks Falter In Rules Fight".

The story presents the banksters as poor elderly widows deprived of food and shelter by the evil Obama empire rather than as greedy pirates who almost brought the world economy down (and still might) then begged to be bailed out by the taxpayers. The story decries the Democrats' efforts to regulate the financial sector as a means of:

[S]queezing the banks' lucrative derivatives-trading business.

Derivatives (like mortgage-backed securities and credit default swaps--CDS) are ways for traders to sell worthless paper then insure themselves against losses by having the taxpayer take the fall. That's what happened to your housing equity and 401K. Often the traders don't own the very bond or obligation that they're betting will fail. It's like betting that your neighbor's house will burn down and collecting if it does. There are legitimate uses for derivatives, to hedge against price and interest rate fluctuations, but those have paled next to the skyrocketing CDS casino.

AIG was the entity that took all these bets against the subprime mortgage market but had no money to pay out if the market tanked, which of course it did. The only rationale for CDS is to make gobs of money while producing nothing of value and maybe helping burn down your neighbor's house. But the story doesn't present regulation against these opaque contracts made in the dark as at all beneficial. Now that Obama appears to be succeeding in fighting against weakening regulation against CDS abuse:

That's drawing Republican complaints that the pending rewrite of the rules of finance will put the economy at risk.

If that isn't Orwellian, dunno what is. The derivatives put the economy at risk.

The funniest part of the story is the description of derivatives.

Derivatives are financial instruments that derive their value from the movement of something else--for instance, the price of wheat or other commodities, or the level of interest rates. In recent years, a strain of derivatives known as credit default swaps (in effect, a bet on a borrower's ability to repay a debt) has exploded. Derivatives figured in the global financial crisis, though their precise role is a subject of debate

There ain't no debate. Goldman Sachs et al sold toxic instruments to pension funds then bet against them because they knew they would fail. Put someone in jail, folks. And if there's any socialism going on, it's socialism for the rich.

1 comment:

Marsha said...

Bingo...CDO,'s all toxic sausage, regardless.