Bad Deeds for 10-16-2009

 

Derivatives Reform Weakened By Two Little-Noticed Amendments – Two little-noticed amendments inserted Wednesday into legislation seeking to strengthen regulation of derivatives will allow private industry to continue to set rules and largely self-regulate, tying the hands of regulators who want more say in how these exotic financial instruments are traded.

Offered by Rep. Judy Biggert, an Illinois Republican, the provisions take away power the Obama administration proposed giving to the Commodity Futures Trading Commission (CFTC), the regulator in charge of policing most types of derivatives. Rather, the power to supervise how derivatives are traded will rest with the clearinghouses and exchanges that house them. Furthermore, when the exchanges and clearinghouses change or offer up new rules, the CFTC will not be able to review them before they are finalized to ensure, for example, that they comply with existing law. Instead, the rules proposed by private industry will immediately go into effect.

“It’s a return to the regulatory environment that led us into the meltdown,” said Michael Greenberger, a professor at the University of Maryland Law School and former director of trading and markets at the CFTC. “It would tie the hands of effective regulation by the CFTC to the detriment of economic recovery. The [Obama] administration had it completely right in its proposal.”

CFTC’s lack of power in this area can be traced back to the Commodity Futures Modernization Act in 2000. That bill, pushed by Republican Senator Phil Gramm of Texas, whose wife once headed the agency, deregulated derivatives trading and officially sanctioned what had been until then the legally murky world of over-the-counter (OTC) derivatives, which are privately-negotiated derivatives contracts.

 

Banks Continue to Steal From the Taxpayers Who Bailed Them Out – In a world where real competition, modern technology and lack of special government standing means most American businesses have no choice but to adapt and innovate — Wall Street’s wimps only apparent skill is rigging the game.

While things like stock and bond trading became a very low margin business because of modern information — the legalization in 2000 of a secretive market for crooked insurance with no transparency or accountability has been an absolute boon.

They called it credit derivatives — where banks and insurers offer to effectively “insure” financial assets. For instance, they were used to insure much of the real estate and pension liabilities in America the past 10 years.

To make money, the banks exploit two loopholes. The first — overcharge customers by depriving them of the type of competitive pricing only possible on an exchange like the New York Stock Exchange or Chicago Mercantile Exchange.

And the second, exploit the lack of transparency to hide the fact that you are keeping little or no money to pay claims while selling insurance and collecting fees on every house and pension payment in America.
The key to success here is that when there is a default or claim against that so-called credit insurance — the banks keep all the past payment — and the taxpayer under threat of collapse pays off the claims while getting nothing in return.

This quite simply, is a brilliant way to steal our money.

Now this method of “business” is only possible if the government continues to allow these crooked insurance contracts to be written in secret, allows them to hold little or no money in reserve for payment and allows them to sell enough coverage on enough vital national assets that if there is a default — the taxpayer has no choice but to pay.

Tell your congressman.

 

Insider Trading for Illegal Profits – One of America’s wealthiest men was among six hedge fund managers and corporate executives arrested Friday in a hedge fund insider trading case that prosecutors say generated more than $25 million in illegal profits and should be a wake-up call for Wall Street.

Raj Rajaratnam, a partner in Galleon Management and a portfolio manager for Galleon Group, a hedge fund with up to $7 billion in assets under management, was accused of conspiring with others to trade based on insider information about several publicly traded companies

 

Fox News Host Tries to Credit President Bush for Economic Recovery – Fox News host Neal Cavuto appears to think that the United States is enjoying an economic recovery. Perhaps more surprisingly, he’s talking up the idea that former President George W. Bush is somehow responsible for it. Cavuto made his claims after a Wednesday segment seeming to celebrate the Dow Jones Industrial Average’s return to 10,000.

However, William K. Black, a professor of economics and law with the University of Missouri, would likely disagree. He told PBS host Bill Moyers during a televised interview in April that at the epicenter of the financial collapse were a spate of what he called “liars loans,” effectively creating a black hole of unfettered, unmeasured risk to which all else was drawn. The “liars loans,” thanks to regulators during the Bush years who essentially abandoned their jobs, were packaged with triple-A ratings and repeatedly resold as exotic securities, effectively creating a financial vacuum.

“Now, a triple-A rating is supposed to mean there is zero credit risk. So you take something that not only has significant, it has crushing risk — that’s why it’s toxic — and you create this fiction that it has zero risk. That itself, of course, is a fraudulent exercise,” he said. “And again, there was nobody looking, during the Bush years. So finally, only a year ago, we started to have a Congressional investigation of some of these rating agencies, and it’s scandalous what came out.

Also, see this recounting of Bush’s Budget Blunders.

 

CNN Pundit’s Firm Bought Anti-Health Reform Ad Time – One of CNN’s regular commentators is Alex Castellanos, who often speaks out against health insurance reform on the network. He has now been shown to be associated with an advertising campaign by America’s Health Insurance Plans, an association of about 1,300 insurers. AHIP opposes a government-run plan. CNN only identifies Castellanos as a Republican strategist and has not disclosed his association with AHIP in the past.

Castellanos — best known as the creator of the racially-charged “Hands” advertisement — was hired as a CNN contributor three days after the New York Times reported that he was part of John McCain’s “panel of outside advertising consultants.” CNN subsequently failed to disclose Castellanos’s connection to the McCain campaign while he was, for instance, applauding the McCain campaign’s ads.

 

Republican Senator Misinforms and Makes Threat – Republican Senator Orrin Hatch is not taking too kindly to having his office protested by MoveOn.org for being in the pocket of the health care industry. Hatch said this on MSNBC:

“Now by the way MoveOn.org is a scurrilous organization. It’s funded by George Soros. He’s about as left wing as you can find in this country. And they’re up to just one thing, and that is to smear good people. And frankly, they’re not gonna smear me without getting kicked in the teeth by me.”

Stay classy there Hatch. MoveOn’s primary source of funding is its members. MoveOn.org raised nearly 60 million dollars in 2004 from its members alone, with an average donation of $50. They received only 2.4 % of their funds from George Soros.

 

US Pays $400 per Gallon for Gas in Afghanistan – Pentagon officials have told the House Appropriations Defense Subcommittee a gallon of fuel costs the military about $400 by the time it arrives in the remote locations in Afghanistan where U.S. troops operate. The Pentagon comptroller’s office provided the fuel statistic to the House Appropriations Defense panel staff when it was asked for a breakdown of why every 1,000 troops deployed to Afghanistan costs $1 billion.

 

Republican Senators Demand That Net Neutrality Rule Making Must Be Bipartisan (Meaning Non-Existent) – Now out of power, the Republican party is preaching the virtues of bipartisanship. A new letter from 18 Republican senators to FCC Chairman Julius Genachowski opens with a line of congratulations but moves quickly to the real business at hand: telling Genachowski that he had better not plan on moving forward with his ambitious net neutrality agenda unless he has bipartisan support.

The two Republican Commissioners on the FCC are patently skeptical of the need for net neutrality, however. When Genachowski unveiled the general principles that would guide his decision making, Commissioners Meredith Baker and Robert McDowell issued a statement of their own in response:
“Of the only two Internet-related disputes to date cited in your speech, one occurred five years ago. Our view is that it is harmful for the Commission to impose industry-wide rules based upon speculation about what may occur in the future.”

By definition, if it has happened in the past it isn’t just “speculation about what may happen in the future,” but the point still stands. In the US, there have not been many documented instances of neutrality violations—though the Comcast P2P throttling case last year was quite significant.

The issue is also complicated by the fact that the worries of the net neutralists didn’t arise from fever dreams but from the public pronouncements of people like former AT&T boss Ed Whitacre, people whose stated goal was to charge content providers more money for faster access to customers because Internet companies were somehow “using my pipes for free.” While this didn’t happen, it certainly wasn’t because carriers didn’t want it to happen.

Regards,

Jim