Minyanville Wed 2010-09-29 09:08 EDT

Excerpt From "Traders, Guns & Money" (Part 3)

Satyajit Das

Minyanville Professor Satyajit Das' book "Traders Guns & Money" is a wickedly comic exposé of the culture games and pure deceptions played out every day in trading rooms around the world. And played out with other people's money. Das is an international expert on financial derivatives and has more than 30 years of experience in the financial markets. Having worked on both the sell side and buy side for such banks as the Commonwealth Bank of Australia Citicorp Investment Bank Merrill Lynch and the TNT Group he now acts as a consultant advising banks and corporations and presenting

excerpts; gun; Minyanville; money; Part 3; Traders.

Christopher Whalen Fri 2010-09-17 19:31 EDT

The key to the future of finance is now emerging

Christopher Whalen

Basel III is entirely irrelevant to the economic situation and even to the banks. Through things like minimum capital levels, the Basel II rules provided the illusion of intelligent design in the regulation of banking and finance. In fact, Basel II made the subprime crisis possible and the subsequent bailout inevitable [by enabling off-balance sheet finance and OTC derivatives]...Part of the reason for my undisguised contempt for the Basel III process comes from caution regarding the benefits of regulating markets...But a large portion of my criticism for Basel III and the entire Basel framework is even more basic, namely the notion that any form of a priori regulation, public or private, can prevent people from doing stupid things...The key premise of Basel III is that the use of minimum capital guidelines and other strictures will somehow enable regulators to prevent a crises before it occurs. The only trouble is that regulators have no objective measures for compliance with Basel II/III, much less predicting market breaks...As in past decades and crises right through to 2008, the regulators will be the last to know about a problem...

Christopher Whalen; Emergency; finance; future; Key.

Sat 2010-09-11 23:31 EDT

Excerpt From "Traders, Guns & Money" (Part 1)

Satyajit Das

Minyanville Professor Satyajit Das' "Traders, Guns & Money" is a wickedly comic exposé of the culture, games, and pure deceptions played out every day in trading rooms around the world. And played out with other people's money. Das is an international expert on financial derivatives and has more than 30 years of experience in the financial markets. Having worked on both the sell side and buy side for such banks as the Commonwealth Bank of Australia, Citicorp Investment Bank, Merrill Lynch, and the TNT Group, he now acts as a consultant advising banks and corporations and presenting seminars on derivatives throughout the world...

excerpts; gun; money; Part 1; Traders.

billy blog Wed 2010-09-08 19:04 EDT

Michal Kalecki -- The Political Aspects of Full Employment

...several readers have asked me whether I am familiar with the 1943 article by Polish economist Michal Kalecki -- The Political Aspects of Full Employment. The answer is that I am very familiar with the article and have written about it in my academic work in years past. So I thought I might write a blog about what I think of Kalecki's argument given that it is often raised by progressives as a case against effective fiscal intervention...[Job Guarantee concepts briefly summarized]...While orthodox economists typically attack the Job Guarantee policy for fiscal reasons, economists on the left also challenge its validity and effectiveness. In 1943, Michal Kalecki published the Political Aspects of Full Employment, in the Political Quarterly, which laid out the blueprint for socialist opposition to Keynesian-style employment policy. The criticisms would be equally applicable to a Job Guarantee policy...Kalecki's principle objection then seemed to be that ``the maintenance of full employment would cause social and political changes which would give a new impetus to the opposition of the business leaders.''...the major political blockages are no longer those that Kalecki foresaw. The opponents of fiscal activism are a different elite and work against the ``captains of industry'' just as much as they work against the broader working class. The growth of the financial sector and global derivatives trading and the substantial deregulation of labour markets and retrenchment of welfare states has altered things considerably since Kalecki wrote his brilliant article in 1943...

Billy Blog; full employment; Michal Kalecki; political aspects.

naked capitalism Wed 2010-09-08 17:27 EDT

Economic consequences of speculative side bets -- The case of naked CDS

Yeon-Koo Che and Rajiv Sethi

...We argue that the existence of naked credit default swaps has significant effects on the terms of financing, the likelihood of default, and the size and composition of investment expenditures. And we identify three mechanisms through which these broader consequences of speculative side bets arise: collateral effects, rollover risk, and project choice...the existence of zero-sum side bets on default has major economic repercussions. These contracts induce investors who are optimistic about the future revenues of borrowers, and would therefore be natural purchasers of debt, to sell credit protection instead. This diverts their capital away from potential borrowers and channels it into collateral to support speculative positions. As a consequence, the marginal bond buyer is less optimistic about the borrower's prospects, and demands a higher interest rate in order to lend. This can result in an increased likelihood of default, and the emergence of self-fulfilling paths in which firms are unable to rollover their debt, even when such trajectories would not arise in the absence of credit derivatives. And it can influence the project choices of firms, leading not only to lower levels of investment overall but also in some cases to the selection of riskier ventures with lower expected returns...

Case; economic consequences; naked capitalism; Naked CDS; speculative side bets.

zero hedge - on a long enough timeline, the survival rate for everyone drops to zero Wed 2010-08-25 10:47 EDT

Illinois Teachers' Retirement System Enters The Death Spiral: AIG Wannabe's Go-For-Broke Strategy Fails As Pension Fund Begins Liquidations

Two few months ago we disclosed how the Illinois Teachers' Retirement System (TRS) was doing all it can to become the next AIG. In addition to, or maybe precisely due to, its deplorable fundamental condition, which can be summarized as being 61% underfunded on its $33.7 billion in assets, with a performance record of down $4.4 billion in 2009 and 5% in 2008, the fund, courtesy of a detailed analysis by Alexandra Harris of the Medill Journalism school at Northwestern, was found to be on its way to trying to become a veritable self-made TBTF: as was described then, "TRS is largely on the risky side of the contracts, selling and writing OTC derivatives, including credit default swaps,..."

AIG Wannabe's Go; Broke Strategy Fails; Death Spiral; dropped; Illinois teacher; long; Pension Fund Begins Liquidations; Retirement System Enters; survival rate; Timeline; zero; Zero Hedge.

Satyajit Das's Blog - Fear & Loathing in Financial Products Thu 2010-08-19 16:16 EDT

Grecian Derivative

Satyajit Das

...In the 1990s, Japanese companies and investors pioneered the use of derivatives to hide losses...Since then, the use of derivatives to disguise debt and arbitrage regulations and accounting rules has increased...Italy used a currency swap against an existing Yen 200 billion bond ($1.6 billion) to lock in profits from the depreciation of the Yen. The swap was done at off-market rates...the swap was really a loan where Italy had accepted an off-market unfavourable exchange rate and received cash in return...A key element of the recent Greek debt problems has been the use of derivative transactions to disguise the true level of its borrowing...More recently, similar structures have emerged in Latvia...This follows a series of revelation regrading the use of derivatives by municipal authorities in the U.S., Italy, German, Austria and France where complex bets on interest rates were used to provide funding or cosmetically lower borrowing costs. Many of these transactions resulted in substantial losses and are now in dispute...Normal commercial transactions can be readily disguised using derivatives exacerbating risks and reducing market transparency. Current proposals to regulate derivatives do not focus on this issue...

fears; financial products; Grecian Derivative; loath; Satyajit Das's Blog.

naked capitalism Tue 2010-08-17 12:40 EDT

Guest Post: Why Clearninghouses Are a Maginot Line Against Systemic Risk

Warren Turbeville

As discussed in ECONNED and on this blog, clearinghouses are not a solution to the systemic risk posed by credit default swaps, since there is no way to have a CDS counterparty post adequate margin and have the product be viable (to put it more simply, adequate margin make CDS uneconomic). ..I am one of the few people around who knows something about the clearing business and theory and is not employed by an investment bank or clearinghouse. At the end of my career on Wall Street, I was hired to perform a financial autopsy of the special purpose derivatives clearinghouse set up by California as part of an innovative power market structure. It had failed in the state's power crisis of 2001-02. Observing the tremendous systemic risk generated by using conventional clearing techniques for all but straightforward derivatives, I embarked on a seven year quest. I formed a company that designed a mathematical, IT and legal structure to provide a transparent and orderly system to manage the risks of those derivatives which shouldn't be cleared conventionally. Imagine my surprise when the banks decided against using the system...

Clearninghouses; Guest Post; Maginot Line; naked capitalism; systemic risk.

Jesse's Café Américain Mon 2010-08-16 16:09 EDT

Chris Whalen: Nothing Has Changed Because It's The Fraud and Corruption, Stupid

Jesse

...The dirty little secret of the Dodd-Frank legislation is that by failing to curtail the worst abuses of the OTC market in structured assets and derivatives, a financial ghetto that even today remains virtually unregulated, the Congress and the Fed are effectively even encouraging securities firms to act as de facto exchanges and thereby commit financial fraud. Allowing securities firms to originate complex structured securities without requiring SEC registration is a vast loophole that Senator Christopher Dodd (D-CT) and Rep. Barney Frank (D-MA) deliberately left open for their campaign contributors on Wall Street. But it must be noted these same firms have a captive, client relationship with the Fed and other regulators as well, thus a love triangle may be the most apt metaphor...a recent key supervisory officer appointment by the Federal Reserve Bank of New York (FRBNY)...choice of Sarah Dahlgren as Head of Supervision...Ms Dahlgren has been at the center of many of the Federal Reserve's most embarrassing failures in the area of bank supervision and in particular with respect to the failure of American International Group (AIG)...

change because; Chris Whalen; corruption; fraud; Jesse's Café Américain; Stupid.

Sat 2010-08-07 20:18 EDT

Wall Street's Big Win | Rolling Stone Politics

Matt Taibbi

...Obama and the Democrats boasted that the bill is the "toughest financial reform since the ones we created in the aftermath of the Great Depression" -- a claim that would maybe be more impressive if Congress had passed any financial reforms since the Great Depression, or at least any that didn't specifically involve radically undoing the Depression-era laws...What it was, ultimately, was a cop-out, a Band-Aid on a severed artery. If it marks the end of anything at all, it represents the end of the best opportunity we had to do something real about the criminal hijacking of America's financial-services industry. During the yearlong legislative battle that forged this bill, Congress took a long, hard look at the shape of the modern American economy -- and then decided that it didn't have the stones to wipe out our country's one --dependably thriving profit center: theft...Dodd-Frank was never going to be a meaningful reform unless these two fateful Clinton-era laws -- commercial banks gambling with taxpayer money, and unregulated derivatives being traded in the dark -- were reversed...Republican and Democratic leaders were working together with industry insiders and deep-pocketed lobbyists to prevent rogue members like Merkley and Levin from effecting real change...Geithner acted almost like a liaison to the financial industry, pushing for Wall Street-friendly changes on everything...Without the Volcker rule and the --Lincoln rule, the final version of finance reform is like treating the opportunistic symptoms of AIDS without taking on the virus itself. In a sense, the failure of Congress to treat the disease is a tacit admission that it has no strategy for our economy going forward that doesn't involve continually inflating and reinflating speculative bubbles...

Rolling Stone political; Wall Street's Big Win.

Minyanville Fri 2010-07-16 14:43 EDT

Intel Shows the 'Financialization' of Corporate America

Peter Atwater

To quote the company's own earnings headline: "Intel Reports Best Quarter Ever."While not taking anything away from the company's ability to deliver I'd strongly encourage readers to look at Intel's (INTC) balance sheet. To these eyes it's filled with financial assets...few have paid attention to what I term the "financialization" of corporate balance sheets, in which productive manufacturing assets have been increasingly replaced by various financial instruments, derivatives, and goodwill...because so much of corporate balance-sheet space is now a function of credit and market risk, financialization has created much tighter correlations to financial institutions than many currently think...And with corporate balance sheets more and more laden with financial instruments, it isn't just going to be product innovation that drives what earnings are ahead for companies like Intel.

Corporate America; Financial; Intel shows; Minyanville.

Wed 2010-06-09 18:45 EDT

London business figures embroiled in Kaupthing fraud investigation: Serious Fraud Office team thought to be to be scrutinising Deutsche Bank's role in alleged suspect trades| Business | The Guardian

Simon Bowers| The Guardian

A Serious Fraud Office investigation into Kaupthing, the failed Icelandic bank, is understood to be pursuing a number of allegations of market manipulation involving investment vehicles controlled by some of the bank's largest clients, including several high profile UK business leaders. It is alleged that in the weeks and months before Iceland's financial system went into meltdown, certain trades improperly used at least €500m (£413m) of Kaupthing funds in an effort to manipulate credit derivatives. Bank bosses hoped this would restore crumbling confidence in Kaupthing's solvency in the months before the bank collapsed in October 2008...The effect was for investment vehicles -- financed by Kaupthing loans, and at least nominally controlled by some of the bank's largest clients -- to take on risk associated with the bank going bust. Kaupthing loans were being use to write insurance against Kaupthing bonds defaulting...Iceland's Truth Commission obtained details of emails sent by Deutsche Bank staff to Kaupthing which, according to its report, demonstrated that the German bank had been offering advice on how to influence the CDS price on Kaupthing bonds from early 2008...

alleged suspect trades; business; Guardian; Kaupthing fraud investigation; London business figures embroiled; scrutinising Deutsche Bank's role; Serious Fraud Office team thought.

The Money Game Sat 2010-05-22 21:47 EDT

The Root Cause Of Recurring Global Financial Crises

Henry Liu

Severe global financial crises have been recurring every decade: the 1987 crash, the 1997 Asian financial crisis and the 2007 Credit Crisis. This recurring pattern had been generated by wholesale financial deregulation around the world. But the root causes have been dollar hegemony and the Washington Consensus. -- The Case of Greece --Following misguided neo-liberal market fundamentalist advice, Greece abandoned its national currency, the drachma, in favor of the euro in 2002. This critically consequential move enabled the Greek government to benefit from the strength of the euro, albeit not derived exclusively from the strength of the Greek economy, but from the strength of the economies of the stronger Eurozone member states, to borrow at lower interest rates collateralized by Greek assets denominated in euros. With newly available credit, Greece then went on a debt-funded spending spree, including high-profile projects such as the 2004 Athens Olympics that left the Greek nation with high sovereign debts not denominated in its national currency...

Money game; Recurring Global Financial Crises; root cause.

naked capitalism Thu 2010-04-22 18:21 EDT

Guest Post: Are Interest Rate Derivatives a Ticking Time Bomb?

Washington's Blog

...Most economists and financial institutions assume that interest rate derivatives help to stabilize the economy. But cumulatively, they can actually increase risky behavior, just as portfolio insurance previously did. As Nassim Taleb has shown, behavior which appears to decrease risk can actually mask long-term risks and lead to huge blow ups. Moreover, there is a real danger of too many people using the same strategy at once... Given that the market for interest rate derivatives is orders of magnitude larger than credit default swap market -- let alone portfolio insurance -- the risks of a ``black swan'' event based on interest rate derivatives should be taken seriously...

Guest Post; Interest Rate Derivatives; naked capitalism; ticking time bomb.

naked capitalism Tue 2010-04-20 09:43 EDT

Satyajit Das: New & Old Greek Lessons

...Like many of the economically weaker EU members, Greece fudged the numbers to meet the qualifications for entry into the Euro. One example of this is the use of derivative transactions with Goldman Sachs to disguise the level of its real borrowing. Membership of the Euro also reduced the ability of Greece to manage its economy. It lost the ability to use its currency, via devaluations, to improve competitiveness and stimulate exports. It also lost the ability to set interest rates (now set by the European Central Bank (''ECB'')). It also cannot print its own currency to fund sovereign borrowing. Greece also has low levels of domestic saving...Greece's problems are probably incapable of solution and terminal. Temporary emergency funding may help meet immediate liquidity needs but do not solve fundamental problems of excessive debt and a weak economy...the optimal course of action for Greece may be to withdraw from the Euro, default on its debt (by re-denominating it in a re-introduced Drachma) and then undertake a program of necessary structural reform...The current debate misses the fact that the ``bailouts'' are mainly about rescuing foreign investors...

naked capitalism; new; Old Greek Lessons; Satyajit Das.

Jesse's Café Américain Mon 2010-04-19 18:34 EDT

Goldman Sachs: A Pattern of Organized Criminal Behaviour?

Jesse

Chris Whalen provides some excellent commentary on the Goldman Sachs fraud inquiry by the SEC at the beginning of his weekly newsletter, The Institutional Risk Analyst...``hedge funds often times are merely extensions of the dealers with which they interact. It is often difficult if not impossible to tell where the dealer's interests end and those of the hedge fund begin, especially when the dealer and the fund seem to be working in concert to create securities that are being sold to third parties. This episode is a terrible mess and, to us at least, illustrates why the OTC markets for securities and derivatives need to be regulated out of existence -- or at least into compliance with norms of disclosure and fair dealing that would render such strategies impossible.''

Goldman Sachs; Jesse's Café Américain; Organized Criminal Behaviour; pattern.

Jesse's Café Américain Wed 2010-04-07 19:14 EDT

The Case for Position Limits: What is the 'Spot Price' of Gold and Silver And How Is It Set?

Jesse

...almost all retail transactions for physical bullion in the US key off a 'spot price' that is derived from a paper market which is not based in the reality of physical supply, since the futures exchanges explicitly allow for the settlement in cash if physical bullion is not available. In fact, the vast majority of transactions are settled in cash, and are little more than derivatives bets it seems, and often hedges related to other things like another commodity or interest rates...As someone who approaches it as an amateur economist, and has been looking at its dynamics for the past few years, I may be missing something, but this seems less like an efficient market mechanism for price discovery and capital allocation, and more like a carney game.

Case; gold; Jesse's Café Américain; position limit; set; Silver; Spot Prices.

THE PRAGMATIC CAPITALIST Wed 2010-04-07 18:22 EDT

THE ENRON BANKING SYSTEM

TPC

``Panics do not destroy capital -- they merely reveal the extent to which it has previously been destroyed by its betrayal in hopelessly unproductive works'' -- John Mills ...We should draw a distinct line in the sand between banks and diverse risk taking firms. There are always going to be Enron's in the economy, but why should we allow our entire banking sector to mirror Enron? Taking a 30,000 foot risk management view I say something must be done to ensure these banks can never do this again. Turn banks into true banks. Hedging and exotic business models are fine. Just don't commingle them under the same umbrella as a deposit taking ``bank''. With that, a few ideas come to mind: * Our banking system should be aligned with the goals of the nation to help ``grease'' the wheels of the economic growth engine of the United States. Banks should be more like utilities and less like hedge funds. Otherwise, banking becomes counter-productive and potentially destructive. * Banks should not be allowed to exact onerous fees on the public or enact a business model which is inherently dependent on driving their customers deeper and deeper into debt. This undermines the entire goal of productive economic growth. * ``Banks'' should be true lending institutions. Non-traditional banking operations and products such as CDS, ``off balance sheet'' finance, derivatives as collateral and such would be deemed illegal unless performed only by non banking/lending institutions (such as hedge funds) so as to insulate the public and true lending institutions from the risk taking, ``hedging'', and ``financial innovation'' of firms such as Lehman Brothers.

ENRON BANKING SYSTEM; pragmatic capitalists.

Culture of Life News Tue 2010-04-06 10:23 EDT

Ireland And US Will Be Devoured By Derivatives Beast

Elaine Supkis

The banking mess in the West continues. It has rather deep roots. That is, we decapitalized our own banking system long, long ago. The fix for this was to create a fake banking system with virtually no real capital reserves at all. This was possible thanks to the floating fiat currency created when Nixon suddenly cut the gold standard back in 1971. By 1987, the banking collapse was tremendous during a deflationary time that followed a hyperinflation era. This fix created conditions that caused the near-total collapse in Western banking...So far, governments in the West are being bailed out by Asia. And this is being done so Asia can continue to rapidly expand its own industrial base. This savage business gets worse and worse over time due to the self-feedback system of this debt expansion: you get more credit from export powers via letting them export even more to your own home base. So as capital vanishes, the need for debt shoots upwards and the system continues to get more and more unbalanced...Sure, we have little inflation except in important commodities but this is due to the Goddess of Zero slashing away at the mountain of debt, using the default tool to fix this mess in a very brutal way. Unfortunately, the bankers still control our `democracy' so they are moving all their losses onto our books and far from things going to zero, it is actually heading towards infinity: infinite debts owed by the taxpayers who want to continue stupidly cutting taxes while increasing credit based on virtually no capital at all! Sheesh.

Culture; Derivative Beast; devouring; Ireland; Life News.

Jesse's Café Américain Sat 2010-04-03 09:48 EDT

Whistleblower Speaks Out On J. P. Morgan's Market Manipulation - Reports Violations to the CFTC

Jesse

Do we have another Harry Markopolos here, describing in detail the manipulation of the gold market by J.P. Morgan to the CFTC? How does this square with the testimony today from the CFTC Commissioners, who seem to indicate that the markets are functioning extremely well, and that investor can have full confidence in them? I am led to understand that Mr. McGuire had offered to testify before the CFTC today, and that he was refused admittance. I do not know him, or the position he is in within the trading community. I cannot therefore assess his credibility or the validity of any evidence which he may present or possess. But I have the feeling that nothing will come of this...What seems particularly twisted about this is that JPM is the custodian of the largest silver ETF (SLV). Is anyone auditing that ETF, and watching any conflicts of interest and self-trading? Multiple counterparty claims on the same bullion? If you ever wanted to see a good reason for the Volcker rule, this is it. These jokers are one of the US' largest banks, with trillions of dollars in unaudited derivatives exposure, and they seem to be engaging in trading practices like Enron did before it collapsed...

CFTC; J. P. Morgan's Market Manipulation; Jesse's Café Américain; reported violations; Whistleblowers speak.

The Full Feed from HuffingtonPost.com Tue 2010-03-09 17:30 EST

Janet Tavakoli: Washington Must Ban U.S. Credit Derivatives as Traders Demand Gold

Janet Tavakoli

Congress should act immediately to abolish credit default swaps on the United States, because these derivatives will foment distortions in global currencies and gold. Failure to act now will only mean the U.S. will be forced to act after these "financial weapons of mass destruction" levy heavy casualties. These obligations now settle in euros, but the end game is to settle them in gold. This is so ripe for speculative manipulation that you might as well cover the U.S. map with a bull's-eye...

Ban U.S. Credit Derivatives; com; full Feeds; HuffingtonPost; Janet Tavakoli; Traders Demand Gold; WASHINGTON.

Sun 2010-02-28 13:43 EST

"Sultans of Swap" by Gordon T Long, FSU Editorial 02/24/2010

...When asked why there are $605 Trillion derivatives outstanding (1) how do you articulate an answer to this horrendous and almost unimaginable number? The US is the largest economy in the world but tallies only 2.3% in comparison. Global bank reserves amount to only 1.2% of this accumulation. The gargantuan size appears to defy all logic...we discover the Sultans of Swap. The Bond Vigilantes are of a previous era. They are dead -- RIP. Through the magic mix of Credit Default Swaps, Dynamic Hedging and Interest Rate Swaps the Sultans of Swaps effectively control interest rate spreads. Through Regulatory Arbitrage they extort tremendous political sway globally. They live in the world of risk free spreads. Low interest rates simply attract more volume for their concoctions. We have had an explosion in Money Supply globally as the charts (right) indicate. The parabolic rise matches the increase in these derivative products along with their ability to turn Interest Rate Swaps into high powered bank lending...Everything is based on tax payers paying, GDP expanding and interest rates staying low...

FSU Editorial 02/24/2010; Gordon T Long; sultans; Swap.

Sun 2010-02-28 13:27 EST

Janet Tavakoli: Washington Abandons Greece: Beware of Geeks Bearing Grifts

Janet Tavakoli

The European Union (EU) is shocked--shocked I tell you!--that Greece used financial engineering to qualify for admission. Exactly how did they think that weaker countries managed to meet the requirements?...A few years ago, Greece engaged in derivatives transactions which essentially gave it a disguised loan, a gift from geeks. Greece may or may not have had plans to invest the money to create national wealth instead of say, blowing it all on national bling. Either way, Greece used its national credit card in a futile attempt to keep up with the EU Joneses...Today, rumors are that crony capitalists are using derivatives to profit from Greece's misery. There are allegations that investment banks and hedge funds used their knowledge of Greece's hidden debt to drive up its borrowing cost and drive down the Euro. Then these speculators reversed their positions, when they had advance information of a potential bailout for Greece. Other rumors suggest customized trades on the sovereign credit derivatives index also exploited Greece's problems. Still other rumors point to a campaign to manipulate Greek debt prices and knock down the Euro.

Beware; Geeks Bearing Grifts; Janet Tavakoli; Washington Abandons Greece.

naked capitalism Sun 2010-02-28 13:13 EST

Das: Mark to Make Believe -- Still Toxic After All These Years!

Satyajit Das

n 2007, as the credit crisis commenced, paradoxically, nobody actually defaulted. Outside of sub-prime delinquencies, corporate defaults were at a record low. Instead, investors in high quality (AAA or AA) rated securities, that are unlikely to suffer real losses if held to maturity, faced paper -- mark-to-market (``MtM'') -- losses. In modern financial markets, market values drive asset values, profits and losses, risk calculations and the value of collateral supporting loans. Accounting standards, both in the U.S.A. and internationally, are now based on theoretically sound market values that are problematic in practice. The standards emerged from the past financial crisis where the use of ``historic cost'' accounting meant that losses on loans remained undisclosed because they continued to be carried at face value. The standards also reflect the fact that many modern financial instruments (such as derivatives) can only be accounted for in MtM framework. MtM accounting itself is flawed. There are difficulties in establishing real values of many instruments. It creates volatility in earnings attributable to inefficiencies in markets rather than real changes in financial position...

Das; Make-Believe; marked; naked capitalism; toxic; years.

naked capitalism Fri 2010-02-05 11:06 EST

FDIC Proposes Tough-Minded Securitization Reforms; Industry Howls

...the FDIC presented a cogent and tough-minded plan for securtization reform at the American Securitization Forum...The driving element is that the FDIC is proposing to change the requirements for a securitization to be treated as a true sale, meaning that when the originator sells the mortgages to a securitization vehicle (say a trust), the investors in that vehicle cannot go back to the originator for recourse...The FDIC included various proposals to insure transparency for investors, including a requirement that all deals be arms length, to third party investors (no affiliates or insiders). They would exclude derivatives (excluding interest rate swaps) and would not permit re-securitizations...a clever effect of this proposal was that it solved the problem of ``what to do with rating agencies'' by making them irrelevant

FDIC Proposes Tough-Minded Securitization Reforms; Industry Howls; naked capitalism.

Jesse's Café Américain Wed 2010-02-03 20:13 EST

Italy Seizes Bank of America Assets In Derivatives Fraud Probe

Jesse

"more than 519 municipalities that face 990 million euros in derivatives losses"...Globalization is used as a rationale for stripping nations of their sovereign rights, and the people from their ability to rule and protect themselves in accord with their own beliefs and preferences...The US is a relative safe haven for multinational corporations that engage in various forms of fraud and market manipulation around the world, like modern day privateers. It appears unable to regulate them because of widespread political corruption and the self interest of its monied elite.

America assets; Derivatives Fraud Probe; Italy Seizes Bank; Jesse's Café Américain.

Tue 2010-01-12 23:32 EST

Dr. Edwin Vieira, Jr. on the Failure of the Public Sector, the Coming Military Crackdown and What Can Be Done to Stop It

...The foremost problem-because it is the source of, or contributes significantly to, almost every economic difficulty now plaguing this country-is the inherent and ineradicable instability of the present monetary and banking systems centered around the Federal Reserve System. The second problem derives from the first. It is the ever-accelerating development of a first-class para-militarized police-state apparatus centered around the United States Department of Homeland Security, with its tentacles reaching down into every police force throughout the States and localities. Fundamentally, this apparatus is not, and never was, designed to deal with international "terrorism". If that were its goal, its first task would be absolutely to secure the southern border of the United States, which it has never seriously attempted to do. Rather, it is being set up to deal with what the political-cum-financial Establishment anticipates (and I believe rightly so) will be massive social and political unrest bordering on chaos throughout America when the monetary and banking systems finally implode in the not-so-distant future-surely in hyperinflation, and probably in hyperinflation coupled with a gut-wrenching depression. Of these two problems, the second is actually the more dangerous...

Coming Military Crackdown; Dr. Edwin Vieira; failure; Jr; public sector; stop.