Monday, October 27, 2008

60 minutes and another reason for the Financial Troubles...

I don't normally stop and watch 60 minutes but they had a great article on "The Pickens Plan" which I am a huge supporter of and just like T. Boone and his capitalistic nature :D... They then had and article from Steve Kroft about a little known bill that Congress passed UNANIMOUSLY and the "great" Bill Clinton signed into law as a Lame Duck president in 2000 known as "Commodity Futures Modernization Act of 2000." Here is some of the interesting facts:

It not only removed derivatives and credit default swaps from the purview of federal oversight, on page 262 of the legislation, Congress pre-empted the states from enforcing existing gambling and bucket shop laws against Wall Street.

"It makes it sound like they knew it was illegal," Kroft remarks.

"I would agree," Dinallo says. "They did know it was illegal. Or at least prosecutable."

In retrospect, giving Wall Street immunity from state gambling laws and legalizing activity that had been banned for most of the 20th century should have given lawmakers pause, but on the last day and the last vote of the lame duck 106th Congress, Wall Street got what it wanted when the Senate passed the bill unanimously.
So we have the ability to gamble on stocks... which results in...

They didn't know what was going on in part because credit default swaps were totally unregulated. No one knew how many there were or who owned them. There was no central exchange or clearing house to keep track of all the bets and to hold the money to make sure they got paid off. Eventually, savvy investors figured out that the cheapest, most effective way to bet against the entire housing market was to buy credit defaults swaps, in effect taking out inexpensive insurance policies that would pay off big when other people’s mortgage investments went south.
Guess who insured those bets?

Goldman Sachs
Lehmen Brothers

And Congress...

Congress now seems shocked and outraged by the consequences of its decision eight years ago to effectively deregulate swaps and derivatives. Various members of the House and Senate have hauled in the usual suspects to accept or share the blame.


-End of Ramble


Seven Star Hand said...

Hey Guy,

So, why should all of humanity be forced to suffer and struggle any longer, now that the entire global financial system has been exposed as a mind-boggling deception, within many other deceptions? No one in their right mind would continue to be enslaved by a proven deception, which is also proven to be undeniable slavery-by-proxy !!!

The derivatives scams alone have grown to more than 20 times the entire global GDP (at last counting) and are now failing because the scam/pyramid scheme broke and exposed the deception for all to see. A significant portion of global wealth and power was created and propped-up using these and other now-proven smoke and mirrors and house of cards illusions and delusions.

These deceptions have grown many times larger than the rest of the entire world economy. Consequently, there is no way that all of the world's governments combined, who themselves borrow so-called "money" from other central-bank smoke and mirror deceptions, can solve this debacle, by using more smoke and mirrors money scams. The only solutions they are offering will take centuries to repay, if ever.

Here is Wisdom...

Ordinary Guy said...

7 star,

Derivatives are a dangerous business however why should those who take those risks get a free ride when they go belly up? Finance is a equation with winners and loosers. Had I known that these instruments existed I may have owned some because I saw this coming. Mother finance will slap you upside the head when you are stupid and she slapped AIG, Lehman and Goldman. Our big brother like government came to the aid of the idiots when they should have failed.

To many young MBA's trying to make their mark who don't understand it's not a video game with a reset button

-End of Ramble

Lucid Guy said...

You are both correct. Government intervention will not cure what government intervention caused. Unfortunatley, the only solution is to let the failures happen, both corporate and individual, and to rebuild from there. It would be painful, it would probably mean global economic depression, but the pain will only be prolonged by big brother government stepping in and selectively bailing out entities (who's choosing who gets the bailout?).

Investing in the stock market has always been a secured type of gambling. But as you both point out, the "trust" in the system has been lost or "exposed" and now no ordinary investor is willing to take the risk. Any currency is only worth what someone else is willing to pay for it. In this case the investment markets are now worth very little and most of the money is sitting on the sidelines in mason jars and under beds.

We need to get rid of all the perks that our Congress (American Royalty) enjoys and get some people in there that are willing to work for the Country and not themselves. Barnie Frank, Chris Dodd, and Charles Schumer should all be in prison for stopping the Fannie and Freddie investigations and changes five years ago.

Ordinary Guy said...


You... Again... Are right on track. American Royalty has to end. We need to stop looking at the Presidency as a monarchy... the Congress as aristocracy and remember that this country is a Republic.

There is no one person that can promise 'change'... it has to be systemic change.

Oklahoma City Divorce Attorney said...

I am a big fan of the Pickens Plan - with regard to the deregulation of swaps and derivatives...pathetic.