Fighting Derivatives Regulation
Astonishing:
“Brooksley Born, the former U.S. commodities regulator who lost the fight to police over-the- counter derivatives a decade ago, said the banks that caused the financial crisis are trying to stop the overhaul of the market.
“Special interests in the financial-services industry are beginning to advocate a return to business as usual and to argue against any need for serious reform,” Born said today as she accepted a Profile in Courage award from the John F. Kennedy Library. If changes aren’t made “we will be haunted by our failure for years to come,” she said.
As the chairwoman of the Commodity Futures Trading Commission in 1998, Born warned that the unregulated contracts posed a serious danger to the global financial system and moved to address changes in how swaps based on interest rates, commodities or currencies were traded. She was stopped by Alan Greenspan, Arthur Levitt and Robert Rubin, who all argued the market could regulate itself.
Lax oversight contributed to the failures last year of Lehman Brothers Holdings Inc. and American International Group Inc., leading to the seizure of credit markets and causing more than $1.4 trillion in writedowns amid the worst financial crisis since the Great Depression. Treasury Secretary Timothy Geithner has promised that the U.S. will for the first time regulate over-the-counter derivatives, which are a major source of bank profits.”
And the nation of sheeple, briefly disturbed from their somnolence, returned to watching American Idol . . .
>
Sources:
Born Says Banks Seek to Block Any Derivatives Change
Matthew Leising
Bloomberg, May 18 2009
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aZCKr3Jw.j0c
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May 20th, 2009 at 11:49 pm
american idol is lame, I been watching Lebron James dunk on people thank you very much.
May 20th, 2009 at 11:51 pm
Barry: when do you sleep?!
May 20th, 2009 at 11:55 pm
my wife loved watching american idol. i liked watching Lebron event though CLE lost. In any case, Brooksley Born was brave, but lost to the moneyed interest. Over-ruled.
May 21st, 2009 at 12:00 am
The terms “overhaul” and “reform” are no more informative than a generalized call for “change”.
Transparency is good. But regulation can go too far also.
May 21st, 2009 at 12:03 am
I actually have never watched American Idol. I never had any real interest in the reality shows.
Back to the topic at hand. If the derivatives are not regulated then at least have them traded out in the open on an exchange. That way it will be easier for investors to determine a financial institutions health (or if it has swine flu).
May 21st, 2009 at 12:23 am
Barry, was your comment about American Idol motivated by this CNBC headline:
http://www.cnbc.com/id/30857536
That certainly is an important bit of economic news that shows just how on-the-bal CNBC is about the economy.
May 21st, 2009 at 12:25 am
Wow, two typos in one short post. Time for bed.
May 21st, 2009 at 12:56 am
I find it astonishing that Brooksley Born was given a Profile in Courage award. What the hell? She was the head of the “little brother” regulator who was whining about derivatives contracts. If she had been truly courageous she what have flexed some muscle and at least written a nice OpEd in the WaPo about how she was getting run over by Uncle Alan and her friends in the SEC. Or, if she had been really courageous, she would have sued the other agencies and demanded jurisdiction over “futures” like contracts in the Over The Counter market and let the SCOTUS decide who had jurisdiction over what. Pathetic.
~~~
BR: She was the person who correctly warned about the potential damage unregulated derivatives could cause.
I doubt she could have sued other agemncies — it was a political decision by the President, Fed Chief and Treasury chief — CLinton, Greenspan, and Rubin/Summers
May 21st, 2009 at 1:12 am
Karl Denninger has used the expression “sheeple watching American Idol” over 10 times on his website to describe America’s current apathy. Barry is channeling the best!
May 21st, 2009 at 1:30 am
Sheeple comes from Sci-Fi, I forget the author… Speaking of which, the CCW rider on the creditcard bill,
if it’s not a gotcha moment as it’s advocate asserted, I think it is arguably at least a sort of a “Cheney gotcha moment” How does this sound? ‘Come visit our national parks, no we don’t torture people out there, we just take em out hunting!’
May 21st, 2009 at 1:42 am
Here’s an article about Brooksley Born that will chap your hide about Summers, et al:
http://www.stanfordalumni.org/news/magazine/2009/marapr/features/born.html
May 21st, 2009 at 1:50 am
not really astonishing that the banks that caused the financial crisis are trying to stop the overhaul of the market…. Most Highly Recommended reading:
Political Ponerology (A Science on the Nature of Evil Adjusted for Political Purposes)
by Andrzej M. Lobaczewski and Laura Knight-Jadczyk
http://www.amazon.com/Political-Ponerology-Science-Adjusted-Purposes/dp/1897244258/
May 21st, 2009 at 3:53 am
BR – still you seem to be firmly in the “green shoots” camp. [BR: Then you obviously have not been reading what I have been writing here]
If excessively low interest rates, high debt levels, and lack of regulation got us into this mess just how do excessively low interest rates, further debt, and continued lack of regulation get us out of it? You do ssee the point, yes?
And this is only within the confines of the USA. Don’t even get me started on the global macro view. Ugly stuff indeed. Brown grass and dead roots as far as the eye can see.
Yep, the second derivatives are turning positive. Just before the cliff face. Weeeeee……!
May 21st, 2009 at 3:59 am
I hate the word sheeple. Why not say stupid fucks or retards or morons. It’s an easy way to insult people.
~~~~
BR: Because its inelegant
May 21st, 2009 at 6:19 am
Good news for shorts…Laszlo Birinyi, whose stock pick of the year for last year was AIG, is suddenly a major bull, calling for S&P to rise 88% in a couple of years. He’s so smart, he can narrow it so precisely too…88%.
May 21st, 2009 at 6:36 am
ohemingway:
I’m sure the insult isn’t aimed at you, but we, as a culture, do exhibit a meekish, herd mentality. Some people are stupid fucks or retards or morons.
_____________
As for regulation of criminality, I’m all for going to Viking/pirate rules – if I can take it from you, it’s mine. if I want to do something and you can’t stop me, it’s okay that I do it. Governwhat?
Sheesh.
May 21st, 2009 at 6:36 am
Barry,
How about a comprehensive list of everyone and everything that has been bailed out? Like the layoff total that Forbes runs?
Investment banks
Individual mortgage holders
First time home buyers
Car Companies
Fannie
Freddie
Pension Insurers
FDIC
Unions
State Governments
IMF
etc.
With more flavors added weekly it could turn into quite the list….
~~~~
BR: Great idea!
Maybe I should write a book about that . . .
May 21st, 2009 at 7:05 am
Guess I was a little obtuse, I mean this would be a real-time reminder of your thesis…
May 21st, 2009 at 7:14 am
He is in promotion mode…maybe I should write a book about that… funny
May 21st, 2009 at 7:20 am
I know, I was just kidding . . .
May 21st, 2009 at 8:50 am
I once joked about American “Idle” regarding the viewers… Some laughed hard, all others were pissed. I was surprised by the polarization, either love or hate it. I just didn’t care as I rarely watch TV.
May 21st, 2009 at 9:23 am
Whammer,
Thanks for that link. Brooksley Born is adorable – I had no idea.
Gosh. Well rounded, even in her stride throughout her career. Smart. One who is mindful to protect others from indulgence of the others she has observed up close. These and many other understated qualities.
Who could not help but admire such attributes in a person.
Wow look at her in college. She was darling. Holy smoke. Here folks had to have been so proud. Now in her prime, a genuine darling for the America people to admire.
Wow. Stunning.
She puts a lot of executives in NY to shame.
~Chris
May 21st, 2009 at 9:32 am
.
Barry, indeed astonishing. The Lady was well ahead of her time. Her position has stood up to false assurances of others. Greenspan, Summers and others keep looking more and more feeble as we look back on their careers.
Even today, they cannot bring themselves to terms with the realities of the smartly run and exclusively self regulating, derivatives market. I suppose that ties into their inability to accept responsibility for costing others so much in losses: Driving “high wealth” clients around the country and even the country, into financial ruin. … Self regulating, as they worked their whole careers to be.
.
May 21st, 2009 at 9:46 am
Truth:
“Brooksley has been vindicated,” said John Tull, a CFTC commissioner from 1993 to 1999. “Had they listened to her, I think this catastrophe could have been averted.”
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aVYf8XDXiSZM
May 21st, 2009 at 9:49 am
Ritholtz never sleeps. Neither do I.
But dis here says it all:
“And the nation of sheeple, briefly disturbed from their somnolence, returned to watching American Idol . . .”
I couldnt have said it better. Now that Survivor is done anyways.
May 21st, 2009 at 10:44 am
whammer, very pleased that i happened upon and followed your link… what a story. thank you. incredible/incredulous insights.
May 21st, 2009 at 10:49 am
“And the nation of sheeple, briefly disturbed from their somnolence, returned to watching American Idol . . .”
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Barry, have you ever done a call to action to help make change in our country regarding your area of expertise? Here’s a good example of what I’m talking about at Zerohedge:
http://zerohedge.blogspot.com/2009/05/time-to-make-federal-reserve.html
It’s very easy to call Americans sheeple, it’s more difficult to figure out what to do about it and get into the action that will make change. You are an American resource, you have information/expertise that can help change the country for the better.
May 21st, 2009 at 10:53 am
Between the sheeple, the sheeple-funded-bank-lobbying, and the indecision about what combination of oversight, regulation, and incentive should be legislated I wouldn’t bet on there being much change.
Even the Washington folks who still believe in centralized control have not come out with clear legislative goals after all the closed door meetings.
Perhaps the sheeple have no shephards (only wolves?).
May 21st, 2009 at 12:20 pm
mknowles @ 10:49 am
Astute observations: “…You are an American resource, you have information/expertise that can help change the country for the better. …Barry, have you ever done a call to action to help make change in our country regarding your area of expertise?”
I was asking myself similar questions:
Seriously Barry, have you given any thought to how you might form opposition, help form or organize proactive group protests, through a tab on your website? Post form letter from time to time, or lists of congresspersons and Senators by state, to help people who want to write their representatives in a subject. Prompt for thoughtful ideas or thoughtful phrases that might lend to making their petitions more succinct and potent? Or have a live go to link that is always available, if they want to email a family member or post on another forum? Maybe you have your hands full, devoted to branch offices for financial enterprise?
Imma buy your book, but I think it would be good to have an honest opinion here. What is your commitment to raising your capitalist flag a little higher?
Providing you are not still watching re-runs of Idle?
Sorry I could not resist that last dear Sir.:)
à bon chat, bon rat
May 21st, 2009 at 12:29 pm
Do the stress test results paint an accurate picture of the financial industry?
http://forums.wsj.com/viewtopic.php?t=5895
Nikki Posted: Wed, 2009 May 06, 10:21 pm
“Can someone explain to me why a test administered by the very people who failed to foresee the collapse of the financial markets (a collapse … easily foreseeable), should be anything but faulty and bogus?”
“Isn’t Bernanke part of the “stress test team”? Well, obviously he didn’t have enough sense to realize that the forced purchase of Merrill Lynch by B of A would end up where it has. Or was it that he was counting on there being so much other financial crisis noise that we wouldn’t pay attention to his actions.”
“I’m still waiting to hear that the SEC is investigating Bernanke and Paulson. If the DOJ is looking for someone from the Bush Era to indict, make them the poster boys of economic collapse. I mean if Lewis is no longer chairman of B of A because of his behavior (and I think he should be fired as President/CEO as well, but I’m not a B of A stockholder), then shouldn’t Bernanke be fired as chairman of the Fed? I don’t know what can be done with Paulson. Is he even still in the country?…”
May 21st, 2009 at 1:47 pm
http://www.fedupusa.info/Dylan_Ratigan_Interview
Dylan says it pretty well here. This was a couple of months ago too.
May 21st, 2009 at 3:47 pm
“Commodity Futures Trading Commission”
There’s another market which needs considerable regulatory overhauling.
“And the nation of sheeple, briefly disturbed from their somnolence, returned to watching American Idol . . .”
For your info, I’ve never watched an episode of American Idol. Furthermore, what would you suggest us sheeple do? Voting out one party for the other doesn’t seem to matter when both parties are bought and paid for. When is the last time anything went to the U.S. public as a referendum? Writing or calling the clowns in Washington with our opinions doesn’t work either. So again I ask, what would you suggest us sheeple do?
May 22nd, 2009 at 10:58 am
We were calling the American people as a whole “sheeple” as far back as 1990 on the old Prodigy system Money Talk bulletin boards, and had a lot of interesting people on board for awhile to debate things, like Jimmy Rogers, the late Tom Snyder, Ron Insana, etc, but all the warnings went unheeded and things were left to unravel without hardly a whimper of protest… Some things never seem to change, especially with the “American sheeple”. Here we are almost twenty years later, and they are still without a clue.
“Retarded Nation” is what “we” truly are!
June 7th, 2009 at 9:32 pm
Clearly we had misuses and abuses of the various OTC products in the last 20 years (just as firms and individuals time and time again got decimated by trading exchange listed derivatives). Clearly dealers made massive amounts of money on OTC derivatives sometimes ripping off clients (similar to the way insurance firms profited from writing insurance). The knee-jerk reaction regulation is however not the answer. Clearing platform solutions, standardization, and disclosure to regulators are sometimes helpful but represent only a fraction of the answer. The key is sound margining procedures (such as the ones used by exchanges) and proper bank capitalization. Most banks already have such procedures in place and the Fed (as well as the OCC) should review and push for strengthening of these practices. The industry is already moving in this direction . Destroying or restricting various risk management tools provided by dealers is unsound, even if it makes for great press coverage. For those who are interested in understanding rather than reacting please read a blog posting called “Derivatives, the wrong war” on http://www.SoberLook.com.