Obama Pushes Broad Rules for Oversight of Derivatives ...NOT good

[Badgerman]

http://www.nytimes.com/2009/05/14/business/14regs.html?hp
"The administration will ask Congress to approve legislation that would impose a new government oversight structure for the instruments, which Warren Buffett once called “weapons of mass destruction.”

In a two-page letter to Congressional leaders, Treasury Secretary Timothy F. Geithner asked for the swift approval of a measure that would require many kinds of derivative instruments, including credit default swaps, to be traded on exchanges and subject to tighter regulation. Derivatives can take many forms, but in total there are trillions of dollars’ worth exchanging hands every day around the globe. "
------------------------
The headline should read 'Timothy Geithner&Gang Win Again'. Derivatives should not be regulated, they should be outlawed. These 'instruments' are nothing more than the cards in a 'Poker Ponzi' game. If the president does not realize this, then he is dolt being lead about by the international money changers....their is ever increasing evidence that that is indeed the case. As intelligent as the man is, he appears to be sorely lacking in economics and monetary issues, and therfor must rely on advise. His advisors seemingly without exception are the very people who devised and implemented the creative instruments that performed as Buffett predicted.

The thing that is so troubling is that the hundreds of billions being poured back into the pockets of the money changers will not be available for such things as health care, education, infrastructure building and repair, research into alternative energy resources and others. some say 'Oh, not to worry. These monies are only a drop in the bucket of the Gross Domestic Product. No, the interest on just the debt now owed is well over a third of the national budget...think about that. At what point do we become Argentina a couple decades ago, or any other nation that accrued a debt so large that they had to resort to printing ever greater, and ever less valuable currency in order tostayy afloat. These smaller countries were later bailed out by the larger countries. Who will bail us out?

I am certainly no expert in any of these matters, but what I have stated is being hinted at in all corners now. Perhaps its time that those of us who put our trust in Obama and elected him, should at the very least let him know that he needs to convince us that his advisors are the best, the brightest, and most of all owe their loyalty to the country and to the President...and not to money or its 'changers'.

(editted for spelling etc)
(fixed link)

[OHDEM]

1. I'm not 100% clear on what's bad about regulation...

...and oversight?

[Badgerman]

2. Its what is being regulated that is bad...derivatives shouldn't exist...period! n/t

[JuniperLea]

3. You can't get rid of them...

without first having oversight in the matter.

[Badgerman]

5. You do not need to 'rate' anything, simply ban them as investment instruments. n/t

[JuniperLea]

6. And how would one do that without first having the right to oversight? eom

[Badgerman]

7. Commerce section of Constitution, the source of the SEC's powers. and ...

what you are missing here is that 'derivitives came about because the regulatory agencies did not specifically exclude there 'being'. although a bit of closing the barn door after, it is completely feasble and completely legitimate for the US Treasury vis a vis all the regulatory agencies over which it sees, to simply ban outright any investment vehicle that even resembles a 'derivative. Honest, it's that simple and straight forward.

[JuniperLea]

8. And what would you do with all the monies...

Or claims of loss? You can't just shut something down that has tentacles reaching throughout the financial industry. It would mean chaos.

[Badgerman]

10. well, as things are showing these financial businesses aren't really...

necessary except to themselves. the local and regional banks have not failed in any significant numbers, and are generally very well off. They are tightly regulated and not allowed to play poker with the thieves, so lending and such through them has not suffered except by declining applications by solvent businesses and individuals. Further the so-called to-big-to-die financial group has absorbed over a trillion dollars worldwide and with no visible affect other than to raise the stock market by 10% or so, and to re-instate higher salaries. No, the Goldmans, and Morgans ad nauseum are not necessary for corporations to raise funds, bonds and stocks can be moved by other methods...as they were prior to de-regulation. Corporations did not seem to suffer in stock values or credit when the big money changers were on a shorter leash, to say otherwise is to fly in the face of recorded recent history.

As to world globalization of trade etc, again the need for big middle-men is npot necessary except for their owns self interests, simply another level of skimming that adds additional cost to doing business, they are in a very real way an exorbitant value added tax on trade.

The derivatives are a more recent invention by them to make even more profits by literally gambling, a derivative is in the simplest instance a pices of paper made of small bits of other pieces of paper, none of them whole, which are then 'sold' for more than the bits are actually worth, the buyer then splits up several of these derivatives, re-bundles them and sells them for a profit. This is nothing but a pyramid, a gigantic 'Ponzi'. So financial dealers who deal in these add no worth to the global economy at all, they take the fees in one division of their operations, transfer them to another which then stakes itself into the 'Ponzi Poker' game.

I hope I am making this clear and more importantly making it clear just how simple all this is, the jabber about complexity is smoke to hide the 'game room', that is all.

[northzax]

11. derivatives are hardly a new invention

certain types, like Credit Default Swaps (CDS) are (at least within the past 25 years) but classic derivative types (likes futures and options) are not a new concept. my great grandfather, a farmer in Iowa, was selling futures at the turn of the century. The dutch tulip craze? all about futures. and options? people have been trading those for centuries, in one form or another.

so exactly what sort of 'derivatives' are you interested in banning? can you be more specific?

[Badgerman]

12. futures are not derivatives in the modern sense. n/t

[northzax]

14. they are still derivatives

as in they are a financial instrument who's value is derived from a something else.

so what sort of derivatives are you talking about banning? please, be specific.

[BlooInBloo]

15. Thanks for clarifying that you have absolutely no idea what you're talking about.

[Badgerman]

18. oh, welllll

[Statistical]

43. WTF? Futures and options are EXACTLY a derivative.

Their value is DERIVED from another underlying asset.

Derivatives are financial contracts, or financial instruments, whose values are derived from the value of something else (known as the underlying). The underlying value on which a derivative is based can be an asset (e.g., commodities, equities (stocks), residential mortgages, commercial real estate, loans, bonds), an index (e.g., interest rates, exchange rates, stock market indices, consumer price index (CPI) — see inflation derivatives), weather conditions, or other items. Credit derivatives are based on loans, bonds or other forms of credit.

The main types of derivatives are forwards, futures, options, and swaps.

http://en.wikipedia.org/wiki/Derivative_(finance)

You wanted to ban all derivatives.
Then it becomes obvious you have no idea what you wanted to ban to begin with.


"I think we should ban all internal combustion engines.
Of course cars and tracks don't have an internal combustion engine in the modern sense"

[JuniperLea]

39. "a more recent invention"

And BushCo made damn sure there were no regulations in the way of the theivery. Hence the need for some rules and regulations, and can't do anything about them until there are.

[Statistical]

31. and stupid..... Thank God we elected Obama and not a knee jerker like you.

Really "ban any investment that even RESEMBLES a derivative"?

Would that include options?
What about future contracts?

You do know that some derivatives have legitimate value.

A farmer worried about what price he will get for corn can lock in a rate long before harvest via future contracts.
Southwest airlines kept ticket prices immune to oil by purchasing out of money oil options (that rose in value as oil = cost of flying plane rose in value).

[Badgerman]

40. 'kneejerker'? thats not nice, I never called you a repug or anything, sheesh!

[LuvNewcastle]

4. Who's going to rate them?

The same people who gave them AAA ratings in the first place? This doesn't look good to me, either.

[OHDEM]

9. Oh...I see what you're getting at!

I agree that they shouldn't exist, but I have no idea of the legal aspects.

[BlooInBloo]

13. (shrug) I'm fine with their regulated existence.

[unblock]

16. how on earth do you get from an effort to regulate derivatives to complaining about the federal debt

i guess the logic is that tim geithner continued shrub & paulson's massive bank bailouts and therefore is satan, and thus anything he does must be evil?

we can have a healthy discussion about what regulation would be appropriate for derivatives, but to say that they should be outlawed is a serious overreach and for what purpose? why on earth should people or companies not be able to buy insurance on another company failing, or protection against weather conditions that would put them out of business, and so on?

doing it TO EXCESS, doing it to bet the farm, doing it in a fashion that INCREASES rather than DECREASES risk, sure, that's a problem and that's where REGULATION should come in.

but to suggest banning these instruments outright is ridiculous. economic contracts such as insurance policies have a legitimate role in a financial system, provided there is proper regulation.

the problem was NO regulation, not the instruments themselves.

[Badgerman]

17. Quite easily, the bailout to wall St are BORROWED $. No drama. n/t

[unblock]

19. except it doesn't cost very much at all to REGULATE derivatives

if you want to rail on the debt load of the bailouts, be my guest, that's a legitimate concern.
but why muddy the waters with an unrelated complaint about the effort to regulate derivatives?

i would think most people here would be thrilled at the prospect of regulation in this area.

[Badgerman]

20. Derivatives are unnecessary and destructive...

You seem inordinately fond of derivatives. Why? Are you in the 'Finance' industry? If so you are part of the problem. When such as Warren Buffett calls them econimic WMD, I listen. I rarely listen to obscure posters on blogs. Please enlighten me, and others as to the benefits that derivatives bring to the economic table.

[unblock]

23. i am in the finance industry, but then so is warren buffet

you listen to him but not me because he's rich?

if pressed to clarify, i'm very certain warren would say that few of the derivative contracts are problematic, it's issues like leverage that are the problem, as well as lack of disclosure and transparency in some repackaged instruments.

i seriously doubt he'd have an issue with most simple derivatives, if they were standardized and properly regulated.

[Badgerman]

25. Oh? Perhaps this quote will change your mind...

http://www.nytimes.com/2009/05/14/business/14regs.html?...
"The administration will ask Congress to approve legislation that would impose a new government oversight structure for the instruments, which Warren Buffett once called “weapons of mass destruction.”

Hardly a benign or benevolent description. That by the way was the very first paragraph in my original post.

[unblock]

26. yes, and did you know the warren buffett actively deals in derivatives?

warren buffett is more sensible and liberal than most filthy rich people, but he's no saint and he's a shrewed businessman. he uses the tools available just like anyone else. the only thing he's not fond of regarding derivatives are the particular subset of them that he deems sufficiently complex so as not to be fairly understood by all parties. and even that he deals with, he just keeps his exposure carefully in check, which is what regulators should be forcing on all parties anyway.

HE is a vastly bigger part of the problem than i am. i'm knowledgeable, but i'm a nobody. he's a big-time player. but just because he found a dramatic way of pointing out the instruments involved in one element of the recent financial collapse does not mean that even he is in favor of an outright ban on them.

most notably, there are all manner of derivatives, some complex, some simple, some good, some bad. appropriate regulation would permit keeping the good, clean kind while cutting out or severely limiting the bad kind.

[Badgerman]

28. Yes. He enjoys seprating suckers from their money...

He's no saint, he is one of you, only hugely successful. If someone wants to play poker and you can read the marked deck then ethics be damned...that seems to be financial industry SOP. I am semi-enjoying discussing this with you...since you are an insider, it is not dis-similar to arguing torture with a Cheney loyalist.

[unblock]

38. accusing ANYONE who works in the financial industry of being part of the problem is ridiculous

if you think ALL FINANCE is evil, fine, be my guest, go find an island where only barter exists.

but once you accept the concept of money is at least tolerable, you have to accept that at least SOME of us workers in the financial industry are doing good even while others might be doing evil.

and likening me to a cheney loyalist is preposterous. you should try to educate yourself about financial instruments before you just condemn the entire industry or the entire concept.

"money-changers"? who talks like that anyway?

[Badgerman]

42. no less so than a guard at Auschwitz...as far as guilt goes, an enabler.

[unblock]

44. that's just insane. you're a human, and humans caused this problem, so YOU'RE guilty too?

you clearly have no clue as to what caused this problem, so you picked a group to hate, in this case the entire financial industry, and are holding every single individual in it responsible. although oddly, warren buffet, the single biggest individual player in the entire financial market, his quote you seem to respect.

do you have a mortgage? a credit card? a loan of some sort?

doesn't that make you the one who's pushing for all this financial activity in the first place?

[Statistical]

35. Southwest Airlines used derivatives.... many farmers use them too.

Southwest Airlines:
Oil = largest non-fixed cost in ariline industry.
As oil rose SW airlines bought options for oil futures. Now at the time (oil $70) the options were worth next to nothing because they have high strike say oil $100.
It offers a HEDGE. As oil prices rose SW costs rose but they sold tickets in advance (when oil was $70). Now they have sold tickets for a plane that are worth LESS than the oil needed to move the plane.
Southwest was smart though. They bought out of the money options. As oil shot up to $100+ the oil options suddenly were very valuable. It hedged their risk.
BTW: Southwest offered lowest ticket prices in 2008 and MADE money despite record oil.

Farming.
Say a farmer is 4 months from selling his crop of corn. Now prices look to be good when he sells but he can't take any risk. He has debt on equipment that needs to be paid down.
It will hurt him financially if corn prices fall before harvest.

He can SELL a futures contract for corn equal to value of his harvest. He then locks in a price that covers his operational cost and allows him to pay down the debt.
Now if corn prices continue to rise he doesn't benefit but if corn prices decrease he doesn't lose.
In essence he has sold the risk (like buying insurance) to someone else. Someone who doesn't need prices to rise this year but just rise generally (i.e. someone who can absorb a loss this year but make it back next 3 years).

Just because you don't understand something doesn't mean it should be banned.

BTW: Both options and futures are TIGHTLY REGULATED (what Obama wants to do).
Buffet didn't call all derivatives WMD he called the unregulated CDO market which has no oversight and ties up a tremedous amount of banks balance sheets WMD.

[Badgerman]

21. BUT! It has cost us BILLIONS in bailouts because of them, n/t

[unblock]

22. no, it's because they were abused and used to excess

bear stearns was leveraged as high as 200 to 1 for pete's sake.
that doesn't mean that the product they were involved in was a problem, it was the leverage that killed them.

why not give regulation a try, or at least some consideration?

should stocks be banned entirely? they were the main culprit that led to the 1929-1933 contraction, right? again, no, it was the leverage that killed everything. stock just needed to be regulated better, e.g., preventing absurd leverage.

[Badgerman]

24. All of what you say begs the question...

Just what are the benefits that derivatives have which outweigh there potential destructiveness. If there is no reason for an artificial thing, then there is no reason to continue to create it. right? You are arguing the point from the platform that the 'derivative' is a natural thing and will exist or not whether regulated or not. It is not a natural thing it is an artificial one, and therfor can be made to disappear with a stroke of a pen.

[unblock]

27. i don't follow your distinction between natural and artificial. it's ALL artificial

money is artificial. companies and stocks and bonds are artificial. what's your point?

if you accept that money and companies and stocks and bonds should exist, then there's all sorts of risks that go along with that, and it's reasonable to want financial instruments that distribute those risks to those who are in a better position to bear them, or portions of them.

that's all derivatives are trying to do. an insurance company has big exposure to too many hurricanes in a year, so they create a derivative contract that lets smaller institutions take portions of that risk. or someone in the copper business runs the risk that a major shift in copper prices will kill their business, and they want protection against that. so far so good. if by "natural" do you mean that legitimate businesses face these sorts of legitimate risks, then yes, this is something natural.

what buffett was criticizing was the unregulated practice of creating instruments that seemingly randomly lumped diverse risks together, say taking a piece of hurricane risk and a piece of mortgage risk and a piece of exchange rate risk and lumping it into a single pool and further carving out custom pieces of THAT pool. which gets so complex that people can't fully understand the ultimate risks without a computer and a VERY carefully designed model. keeping THAT in check is a plea for regulation, not a ban.

[Badgerman]

29. Never claimedd they weren't, My point is that since they...

are artificial they can be made to go away. See? Stay on point here, red herrings, and continual mis-directions will cause you to become un-interesting. ;)

[BlooInBloo]

30. You are well-named.

[northzax]

45. of course they 'could be made to go away'

so could bridges. After all, bridges are artificial, they don't exist unless someone puts them there, and when they are shoddily constructed and collapse. the damage is devastating. so let's go back to ferries.

you have made it perfectly clear that you have absolutely no idea what you are talking about when it comes to 'derivatives.' why not try and listen to those people who do before making a decision? after all, while we can all agree that the use of nuclear weapons is abhorrent, do you have the same opinion about radio-chemical treatment of cancer? both are radiation-derived, right?

[cali]

32. bw3ahahahaha.

:rofl: :rofl:

silliest post of the day. Of course, the day is still young.

[DU GrovelBot]

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[Hubert Flottz]

34. The bankers and the politicians who they own don't give a

Damn if the country goes belly up, just as long as they get away with as much of the spoils as possible.

Where is the "CHANGE?"(the chump "CHANGE" is what's left of your 401K)

[backscatter712]

36. I'll take regulation.

Banning derivatives isn't realistic.

But putting together audit trails, sane rating, penalties for the flagrantly fraudulent activities, good enforcement, and requiring full disclosure of the risks is a good way to start.

Do it right, and the regulation will see to it that worthless derivatives are indeed treated as worthless - if a derivative isn't based on something real, it will become obvious, and people will shun them. The free market can be made to work in this situation, but first, people need to know what they're buying, so regulation will help with that.

[snooper2]

37. before you go around calling somebody a dolt

you should work on some of your own skills first-

"If the president does not realize this, then he is dolt being lead about by the international money changers....their is ever increasing evidence that that is indeed the case."


:rofl: :rofl: :rofl: :rofl:

[Jennicut]

41. Regulation is what we want. Banning them would never happen.