Dodd-Frank is a sham transaction, a charade, a hoax; because Wall Street is inexorably opposed to reform – and the SEC is in charge.
Bigness is a crucial and lethal problem; yet Obama has shied away from explaining that the ostensible promise of Dodd-Frank “reform” has been soiled beyond repair by Wall Street Lobbyists and 2,000 pages of rules which cannot be effectively administered. If you understand the history of the SEC – which is a litany of prone/non intervention, and a history of not enforcing existing regulations which would have rendered the collateralized mortgage obligations illegal – it is confounding to grasp how artfully disingenuous it was to make the SEC responsible for the administration and enforcement of Dodd-Frank. Was reform ever the goal, or was it to play charades?
From How We Got Swindled By Wall Street Godfathers, Greed & Financial Darwinism:
“Mary Schapiro, the Chairman (person) of the Securities and Exchange Commission said, in Congressional Testimony the week of June 26th 2009,“ Derivatives allow parties to hedge and manage risk, which in itself can promote capital formation.” Did anyone ask how this promotes capital ormation? How about asking her to explain how this helps manage risk, or ask questions regarding any supporting realities for our Chairman’s reasons for derivatives.
In September of 2011 Schapiro’s self-expressed mission on the SEC Website: “to reinvigorate regulations.” (Where in the hell has she been –sorry, what a load! I have been licensed since 1968 and have heard a lot of BS, but Schapiro has only reinvigorated the meaning of hypocrite.)
Richard Bookstaber, one of the pioneers of financial engineering on Wall Street told Congress, “Derivatives are the weapon of choice for gaming the system.” Richard went on to testify that, “derivatives provide a means for obtaining a leveraged position without explicit financing or capital outlay for taking risk off balance sheet, where it is not readily observed and not monitored.” So derivatives enable institutions to avoid taxes and accounting rules. …
A leading Scottish economist, John Kay, pointed out that – derivatives allow risks to be transferred to be shifted from those who understand it a little to those who do not understand it at all. …
Mary Schapiro committed perjury when she testified before Congress: “Derivatives allow parties to hedge and manage risk, which in itself can promote capital formation.” This is the lie she picked up without any critical thought from Alan Greenspan who said in April 2005: “By far the most significant event in finance during the past decade had been the extraordinary development and expansion of financial derivatives. These instruments enhance the ability to differentiate risk and allocate it to those investors most able and willing to take it – a process that has undoubtedly improved national productivity growth and standards of living.” …
To have put the SEC in charge is the primary fallacy behind the masquerade called reform.
Wall Street now occupies the land of Mega Bank Holding Companies. Therefore, Wall Street has become an inexorable part of the too big to fail arena because the risk has been shifted to our government – us. So we the people are underwriting the risk of all the egregious leverage used to create net worth to feed sociopathic greed. We the people are the inadvertent and unwitting sponsors of all the reckless financial behavior which does not care about real investment to create capital formation and jobs. And we have the Fed to thank for allowing the investment banks to become Bank Holding Companies.
DODD IS A CHARADE! BECAUSE TO FIX THE PROBLEM: bank bigness and beyond control proprietary derivatives – CONGRESS MUST SEPARATE INVESTMENT BANKS FROM BANKS AND REDUCE THE SIZE OF BANK HOLDING COMPANIES.
Adapted from an article in the Law Library – New York Times, Wednesday, October 17, 2012:
The Glass-Steagall Act, also known as the Banking Act of 1933 (48 Stat. 162), was passed by Congress in 1933 and prohibits commercial banks from engaging in the investment business.
It was enacted as an emergency response to the failure of nearly 5,000 banks during the Great Depression. The act was originally part of President Franklin D. Roosevelt’s New Deal program and became a permanent measure in 1945. It gave tighter regulation of national banks to the Federal Reserve System; prohibited bank sales of securities; and created the Federal Deposit Insurance Corporation (FDIC), which insures bank deposits with a pool of money appropriated from banks.
Dodd is supposed to make derivative markets transparent. There is a distinction between making something transparent and whether it should be made.
Dodd-Frank, including the Volker Rule, has carefully navigated around, and avoided the controlling issue: $7OO TRILLION DERIVATES add no value to any sector of our economy except for fees going to the Godfathers who run the Wall Street Banks, and the minions who serve their sociopathic greed.
Derivatives must be outlawed, because there is no other way to control the systemic risk of unfettered sociopathic narcissistic greed. It is manifestly apparent the derivative “market” (casino) is nothing but a bunch of people standing around a craps table. If you make a craps table or a huge casino transparent – does this lessen the risk? Does a casino create capital formation – or allow glitzy hotels to be built as monuments to all the suckers who enjoy the masochistic thrill of losing money, because the name of the game is betting.
Consider the SEC’s lack of dedication to enforce currently existing significant regulations. Don’t forget that the total lack of any meaningful collateral behind Collateralized Bonds was not disclosed. Inadequate disclosure constitutes a grave violation of securities law. Additionally this results in the omission of significant information – which constitutes fraud.
Be aware of the following SEC Regulations which should be addressed:
Section 10(b) of the 1934 Securities Exchange Act makes it “unlawful for any person…to use or employ, in connection with the purchase of sale of any security.., any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the SEC may prescribe.” 15 U.S. C. sec.78j. Rule 10b-5, which implements this provision, forbids the use, “in connection with the purchase or sale of any security, “of any device, scheme, or artifice to defraud” or any other “act, practice, or course of business” that “operates…as a fraud or deceit.” 17 CFR sec. 240. 10b-5 (2000) One of Congress’ primary objectives in passing the act was “to insure honest securities markets and thereby promote investor confidence” after the market crash of 1929. United States v. O’Hagan, 521 U.S. C. 642, 658 (1997) Further Congress wanted “ ‘to substitute a philosophy of full disclosure for the philosophy of caveat emptor and thus achieve a high standard of business ethics in the securities industry.’ “
The SEC has no problem with Credit Default Swaps that were originally designed to provide the illusion that the financial risk of complex investments could be insured against failure. That egregiously leveraged risk could be guatanteed. Of course, Wall Street wants to take and place bets on anything that has a vector, a direction, so the derivative market was born. And, true to form, the SEC is only concerned with form, never with substance. Anyone with 4 decades of experience inside the securities business like me – will confirm this, including your favorite securities attorney.
The Commodity Futures Modernization Act, drafted by lobbyists and Wall Street lawyers for Phil Graham, used the word Credit Default Swap in lieu of the word insurance. The term CDS was specifically designed to avoid being regulated by state insurance commissioners – who would have disallowed Swaps named insurance, because insurance requires meaningful reserves. Therefore, CDSs were/are sham “transactions/contracts” implicity represented as insurance to provide collateral, i.e., “swap backed.” CDSs are used to insure/hedge* against some kind of financial risk. But their main purpose is to be the dice on a craps table.
A Vice President of FINRA in charge of one of the districts, when we discussed Swaps several years ago, rhetorically asked – “how can nothing be shorted?” And with remorse added, “There is no FINRA policy or mandate to stop the madness.”
Dodd-Frank’s intent is to provide transparency. So if markets selling/trading derivatives which are too complex to explain become transparent – so what. Derivatives will remain a mystery to the buyers – and will remain “unlawful based on a specific Fed Bank Holding Company Regulation which holds that, “complex investments must be explained well enough to be understood!” If the substance is missing, making a market transparent is like explaining air in 1,000 BC.
Sellers (Wall Street Banks) promote the necessity of maintaining their ability to make markets for liquidity for derivatives. Liquidity is the goal! Liquidity for stuff, for “malarkey” which defies an explanation! The Street’s real goal: to continue to sell and trade derivates for the huge velocity of fees generated by their casino. Sociopaths do not care about the risk shifted to we the people.
Occupy the SEC (Wall Street’s Stalking Horse) at the beginning of this year produced a 325 page footnoted, legal appearing document to ostensibly provide comments to improve the Volker Rule. Comments about the importance of maintaining markets for liquidity. How naïve is it to accept this? As former broker-dealer, with several friends who are still officers at the SEC, I discussed the 325 pages of “footnoted comments” with the two individuals I have known since 1989. Both assured me that the SEC is well aware the “325 pages are a lobbyist’s position paper.” Awareness does not mean enforcement.
The Volker Rule will not work, because it does not stop markets that exist to only to provide liquidity for derivatives and fees to the contrivers; although now you have learned it is illegal to contrive. Nothing in Dodd stops the fabrication of derivatives without any foundational value. Where is the disclosure required by the SEC of the toxic risk of the unknown complexities?
Dodd-Frank will not stop the too complex to explain. Because rapacious sociopathic was deregulated – and Wall Street Banks will continue to play high-stakes poker with structured investments as their chips. At least you can throw a chip on a pile of other chips in Vegas and hear a click.
The hollow echo coming from all the derivatives is: the distinction between making something transparent and whether it should be made.
Dodd-Frank and the Volker Rule have missed the real point – derivatives add no value to any sector of our economy except for fees going to the Godfathers who run the Wall Street Banks and the minions who serve their sociopathic greed. And greed belongs in a cage.
It is generally acknowledged there are SEVEN HUNDRED TRILLION DOLLARS OF DERIVATIVES. And this amount of geometric egregious leveraged phantom stuff to bet on is like a Hydrogen Bomb sized financial plague looming over us. So what happens when it is no longer possible to lay off all the bets, when they go in the wrong direction? What happens when liquidity falls apart? Think about: 2008, Lehman, Corzine, the JPMorgan $10 billion oops, and much worse – think about how our financial system is living under a guillotine held up by a frayed string – called market liquidity!
Underlying the myth of transparency is the ludicrous notion that Volker Rule will empower the SEC to strengthen compliance, and tighten risk measurement (based on the irrational concept that qualitative risk can be measured by the quantitative.) And if the past is prologue – strengthening compliance is a bizarre form of insanity considering all the vast empirical evidence to the contrary.
This is Dodd-Frank in action:
By JACOB BUNGE and KATY BURNE
CME Group Inc. CME -0.77%(CME) BY JACOB BUNGE AND KATY BURNE
CME Group Inc. (CME) filed a lawsuit to block new federal requirements around the reporting of swap transactions, one component of the wide-ranging Dodd-Frank financial law.
Such rules, which would hit CME as the operator of a clearinghouse for derivatives trades, “would impose costly, cumbersome and duplicative requirements” on clearinghouses, CME the Chicago-based futures charged in the lawsuit filed Thursday. The exchange operator objected to a rule forcing derivatives clearing facilities, such as the one operated by CME, to issue reports on swap deals to newly created “swap data repositories.” These repositories are essentially databases for the trades primarily aimed at helping regulators keep closer tabs on the derivatives market. …
The Chicago-based futures exchange operator objected to a rule forcing derivatives clearing facilities, such as the one operated by CME, to issue reports on swap deals to newly created “swap data repositories.” These repositories are essentially databases for the trades primarily aimed at helping regulators keep closer tabs on the derivatives market. …
Swap data repositories for keeping tabs? Swaps used for hedging without any logical explanation of how a hedge* can somehow mitigate or reduce risk. A hedge in your backyard can be used as a screen to hide something unsightly.
Maybe Swaps are Hedges contrived by faith based creationists, which then would be based on the word of God. Insurance policies inform us that all natural disasters are caused by God, so when Swaps fail, will this be an “act of God?” I don’t think Wall Street sociopaths care about their own acts, let alone acts of God.
If regulators want to keep a closer tab on the derivatives market, they ought to take more trips on LSD. (Of course, government paid.)
There has been no cogent discussion about the fact of the SECs historical failure to have enforced existing regulations – only the incessant parsing of Dodd-Frank and the Volker Rule. Pundits parsing thousands of pages of so-called rules stemming from thousands of pages of comments disingenuously promulgated by Wall Street bank lobbyists under the guise of helping the SEC formulate final rules – rules that are too complex to administer!
How selfless it is that Wall Street’s comments have been freely offered to the SEC to help the SEC in its heroic struggle to formulate a maze of rules based on Wall Street propaganda that it is vital to maintain markets for liquidity. Markets for hot potatoes!
The past is prologue. It is self evident the SEC will only administer as it always has, for the Wall Street Godfathers – who are market makers – the wolves dressed in sheep’s clothing (from Brioni Sheep carefully bred in Italy for Godfathers). The Godfathers are the former colleagues and friends of the people in charge of the SEC (and the Fed); so the only logical way forward is to separate the banks from the investment banks. And revisit the 1956 Bank Holding Company Act to make BHCs smaller.
Dodd-Frank could not add air to a flat tire or correct the one waiting to explode. The only way to stop the greed of sociopathic bankers is to resuscitate Glass-Steagall and the 1956 Bank Holding Company Act! Sociopaths do not care about victims.