White Paper

Don draws a false comparison between the average persons inability to understanding complex financial products (those that are specifically designed NOT to be understood by almost all other people so as to take money from their homes equity and their 401k's) with that of the averages persons ability to judge the character and beliefs of a potential political candidate. There's simply no comparison.

What is really interesting to me is that Don, in defending the actions of companies that create complex financial derivatives specifically to defraud massive amounts of money from the productive economy is defending a company that runs the Fed and owns the government to such a degree that Don will be paying taxes and taxes and hidden taxes as will his children to bail out these companies for years to come. So what are you defending Don? In defending fraud are you defending liberty? In defending opaque products and monopolies are you defending competition and market forces?


I pride myself in having put forward the idea of this stated regulation of financial products long ago on this blog.

Quite simply like requiring makers of food to document the ingredients of their product ( so peanut anaphylactoids don't die a preventable dearth) a financial product with the label "COMPLEX FINANCIAL PRODUCT" will never be bought by me or the general public again. Then they will go the way of the DoDo as the Wall Street scum-bags who push them will have no one to defraud except their fellow scum-bags. Then they can go and get real jobs and start contributing to the productive economy rather then parasitizing it.

Posted by: muirgeo | Jul 14, 2009 4:51:32 AM

OK now specifically on complex financial products I am glad the topic came up because I recently read/ heard testimony from Christopher Whalen (Managing Director Institutional Risk Analytics) at United States Senate Committee on Banking on June 22, 2009.

I implore anyone interested in the details of complex financial products to read his testimony.


Of note Peter Wallison will be giving his testimony to the same committee today. Might be interesting to compare their positions.

The big point is that Mr. Whalen puts the lie to the defenders of these products as we have seen some here do in a most nasty way deriding and belittling those who might question the utility of these products and of the people who trade them... profit from them.

Some key points;

"Perhaps the most important issue for the Committee to understand is that the structure of the OTC derivatives market today is a function of the flaws in the business models of the
largest dealer banks, including JPMorgan Chase (NYSE:JPM), Bank of America (NYSE:BAC) and Goldman Sachs (NYSE:GS). These flaws are structural, have been many decades in the making, and have been concealed from the Congress by the Fed and
other financial regulators."


The fact that today OTC derivatives trading is the leading source of profits and also risk for many large dealer banks should tell the Congress all that it needs to know about the areas of the markets requiring immediate reform. Many cash and other capital markets operations in these banks are marginal in terms of return on invested capital, suggesting that banks beyond a certain size are not only too risky to manage - but are net destroyers of value for shareholders and society even while pretending to be profitable.

" Most CDS contracts and complex structured financial instruments fall into this category of deliberately fraudulent instruments for which no cash basis exists."

"While an argument can be made that currency, interest rate and energy swaps are functionally interchangeable with existing forward instruments, the credit derivative market raises a troubling question about whether the activity creates value or helps manage risk on a systemic basis. It is my view and that of many other observers that the CDS market is a type of tax or lottery that actually creates net risk and is thus a drain on the resources of the economic system. Simply stated, CDS and CDO markets currently are parasitic."


Read the whole thing it's very good. And in that light consider the topic and premise of this post.