A Blank Spot on the Map

Tuesday, July 14, 2009

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.

4 Comments:

At 6:27 PM, July 17, 2009, Blogger LowCountryJoe said...

This crybaby attitude about "government theft" has got to fall into some code found in the Diagnostic and Statistical Manual of Mental Disorders, 4th Edition.

What a bunch of self centered irrational non-sense. The idea that you should only have to pay for things you choose .... that government could somehow be a pick and choose al a cart service is imbecilic and has no support in the real world. As if that could work in a country of 300 million. You really are asking for anarchy with some stupid delusion that things will be much better some how if we were all left to our own devises. It takes a total disregard for human nature and all of human history to believe that such could be the case. You're benefiting everyday from the structure government provides (in spite of its massive inefficiencies) for our society but have as much realization of the matter as some teenager who thinks they need to be let alone to do as they please because they believe themselves to be mature, responsible and self sufficient.

You guys really need to go Galt on us all and find your own little Lord of the Flies Island to set up a camp and your great society. Qit whining and do this thing already. What's stopping you ???

I really have no idea what keeps you members of this society, this government and country except the same rationalizing the teenager does when they come home every night for a meal and a warm bed.

Grow the heck up!

Posted by: muirgeo | Jul 17, 2009 8:58:59 PM


George, please tell us about the DSM IV! Is there a disorder listed in that manual that discusses intolerance for the individual liberty of others; wishes to disperse responsibility from the individual people to the collective society; and seeks uniformity above all else?

If it's not listed it should be...how else can you ever be expected to heal yourself.

 
At 12:30 AM, July 18, 2009, Blogger muirgeo said...

LCJ,

Society needs governance. No matter how much we might dislike the problems with governments we have to have them. Denying that is just irrational and childish.

The best we can do is have a government by the people. The problem is not that government is too big. The problem is that government is run by corporations. Having a minimalist government in hopes it can't reward corporations just doesn't work. Wealth will always take over such a government and mold it and BUILD it to its needs.

Your/ Our only chance for liberty in a society of 300 million is a government by the people. Democracy is not an intolerance for other peoples liberties but it is a realization that when so many people live together some compromises in individual liberty will have to be made.

Bottom line is you guys talk about the supremacy of individual liberty but you have NO idea of how to set up such a society. So it sounds good when you claim to be such a supporter of absolute liberty but any rational analysis of reality shows it's just a fairy tail. Even Milton Friedman understood this; "We are have to accept majority rule in one form or another as expedient. The need for government arises because absolute freedom is impossible."

Milton Friedman

GOT THAT??

But you guys like to think you are taking the moral high ground when in fact you're simply being irrational.

 
At 1:08 PM, August 23, 2009, Blogger Gene Callahan said...

"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."

That is correct -- while these financial products are hard to decipher, the average person clearly has no ability whatsoever to judge political candidates well.

 
At 1:10 PM, August 23, 2009, Blogger Gene Callahan said...

"Your/ Our only chance for liberty in a society of 300 million is a government by the people."

So... no chance whatsoever, you're saying?

 

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