As he attempted to do with health care reform last week, the President is trying to breathe new life into financial reform. He’s using the anniversary of the death of Lehman Brothers and the near-death experience of the rest of the Street, culminating with a $600 billion taxpayer financed bailout, to summon the political will for change. Yet the prospects seem dubious. As with health care reform, he has stood on the sidelines for months and allowed vested interests to frame the debate. Nor has he come up with a sufficiently bold or coherent set of reforms likely to change the way the Street does business, even if enacted.
Let’s be clear: The Street today is up to the same tricks it was playing before its near-death experience. Derivatives, derivatives of derivatives, fancy-dance trading schemes, high-risk bets. “Our model really never changed, we’ve said very consistently that our business model remained the same,” says Goldman Sach’s chief financial officer.
The only difference now is that the Street’s biggest banks know for sure they’ll be bailed out by the federal government if their bets turn sour — which means even bigger bets and bigger bucks.
Meanwhile, the banks’ gigantic pile of non-performing loans is also growing bigger, as more and more jobless Americans can’t pay their mortgages, credit card bills, and car loans. So forget any new lending to Main Street. Small businesses still can’t get loans. Even credit-worthy borrowers are having a hard time getting new mortgages.
The mega-bailout of Wall Street accomplished little. The only big winners have been top bank executives and traders, whose pay packages are once again in the stratosphere. Banks have been so eager to lure and keep top deal makers and traders they’ve even revived the practice of offering ironclad, multimillion-dollar payments – guaranteed no matter how the employee performs. Goldman Sachs is on course to hand out bonuses that could rival its record pre-meltdown paydays. In the second quarter this year it posted its fattest quarterly profit in its 140-year history, and earmarked $11.4 billion to compensate its happy campers. Which translates into about $770,000 per Goldman employee on average, just about what they earned at height of boom. Of course, top executives and traders will pocket much more.
Every other big bank feels it has to match Goldman’s pay packages if…
The State-owned Assets Supervision and Administration Commission, the regulator and nominal shareholder for state-owned enterprises (SOEs), told six foreign banks that SOEs reserved the right to default on contracts, Caijing magazine quoted an unnamed industry source as saying in an article published on Saturday.
See what lawless behavior gets you folks?
You start this crap - selling worthless paper, intentionally turning a blind eye to fraud, profiting from fraud, screwing consumers and foreigners alike and guess what?
BINGO! A foreign government that runs a command economy says "Ok, you think that was cute? Try this!"
For banks that are hoping to sell more derivatives hedges in China, the world’s fastest-expanding major economy and top commodities consumer, the danger goes beyond the immediate risk to existing contracts to the longer-term precedent that suggests Chinese companies can simply renege on deals when they like.
Oh, so our wonderful banks have been over there peddling their junk in Beijing too eh? Derivatives you say?
I love it.
We reap what we sow, and may the "foreign banks" (you know this includes some nice juicy ones over here in the US) get stiffed and stuffed.
I have no sympathy - zero - for the IBs who get burned by this.
Now let’s see China grow a pair of brass church bells and tell Geithner and company to stick it on their debt sales - or even better, why not sell?
If our government refuses to do the right thing and acts like Tony Soprano, then perhaps we need a bigger, badder, more powerful gang to come smack our government around a bit.
After one too many face-rippings by the merry Pranksters of Wall Street, China’s state-owned companies have run to their government to complain about the fraudulent nature of their derivatives contracts.
The hearty capitalists of Wall Street wouldn’t run to their government and whine and complain if the market went against them.
Except of course if they needed several trillion dollars because they lost all their money gambling. Then they would just threaten to hold their breath and wreck the economy until the Great Reformer gave them all the change the country could spare, and then some.
If the US will not put its house in order, the rest of the world will increasingly start to rein in the the US financial institutions.
For banks that are hoping to sell more derivatives hedges in China, the world’s fastest-expanding major economy and top commodities consumer, the danger goes beyond the immediate risk to existing contracts to the longer-term precedent that suggests Chinese companies can simply renege on deals when they like.
The report follows an order from SASAC in July that required all central government-controlled state companies engaged in trading derivatives to make quarterly reports…
"If we were among the banks receiving that letter, we would be very angry. But now the key is to find out more details on the letter: In whose name the letter was issued, the government or the corporate’s? And under what was the reason for defaulting?" said a Singapore-based marketing executive with a foreign bank.
The source, whose bank did not receive a letter, said that Air China, China Eastern and shipping giant COSCO — among the Chinese companies that have reported huge derivatives losses since last year — had issued almost identical notices to banks.
"If it’s in the name of the government, the impact will be very negative," said the source, who declined to be named.
Beijing-based derivatives lawyers said the so-called "legal letter" has no legal standing — SASAC as a shareholder has no business relationship with international banks.
"It’s like the father suddenly told the creditors of his debt-ridden son that his son won’t pay any of his debt," said a lawyer from the derivatives risks committee of the Beijing Lawyers Association. (or perhaps its more like a son who has been cheated by unscrupulous businessmen going to his father…
Here’s an excellent documentary video called "The Great American Bankruptcy." H/t Tyler Durden at Zero Hedge, who h/tipped Ian. William K. Black, a white collar criminologist, discusses the financial crisis and our pseudo-capitalistic fraud-ridden system. - Ilene
William Kurt Black is an American lawyer, academic, author, and a former bank regulator. Black’s expertise is in white-collar crime, public finance, regulation, and other topics in law and economics. He developed the concept of "control fraud", in which a business or national executive uses the entity he or she controls as a "weapon" to commit fraud.
On April 3, 2009 Black appeared on "Bill Moyers Journal" on PBS and provided critical commentary on the U.S. banking crisis. In the interview with Bill Moyers, Black asserted that the banking crisis in the United States that started in late 2008 is essentially a big Ponzi scheme; that the "liar loans" and other financial tricks were essentially illegal frauds; and that the triple-A ratings given to these loans was part of a criminal cover-up.
Obama’s Financial System Overhaul Would Give the Fed Broad Powers Over Wall Street
Courtesy of Don Miller, Associate Editor, Money Morning
U.S. President Barack Obama took a swipe at Wall Street yesterday (Wednesday) as he unveiled a sweeping 85-page proposal to reinvigorate government regulation of the U.S. financial markets by giving the Federal Reserve new powers to supervise the economy.
The proposal is part of an effort by the Obama administration to restore confidence in the nation’s financial system after last year’s collapses of The Bear Stearns Cos. and Lehman Brothers Holdings Inc. (OTC: LEHMQ). The failures of those two institutions caused a credit-market seizure that froze bank lending and paralyzed consumer spending - resulting in a near collapse of the U.S. economy. Those economic woes subsequently infected other economies throughout the world, forcing central governments from Washington to Beijing to rollout out hundreds of billions of dollars of stimulus packages.
President Obama’s comprehensive plan contains reforms aimed at almost every facet of the financial system, including the asset-backed securities and credit derivatives that are widely blamed for nearly bringing down the banking sector. Prior to releasing the proposals, President Obama singled out Wall Street for overreacting to government intervention in the financial markets. One of the administration’s most-heavily criticized moves was the limits it placed on executive compensation.
"When I hear some of the commentary that’s been creeping up about, ‘You know, it’s time for government to get out of the economy. And what’s the Obama administration doing?’ I have to try to remind them - all we’re doing is cleaning up after the mess that was made [by Wall Street]," Obama said.
Derivatives and Hedge Funds Under the Microscope
Obama pledged to bring more transparency to the murky derivatives market, which he called a system of "enormous risk." The proposal also promises further regulation of mortgage-backed securities, which fueled the housing bubble and ignited last fall’s credit crisis.
"Derivatives are a huge potential risk to the system," President Obama said. "We are going to make sure that they have to register, that they are regulated, that you have clearinghouses." Derivatives are defined as "contracts whose values are tied to assets including stocks, bonds, commodities and currencies, or events such as changes in interest rates or…
For readers who have the time and interest to follow up on the topic Zero Hedge commenced yesterday discussing money liquidity and the shadow banking system, the best place to start is with Friedrich Hayek’s seminal Prices and Production, published in the depression days of 1935. Curiously Hayek discerned the critical role of the shadow banking system long before the advent of securitization, derivatives and other products that today have caused the monetary supply problem to reach a screaming crescendo. A very salient sample is presented below:
"There can be no doubt that besides the regular types of the circulating medium, such as coin, notes and bank deposits, which are generally recognised to be money or currency, and the quantity of which is regulated by some central authority or can at least be imagined to be so regulated, there exist still other forms of media of exchange which occasionally or permanently do the service of money. Now while for certain practical purposes we are accustomed to distinguish these forms of media of exchange from money proper as being mere substitutes for money, it is clear that, other things equal, any increase or decrease of these money substitutes will have exactly the same effects as an increase or decrease of the quantity of money proper, and should therefore, for the purposes of theoretical analysis, be counted as money.
In particular, it is necessary to take account of certain forms of credit not connected with banks which help, as is commonly said, to economize money, or to do the work for which, if they did not exist, money in the narrower sense of the word would be required. The criterion by which we may distinguish these circulating credits from other forms of credit which do not act as substitutes for money is that they give to somebody the means of purchasing goods without at the same time diminishing the money-spending power of somebody else. This is most obviously the case when the creditor receives a bill of exchange which he may pass on in payment for other goods. It applies also to a number of other forms of commercial credit, as, for example, when book credit is simultaneously introduced in a number of successive stages of production in the place of cash payments, and so on. The characteristic peculiarity of these forms of credit is that they…
May 14 (Bloomberg) — U.S. regulators may impose the same price reporting and transparency requirements on over-the- counter derivatives that reduced bank profits by almost half in the corporate bond market when the Trace system was adopted seven years ago.
That ain’t enough. It will drive spreads inward (which is bad for the scammer, I mean, banker profits) but it does nothing to guarantee nightly margining and therefore de-fang the "systemic risk" problem.
It also allows the lies to continue about counterparty solvency well beyond where functional insolvency happens, which is why we’re in this mess in the first place.
Treasury Secretary Timothy Geithner, Schapiro and Michael Dunn, the acting chairman of the Commodity Futures Trading Commission, called for increased oversight of over-the-counter derivatives to reduce risk to the financial system. Lax regulation 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.
The only way to stop this is as I have repeatedly said:
All such "products" must be traded against a central clearing exchange, much like with listed options, so there is never a question about solvency because that central counterparty will not permit either agent on the "wings" of the trade to operate without posting margin on a nightly basis.
That is the only way that we will see the risk become one of losing money instead of "blowing up the world".
“Significant gaps in the basic framework of oversight over critical institutions” helped cause the financial crisis, Geithner told reporters. “A series of comprehensive reforms to create a stronger system, less vulnerable to crisis, with stronger protections for consumers and investors” will be hashed out with Congress, he said.
Those "significant gaps" were intentional acts and Geithner, despite the crooning yesterday, has proposed exactly nothing to get rid of them. Indeed, he is up to his neck in the complicity that created these problems!
“ISDA welcomes the recognition of industry measures to safeguard smooth functioning of privately negotiated derivatives,” Robert Pickel, chief executive officer of ISDA, said in an e-mailed statement.
The fox doesn’t mind a fence around the chickens so long as you both leave a fox-sized hole and don’t post someone with a rifle…
This represents my personal opinion, not the views of the SEC or its staff.
I am not going to spend time here talking about how the price of gold is off-the-wall, that it is not just a bubble in the making, but a bubble waiting to burst. I don’t want to waste your time on that point.We all know it is a bubble.
George Soros has said “The ultimate asset bubble is gold”. Many of the top asset managers, such as Tudor and Paulson, are piling on; Paul Tudor Jones recently said gold “has its time and place, and now is that time.” The banks are echoing this view with their research. Goldman has a research piece that looks f...
We know you are busy, we also know you are hell bent on intercepting IOI manipulation as per Mr. Jon Kroeper's recent media appearances. Which is why we kindly request that you get back to us at your earliest convenience with information on how many of the IOIs disclosed below are, in fact, "natural." We will make this a recurring topic on Zero Hedge until such time as you respond to our information request. You can contact us at outsourcefinra@zerohedge.com
Small Caps and Tech continued their good form. Technicals continue to support the move higher for Small Caps (Russell 2000) with new highs for the MACD and +DI line. The Russell 2000 would have to give up 25 points (or 4%) just to test breakout support at 650.
The prior underperformance of the semiconductors was undone with today's 2% gain.
Tuesday was good and bad for the Oxen Report. Our short sale of the day worked very well for us. I chose Ultrashort Proshares Oil and Gas for our short sale of the day due to my expectation...
BPOP - The ‘popular’ bank popped up on our screens this afternoon after a large-volume risk reversal was established on the stock. The massive trade was likely the work of an investor with knowledge of commercial banks as approximately 60,000 contracts were exchanged on BPOP amid a more than 12% rally in shares of the underlying to $2.60. It appears the trader purchased 30,000 now in-the-money October 2.5 strike calls for an average premium of 33 cents apiece. He funded the purchase of the calls by selling 30,000 puts at the January 2.5 strike for 43 cents each. The investor received a net credit on the transaction of 10 pennies per contract. The motivation is perhaps that this individual is swimming with the rising tide of financial names today and expects a far larger...
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Meanwhile, the banks’ gigantic pile of non-performing loans is also growing bigger, as more and more jobless Americans can’t pay their mortgages, credit card bills, and car loans. So forget any new lending to Main Street. Small businesses still can’t get loans. Even credit-worthy borrowers are having a hard time getting new mortgages.
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Courtesy of 
Courtesy of Don Miller, Associate Editor, Money Morning 
"When I hear some of the commentary that’s been creeping up about, ‘You know, it’s time for government to get out of the economy. And what’s the Obama administration doing?’ I have to try to remind them - all we’re doing is cleaning up after the mess that was made [by Wall Street]," Obama said.
For readers who have the time and interest to follow up on the topic Zero Hedge commenced yesterday discussing money liquidity and the shadow banking system, the best place to start is with Friedrich Hayek’s seminal Prices and Production, published in the depression days of 1935. Curiously Hayek discerned the critical role of the shadow banking system long before the advent of securitization, derivatives and other products that today have caused the monetary supply problem to reach a screaming crescendo. A very salient sample is presented below:
Grrrrr…. Yesterday it looked like we were going to get something sane for the OTC Derivatives market.
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
(