Friday, February 12, 2010

Hedging your Swamp with Alligator Derivatives

For the second time in a month the Chinese government has raised reserve requirements for its banks in an effort control the market bubble Wall Street bankers are making a killing on. This move came on the eve of the extended Chinese New Year holiday and caught everybody by surprise. This move is driving the USD up against the Euro and commodities down. This is a bit odd since the Yuan is hard linked to the USD and China is the country everybody worried about.

Meanwhile Paul Volcker, Fed Chairman from the Carter Adm. who heads Obama’s Economic Recovery Advisory Board wants (with Obama’s blessing) to yank the Bank Holding Company status from the big banks like Goldman Sachs that allows them access to Fed money at near zero interest. Not so fast says Goldman, we’ll just close our deposit bank and since we aren’t risking the public’s money anymore we can keep our free access to Fed money just the same. Bubble? What bubble?

It’s estimated that there are still 600 trillion in derivatives in circulation worldwide down from a high of one quadrillion (1,000,000,000,000,000) before the bank freeze in ‘08. The “freeze” was by the way, from the Bank of International Settlements (BIS) in Switzerland refusing to clear transactions from the big banks until they demonstrated that they had adequate reserves or any reserves at all. Which they didn’t, so the Fed stepped in and doubled the money supply and lent it to these banks at zero interest. The Fed still won’t say who got the fourteen trillion dollars.

The problem is that enacting the Volcker Rule (a weak version of Glass-Seagal that was repealed by Clinton and the Republicans) will require action by Congress and Congressmen need to consider that with the sheer volume cash the bankers have they can buy and sell the entire election with ease. The entire ‘08 election campaign cost only about six billion and Goldman alone just passed out 17 billion just in bonuses. Since the Supreme Crime Family has given its blessing to spending unlimited money straight from corporate coffers on campaign ads, no Congressman is safe.

The rightwing talking point is that corporations wouldn’t risk public outrage by sponsoring ads. The problem with that is that corporations can own corporations and launder money through off shore accounts. The ads that run on your local TV tying your Congressman to a plot to steal your children may never be directly linked to the real source of the money. At least not until your democracy is long gone.

The Fed could jump in at anytime close these banks down. The Republicans gave the Fed sole regulatory control over the mega banks when minority Democrats objected to the ending of Depression era laws that kept these banks from destroying the country from 1935 until now.

Alan Greenspan who as Fed Chairman was the prime mover in setting up this debacle has apologized before Congress and said he was shocked that the bankers would behave this way. Greenspan wrote his Doctoral Thesis on the Florida land boom of the 1920’s that led to the banking collapse just as FDR took office. I’ve never read it but I suspect his thesis defended the sale of swamp land and criticized the failure of FDR’ New Deal to properly embrace the practice. FDR just needed to legalize alligator derivatives.


Anonymous said...

The 4th paragraph really puts things into perspective. The recent ruling overturning the ban on unlimited corporate money for ads combined with the recent windfalls from the recent near doubling of the DJIA from bailout money supporting the bubble, pretty much guarantees money buys elections now, if it didn't already before.