Financial Crisis Inquiry Commission Studies Derivatives – Is Government Owned AIG Selling CDS?

McAuleys World Comments Bolded Blue

WASHINGTON – The complex instruments at the heart of the financial meltdown, and the way two giant companies were wrapped around them and entwined with each other, are being examined by the special panel investigating the origins of the economic crisis.

The Financial Crisis Inquiry Commission is turning its focus to derivatives at two days of hearings starting Wednesday. On the hot seat will be former executives of American International Group Inc., the insurance conglomerate saved from collapse by a $182 billion taxpayer bailout, and current officials of Goldman Sachs Group Inc., the finance powerhouse that has been one of Wall Street’s biggest derivatives dealers.

Traded in an opaque global market valued at around $600 trillion, derivatives have caught a big part of the blame for the financial crisis that ignited in late 2008. The value of derivatives hinges on an underlying investment or commodity — such as currency rates, oil futures or interest rates. The derivative is designed to reduce the risk of loss from the underlying asset.

[This is true, but only part of the story. CDS were also bought and sold on a “naked” basis just like the commodities and foreign Governmental debt the CDS “secured”. Individuals who did not own the underlying investment, whether it be “securitized mortgages”, “currency” or “oil”, simply bought CDS, making a “bet” on which way the “investment” would move in price, they made a “bet” by purchasing a CDS without owning the the underlying investment. 100’s of billions of dollars were bet that the U.S. mortgage market would collapse by individuals who never purchased a single “collateralized” “toxic mortgage”, billions of U.S. taxpayer dollars were used to “pay off” these “bets”. ] 

After the subprime mortgage bubble burst in 2007, derivatives called credit default swaps, which insured against default of securities tied to the mortgages, collapsed. That brought the downfall of Lehman Brothers and pushed AIG to the brink. New York-based AIG got an initial $85 billion infusion from the government in September 2008.

[AIG eventually received $180 billion in U.S. taxpayer support. There has not been a recent accounting of the total sums paid to AIG.]

Goldman Sachs profited from its bets against the housing market before the crisis, and continued to ring up huge profits after accepting federal bailout money and other government subsidies. The firm’s dealings in another type of derivative, known as collateralized debt obligations, have brought it harsh scrutiny by a Senate panel and in the case of one $2 billion CDO, civil fraud charges from the Securities and Exchange Commission.

A CDO is a pool of securities, tied to mortgages or other types of debt, that Wall Street firms packaged and sold to investors at the height of the housing boom. Buyers of CDOs, mostly banks, pension funds and other big investors, made money off the investments if the underlying debt was paid off. But as U.S. homeowners started falling behind on their mortgages and defaulted in droves in 2007, CDO buyers lost billions.

In early June, the congressionally chartered crisis inquiry panel issued a subpoena for documents from Goldman Sachs, accusing the firm of stonewalling its investigation. Goldman said it had cooperated.

The panel is looking at the relationship between the two financial giants.

“They had very substantial dealings with each other,” commission chairman Phil Angelides said in a conference call with reporters Tuesday.

Much of the federal rescue money for AIG went to meet the company’s obligations to its Wall Street trading partners on credit default swaps. The biggest beneficiary of the AIG money was Goldman, which received $12.9 billion.

Among the executives expected to testify: two former CEOs of AIG, Joseph Cassano and Martin Sullivan; and Gary Cohn, Goldman’s president and chief operating officer.

When AIG posted a loss for the fourth quarter of 2007, it pinned the blame on an $11 billion writedown related to the credit default

Goldman Sachs Center

swaps held by its Financial Products unit. If AIG couldn’t make good on its promise to pay off the contracts, regulators feared the consequences would pose a threat to the whole U.S. financial system.

Cassano left AIG in 2008, shortly after the $11 billion loss was reported.

He was interviewed by the inquiry panel staff for five hours.

“He was at the center of this,” Angelides said Tuesday.

AIG & The Bailout Of Greece – The Return of Credit Default Swaps (CDS) – Are US Taxpayers “On The Hook” Again?

Please, tell me it isn’t so!

First, in case you missed it, the country of Greece is dead butt broke ….. flat busted.  The BBC has announced that Greece will receive an initial bailout of $146 billion US dollars from various parties, , while the Euro Zone sets up a $1 trillion US dollar bailout fund. , .

Reminds me of AIG – really – an intial bailout – with a huge amount of “follow-on” cash a few weeks later. 

The initial cost to US Taxpayers is being estimated at something between $56 billion and $170 billion dollars. The estimates are based on the fact that the IMF or International Monetary Fund, will contribute $284 billion to start and may commit up to $1 trillion dollars.

At present the United States Taxpayer provides $54 billion annually in IMF funds.  The US pays, at a minimum, 17% of the IMF’s debts. 17% of $1 trillion is $170 billion.

Wait, this isn’t the worst of it.

The American Taxpayer maybe assuming the entire national debt of Greece.

Sounds crazy doesn’t it. I hope to heck it is crazy and not true. America simply can’t afford it!

AIG and the Greek Bailout

Enter AIG, the former international insurance giant currently owned by the American Taxpayer, thanks to the US Government and the US Government’s bailout programs.

AIG, American Internation Group, the international insurance giant was ”nationalized” in September 2008 and given an initial infusion of $85 billion in taxpayer cash.

Additional taxpayer cash was provided to AIG and at present the total amount “fronted to AIG” is at least $135 billion taxpapaer dollars.                                               

The amount “fronted” to AIG may be in excess of $180 million, it is hard to tell because the US taxpayer has not had a recent accounting of how much additional cash has been funnelled to AIG.

AIG used much of the money to pay off French & German banks who had invested in “toxic mortgage securities” or related securities sold by AIG called “Credit Default Swaps” or CDS.

In the initial payoff, French and German banks received $36 billion in US taxpayer funds, paid through AIG by the Obama Administration. The payout to the French and German banks took place in March 2009 during the first 3 months of the Obama Administration under the direction of Obama Treasury Secretary Geithner. 

Almost $60 billion dollars of the initial US Taxpayer payout to AIG went to foreign banks.

You might remember that Neil Barofsky, the Special Inspector General for the $700 billion financial bailout, reported to Congress that the Obama Administration had mismanaged the intial payouts, resulting in billions more than necessary being paid out to foreign and US banks and brokerages.

The whole issue of paying out US Taxpayer dollars in satisfaction of AIG’s debt was so “mucked up” that current Treasury Secretary Geithner first refused to disclose who got what and when, in the deals. Inspector General Barofsky faulted Secretary Geitner and the Federal Reserve for refusing at first to reveal which banks had received the billions of American taxpayer dollars

Neil Borofsky

 supposedly intended to save AIG. Geithner and the Fed released the banks’ names and the amount of their payoffs only after the American Public demanded greater transparency and the US Congress responded to that demand.        

Is AIG at it again?

The international press has reported on how President Obama is pushing for a bailout of Greece’s new Socialist Government.

Tim Geithner

For years the Socialists in Greece’s Government have fudged the numbers concerning the Greek National Debt. “To keep within the monetary guidelines of the European Union, the government of Greece has been found to have consistently and deliberately misreported, in other words falsified, the country’s official economic statistics.[17][18] In the beginning of 2010, it was discovered that Greece had paid Goldman Sachs and other banks hundreds of millions of dollars in fees (CDS fees or “premiums”)  arranging transactions that hid the actual level of Greek borrowing.[19] The purpose of these deals …. was to enable them to spend beyond their means, while hiding the actual deficit from the EU overseers.[20].

“Speculation in the CDS market began after 4 October 2009, as the Greek Socialists celebrated their election victory. Two weeks later the newly-elected government informed its Euro-partners that the deficit for 2009 was going to lie at 12.7 percent of economic performance (GDP).”  “The new estimate for the budget deficit called onto the stage the first hedge funds, reports a London CDS-dealer working for a large American bank.

Speculation in the CDS market? 

Now the Eurpoean Press is reporting that AIG is selling CDS or Credit Default Swaps once again. Only this time, AIG is “insuring” Greece’s debt with the instruments not “toxic mortgage securities”.

In any case, the CDS-wager has gone up because more and more true-believers in the Greek State have come to feel the need to insure their holdings. This rapidly-rising demand for insurance has been set off by the escalation of the debt crisis. But it is past Greek governments that have to answer in the first place for the exhausted budget situation. The higher demand for insolvency protection that has driven up the CDS price follows from the evidently poorer estimation of Greek credit-worthiness.”

Greek banks as insurers
On the other hand, whoever expected Greece’s rescue by Europartner countries would have had to position himself on the CDS market as an insurer, that is, as a seller of payment protection. The take in premiums from insurance protection sold provides increased revenue. But it’s on the seller-side that the weak points of the CDS market become evident. It’s still unclear who has sold insurance protection for Greece. In one study analysts from the major French bank BNP Paribas referred to market-rumors that Greek banks had insured a large sum by CDS. If this is correct, then the payment protection they have provided is worth nothing. Greek banks hold State debt of over 40 billion euros. This corresponds roughly to the entire amount of equity in the Greek credit market. A bankruptcy of the State would lead to a collapse of the banking system.”

“London investment bankers name AIG as a further CDS-seller. That company had to be nationalized during the financial crisis due to its having written insolvency insurance on American mortgages. This debt-load would have led to the collapse of the world’s biggest insurer. Prior to the financial crisis AIG is said to have widely held State credit-risk. If yet-larger insurance positions on Greece exist, then the American government would have a strong interest in preventing that country’s insolvency.”

Read the full article in Germany’s Frankfurter Allgemeine Zeitung GmbH, the German equivalent of the Wall Street Journal. The original article, in German, can be read here:

The english translation here: 

What might this mean to the US taxpayer? Well that will depend on several things.

First, Greece’s total National Debt is a bit of a mystery. The Politicans in Greece have been fudging the numbers for so long, that it is hard to accurately estimate the total debt and without knowing the total debt, it is nearly impossible to estimate how much may have been “insured” by purchasing CDS and how much of the CDS business may have passed through AIG. 

Surprisingly similar to the “financial collapse” isn’t it? 

A Greek Debt bubble, insured through AIG with CDS.

What is clear is this, if AIG is selling CDS to “insure” the Greek National Debt, the American people have not been told exactly why this is being done, nor have we been told how much we are on the hook for and who is making a buck off the deal. Two of the “usual suspects” are on the sceen, AIG & Goldman Sachs, two large and powerful players in the international financial scene and Democratic to their cores.   You can bet on one thing, the average Jack or Jill Taxpayer isn’t going to make a dime on these dealings.    

Meanwhile the Greeks Socialists and Anarchists are rioting in the streets over proposed and desperately needed budget cuts and the US is agreeing to bailout Greek workers while US workers run out of unemployment benefits.

Contact Your Congressperson today and insist that they investigate these reports. The US Taxpayer should not be “on the hook” for the Socialist Greek Government’s mismanagement of the Greek economy. Lets put our house in order before we try to prop up foreign Socialists Governments and their failed welfare states. 

Lets practice saying “NO” to California by saying “NO” to Greece first!

Read the March 2009 post on AIG’s collapse here:

[Is Goldman Sachs betting that Greece will default on its debt? Is AIG taking the bet? Will the U.S. Taxpayer be the one to “payoff” on the bet? Is the Financial Crisis Inquiry Commission even asking these questions? Another “Act” in Washington’s ongoing political theatre. Washington exercising “hindsight”, looking in the rearview mirror and “rehashing” the last crisis over and over, not exercising “oversight” by watching out for and preventing the next crisis before it happens.]

Day 71 In The Gulf: Hurricane Alex Snarls Recovery Efforts

GRAND ISLE, La. – Dozens of small skiffs, huge shrimp boats and even a swamp tour boat were tied to docks, winds whipping their flags and waves rocking them even in the sheltered marina.

Most days, the fleet would be skimming oil from the Gulf of Mexico and ferrying workers and supplies. But Hurricane Alex churning in the Gulf turned many people fighting the massive 11-week-old spill into spectators on Tuesday. And they will be for days.

“Yesterday we had redcaps instead of white caps,” said Jesse Alling, a marine science technician with the Coast Guard.

Officials scrambled to reposition boom to protect the coast, and had to remove barges that had been blocking oil from reaching sensitive wetlands. Those operations could soon get a boost. The U.S. accepted offers of help from 12 countries and international organizations. Japan, for instance, was sending two skimmers and boom.

Alex is projected to head for the Texas-Mexico border region and stay far from the spill zone off the Louisiana coast. It is not expected to affect work at the site of the blown-out well. But the storm’s outer edges complicated the cleanup. Waves were as high as 12 feet in parts of the Gulf, according to the National Weather Service.

Early Wednesday Alex had maximum sustained winds near 80 mph (130 kph). The National Hurricane Center said the Category 1 storm is the first June Atlantic hurricane since 1995. It is on track for the Texas-Mexico border region and expected to make landfall Wednesday night.

Skimming efforts off the coasts of Louisiana, Florida, Alabama and Mississippi have mostly stopped.

Day 70 In The Gulf: US Accepts International Assistance for Gulf Spill: Is The Jones Act Waived? Maybe – Maybe Not

US Accepts International Assistance for Gulf Spill

The United States is accepting help from 12 countries and international organizations in dealing with the massive oil spill in the Gulf of Mexico.

The State Department said in a statement Tuesday that the U.S. is working out the particulars of the help that’s been accepted.

The identities of all 12 countries and international organizations were not immediately announced. One country was cited in the State Department statement — Japan, which is providing two high-speed skimmers and fire containment boom.

More than 30 countries and international organizations have offered to help with the spill. The State Department hasn’t indicated why some offers have been accepted and others have not.

McAuley’s World Comments:

1200 National Guard Troops were promised for the border almost 5 weeks ago and they have not arrived. Lets hope for the best while we reserve judgment and wait and see when the first “help” is actually deployed in the Gulf. Our compliant Main Stream Media will report a story like this and then file it away. The people in the Gulf will continue to “pray for help” everyday until the flow of oil has stopped and the spill has been cleaned up.

Day 70 and, “The State Department said in a statement Tuesday that the U.S. is working out the particulars of the help”.

Day 70 In The Gulf: Two Months & 10 Days – The Oil Still Flows – A Pictoral

MAY 31







See The Full Pictoral Here:

Day 70 In The Gulf: Cleanup ships idled as storms rattle Gulf region

Cleanup ships idled as storms rattle Gulf region

Surfer waits for an oily "ride"

GRAND ISLE, La. – The crashing waves and gusting winds churned up by Tropical Storm Alex put the Gulf oil spill largely in Mother Nature’s hands Tuesday. Regardless of whether the storm makes things worse or better, it has turned many people fighting the spill into spectators.

Oil-scooping ships in the Gulf of Mexico steamed to safe refuge because of the rough seas, which likely will last for days. Officials scrambled to reposition boom to protect the coast, and had to remove barges that had been blocking oil from reaching sensitive wetlands.

Alex is projected to stay far from the spill zone and is not expected to affect recovery efforts at the site of the blown offshore well that continues to spew crude, but the storm’s outer edges were causing problems. Waves were as high as 12 feet in parts of the Gulf, according to the National Weather Service.

In at least one area of coastal Louisiana, the waves were tossing oil-soaking boom around and forcing crews to take precious time putting it back in place. However, oily water was not yet crashing over it.

U.S. Coast Guard Lt. Dave French said all skimming efforts had been halted for now off the Louisiana coast. Wayne Hebert, who helps manage skimming operations for BP PLC, said all nearshore skimmers were idled off the coasts of Florida, Alabama and Mississippi.

“Everyone is in because of weather, whether it’s thunderstorms or (high) seas,” Hebert said.

French said workers were using the time off the water to replenish supplies and perform maintenance work.

“We’re ready to go as soon as conditions allow us to get those people back out and fighting this oil spill,” French said.

Biden, Chao & Allen

Farther inland, local officials worried the weather could hamper efforts to keep the oil out of Lake Pontchartrain, which so far has not been affected by the spill. The brackish body of water, connected to the Gulf by narrow passes, is a recreational haven for the metropolitan New Orleans area.

Authorities worried that underwater currents and an easterly wind might drive a 250-square-mile oil slick north of the Chandeleur Islands toward the lake.

“We’re very concerned because of the weather,” said Suzanne Parsons, spokeswoman for St. Tammany Parish, which is on the north side of the lake. “That means they can’t get out and start working it. This may be the first test of our outer lines of defense.”

Storm approaches as waves push oil onto beach

Meanwhile, Jefferson Parish Council member Chris Roberts said the oil was entering passes Tuesday at Barataria Bay, home to diverse wildlife. A day earlier, barges that had been placed in the bay to block the oil were removed because of rough seas.

“The barges are removed and the boom is being displaced in many areas,” Roberts said in an e-mail. “As weather conditions permit we are making progress with repositioning the boom.”

The loss of skimming work combined with 25 mph gusts driving water into the coast has left beaches especially vulnerable. In Alabama, the normally white beaches were streaked with long lines of oil, and tar balls collected on the sand. One swath of beach 40 feet wide was stained brown and mottled with globs of oil matted together.

That nasty weather will likely linger in the Gulf through Thursday, National Weather Service meteorologist Brian LaMarre said.

Kagan insists she didn’t block military at Harvard ….. Her claim is not consistent with the facts

Kagan insists she didn’t block military at Harvard

WASHINGTON – Supreme Court nominee Elena Kagan maneuvered carefully through tough Republican questioning on military recruitment at Harvard Law School, gun owners’ rights and free speech Tuesday, drawing strong praise from Senate Democrats who command the votes to confirm her.

In a long day of questioning at a hearing that stretched into the evening, Kagan came under fire from Sen. Jeff Sessions, the top Republican on the Senate Judiciary Committee, for her decision as dean of Harvard Law to bar recruiters from the school’s career services office over the Pentagon’s policy against openly gay soldiers. He said that amounted to “punishing” the military services, treating them in a “second-class way” and creating a hostile environment for the military on campus.

“We were trying to make sure that military recruiters had full and complete access to our students, but we were also trying to protect our own antidiscrimination policy and to protect the students whom it is … supposed to protect, which in this case were our gay and lesbian students,” Kagan said.

Sessions rejected her version of events calling her explanation,”disconnected from reality” and accused Kagan of defying federal law because of her strong opposition to the military’s treatment of homosexuals.

“I know what happened at Harvard. I know you were an outspoken leader against the military policy,” Sessions said “I know you acted without legal authority to reverse Harvard’s policy and deny those military equal access to campus until you were threatened by the United States government of loss of federal funds.”

McAuley’s World Comments:

Solicitor General Kagan continues ger intellectual dishonesty.


The Financial Reform Law: “Never have the corrupt done so little for so many while shielding the guilty from “true change”.

The Financial Reform Law: Never have the corrupt done so little for so many while shielding the guilty from “true change”.

False claims and exaggerations about the “proposed changes” to a small segment of America’s financial markets.

McAuley’s World Comments Bolded Blue

But with a few exceptions, the measure avoids dictating to Wall Street what it can and cannot do. The bill does not break up big banks or ban the trading of derivatives. Nor does it significantly streamline the confusing array of financial regulators in Washington.


A flurry of deal making allowed several industries to escape the new system. At the last minute, auto dealers were granted exemptions from new consumer rules, despite their major role in lending. Most mutual fund and insurance companies avoided a ban on some risky trading. Community banks, which make up the vast majority of their industry, got a carve-out months ago.


“This legislation is a failure on both counts,” Sen. Judd Greg  (R-N.H.) said in a statement. “It will not encourage the much-needed stability and confidence in our financial markets. It will not significantly reduce systemic risk in our financial sector.”


Sen. Blanche Lincoln (D-Ark.) agreed to scale back a controversial provision that would have forced the nation’s biggest banks to spin off their lucrative derivatives-dealing businesses. The proposal had been a particularly thorny issue for Democrats, causing internal divisions that threatened to derail the entire process.

True. The Democrats prevented the needed reform in the derivatives business, the business that brought down AIG and Lehman Brothers, derivatives based on the “toxic mortgages” produced by Fannie Mae & Freddie Mac.

Media claims that the “reform” contains the following “significant provisions”:

  • Give the government the power to wind down and seize failing firms

This “provision” extends the Government’s “right” to take over failing businesses using U.S. taxpayer money, instead of letting the companies fail as they should.

  • Create a consumer protection agency under the authority of the Federal Reserve

Oh, please. More on this “eye candy” in just a bit.  

  • Require banks to spin off their riskiest derivatives activities

Window dressing, pure window dressing. The banks can still “own” the “spin offs” and direct their activities. The banks will fund the “spin offs” and if the “spin off” fails financially and cannot repay the parent company, the Federal Government will be standing by with another “bailout” in hand.

  • Curb the ability of firms to trade their funds for their own profit

This writer believes the “curbs” will not be effective in doing what is claimed.

It (the proposed regulation) also does not re-impose laws similar to the Glass-Steagall Act that passed after the Great Depression (and partially repealed in 1999) that separated the activities of commercial and investment banking.

True: The regulation does not reinstate the Glass-Steagall Act, which for months was the cry of the Democrats – “This problem started when Glass Steagal was repealed” …. Well, now that they had the chance, why didn’t the Democrats reinstate Glass Steagal?  

Two major players were left out of the bill and the negotiations the whole time: Mortgage lending giants Fannie Mae and Freddie Mac, which have already received more than $145 billion in assistance from the taxpayers. Many Republicans — and a few Democrats — were angry that Democrats did not include Fannie and Freddie in the reforms. Many on Capitol Hill remain skeptical that will happen.

True: Oh so true! The entire financial collapse rests at the feet of Fannie Mae and Freddie Mac, yet the single piece of legislation produced so far doesn’t even mention Freddie or Fannie. Meanwhile, this same Congress has actually increased Fannie & Freddie’s power. In December, President Obama, by Executive Order, removed the $200 million dollar cap on funds available to Freddie and Fannie and provided these “Agencies” unlimited funding through the Federal Reserve.  

So, if you thought that the “Great American Financial Reform Act of 2010”, the reform that will protect us from ever having the same type of financial collapse occur again, might just take some type of action against the Agencies that caused the original collapse, well, you would be “dead wrong”. Not one word about Fannie or Freddie, in fact Fannie and Freddie are more independent, less regulated and have greater access to American taxpayer money than at any time before in the history of the Country. Congress refused to implement even the most modest of changes to Fannie & Freddie – to make Fannie & Freddie subject to the Sarbanes Oxley Act or require Freddie and Fannie to file periodic reports with the SEC.

The conference committee votes were 20-11 among House negotiators and 7-5 among Senate negotiators, strictly along party lines. The room erupted into claps and hugs when it was all done, with staffers shaking hands and saying, “big bill.”

TRUE: Mocking Joe Biden’s infamous “Big ******* Deal” comment after the passage of Obama Care against the wishes of the American People.

True. A vote right down party lines. This baby has only one parent, this bastard belongs to the Democrats, lock stock and barrel. (The final vote is pending in the Senate and the 3 RINOs in the Senate could well vote in support of their fellow Democrats)

What’s in the Wall Street reform bill – The Media’s Slant

The final compromise that lawmakers struck will establish a consumer financial protection regulatory bureau inside the Federal Reserve, that will write new rules to protect consumers from unfair or abusive mortgages and credit cards.unfair or abusive mortgages and credit cards.

False: The claim is false because the major premise is false. A large and costly consumer agency will be created at taxpayer expense, however, “the abusive mortgages, credit cards and ATM fees which it will address, will only result in “temporary” changes to how “business is done”. In a matter of months consumers will learn that we are “back to business” as usual. Example: Credit card rates and ATM fees  are not being “rolled back” on a permanent basis. Rate increases and ATM fees will simply be delayed. This writer is willing to predict that Senator Chris Dodd will be back in January 2011, only when he returns he will be lobbying for credit card, ATM and mortgage fee increases on behalf of his “big bank buddies”.

Secondly, who will oversee the Consumer Protection Agency?  The Federal Reserve? The Federal Reserve? Wasn’t the Federal Reserve the entity responsible for overseeing the banks and financial firms that “failed” in the first place?

The final deal will also create a 10-member council of regulators, headed by the Treasury Secretary.

Regulators will be tasked with ensuring banks beef up their capital cushions,

The bill would also establish new procedures for shutting down giant financial firms that are collapsing.

WAIT ONE MINUTE: The proposed regulation does not limit the Government’s power to “take over” or “bailout” but it does delegate the authority to do so. This should remind everyone of the “TARP PROGRAM”. We the people were told we had an emergency, an emergency that required the purchase of a trillion dollars of “Troubled Assets” by the “Troubled Asset Relief Program” or “TARP”. Some 18 months later we now know that not one penny of the fund actually went to buy a single “Troubled” or “toxic asset”. Congress changed the rules after the fact. The same Congress is back and the same Congress People are at it again.

The bill aims to shine a brighter light on some of the different kinds of complex financial products, called derivatives, that are blamed for the problems that forced a bailout of American International Group (AIG, Fortune 500) and the bankruptcy of Lehman Brothers. It would force most derivatives on to clearinghouses and exchanges, to help pinpoint the value of the trades.

FALSE: At best the press claims the regulation “would force most derivatives” when it fact no one knows what percent of the “trades” will be routed into an exchange nor does the proposed “regulation” define how the “trades” will be valued.    

Lawmakers agreed to push many derivatives onto clearinghouses and exchanges that can better pinpoint the value of the securities and create firewall’s between buyers and sellers.

FALSE: The most “risky” of those “agreements” were CDS or Credit Default Swaps, which are transactions that take place directly between “involved parties, parties that don’t require a “firewall”.

They also agreed to allow leeway for financial firms to avoid exchanges and avoid posting collateral on such contracts for so-called commercial end-users,

TRUE: A “back door” to avoid any of the “proposed” regulation in this area.

Additionally, lawmakers embraced a provision that prevents big banks from making risky bets on “nontraditional” derivatives and having access to emergency taxpayer-backed loans. Banks would have to spin off their swaps desk into affiliates, if they want to make such bets.

TRUE: That the banks can and will continue to make such deals through their “affiliates”.

FALSE: That banks won’t have access to “tax payer cash”?  The Banks will be subject to “To Big to Fail” and “take-over” by the Feds as stated above. Those activites are accomplished using “taxpayer cash”.  

Volcker: Just before midnight, lawmakers agreed on a new version of the so-called Volcker Rule, which was first proposed by former Federal Reserve Chairman Paul Volcker. The measure prevents banks from owning hedge funds and trading for their own accounts.

Lawmakers agreed to gives regulators more specifics and less leeway when it comes to preventing banks from trading for themselves or owning hedge funds. But they also watered it down in several ways: It doesn’t impact insurers. And it allows some proprietary trading in areas, such as government debt, for hedging purposes and small business investments.

As for the ban on banks owning hedge funds, the provision allows Wall Street banks that take commercial deposits to sink as much as 3% of capital in hedge funds or private equity.

FALSE: The “Volker Rule” as originally proposed was gutted. The only resemblance between the originally suggested Volker Rule and that which remains is the name.

Consumer protection

Creating a consumer agency: Establishes an independent Consumer Financial Protection Bureau housed inside the Federal Reserve. Fees paid by banks fund the agency, which would set rules to curb unfair practices in consumer loans and credit cards. It would not have power over auto dealers.

False: The areas being “touted” as a “great benefit” to consumers are shams. Credit Card rates, mortgage terms and limitations on ATM fees are all “temporary” in nature. These items are the “eye candy” being offered to secure popular support for this totally inadequate legislation.   

Credit scores: All consumers have been able to get one free credit report a year from the credit rating agencies. But the bill would also allow a consumer to get an actual credit score along with a report.

WHO CARES: A free credit report and a free credit score. Everyone in the Country has access to free credit reports and a free credit score …. Just check your email.

Interchange fees: Lawmakers want the Fed to crack down on debit card swipe fees, which retailers pay to banks to cover the operational cost of transferring money. The Fed could cap the fees and make them more reasonable and proportional.

False: Cap or temporarily limit? To establish a temporary limit. Again, this writer bets the requests for an increase in fees has already been prepared and Congress has already told their friends in the banking industry when to submit the requests. I’m sure the requests won’t be submitted until after the first week in November 2010.

Banning ‘liar loans’: Lenders would have to document a borrower’s income before originating a mortgage and verify a borrower’s ability to repay the loan.

FALSE – ABSOLUTELY FALSE: This lie, more than any of the other lies, upsets me the most. Liar loans have not been banned. The only limitation on Liar Loans is this; Liar Loans cannot be “bundled” and sold as securities. The banks are free to make and keep as many Liar Loans as they like. As the banks will be subject to “take over” and “bailout” if they are “to big to fail” there will be no “market pressure” to limit these loans. The Congress could eliminate “Liar Loans” tomorrow by instructing the Federal Reserve, yes the Federal Reserve charged with overseeing this “monster”, to rescind the “mortgage underwriting guidelines” that created “Liar Loans” in the first place, but Congress failed to do so. If Congress wished to end “Liar Loans” why didn’t they do so?


The Financial Meltdown – who, when, where and why:

Professor Stan Liebowitz: The Real Scandal –

Professor Thomas J DiLorenzo: The CRA Scam and its Defenders:

John R Lott, Jr : Analysis – Reckless Mortgages Brought Financial Market To Its Knees,2933,424945,00.htm


Mortgage help for unemployed: Unemployed homeowners with good credit would be eligible for low-interest loans to help them avoid foreclosures. The bill would spend $1 billion on such relief, using funds that had been directed for Troubled Asset Relief Fund bailing out the financial system.

FASLE: This is not a new program but an adaptation of Obama’s failed “mortgage rescue programs” that are already in place.

Fixed-equity annuities: Prohibits tougher federal rules on life insurance products, in which customers pay a lump sum upfront in exchange for monthly income over time, pegged to an index. The Securities and Exchange Commission had been gearing up to step in and start requiring more disclosure for these products, often sold to seniors, that are currently regulated by state insurance commissioners. Lawmakers decided to stop the SEC from tougher federal regulation.

TRUE: The Democrats moved to stop SEC regulation – the Democrats moved to de-regulate.  

Too big to fail

New oversight power: Creates a new 10-member oversight council consisting of financial regulators to look out for major problems at financial firms and throughout the financial system. The Treasury Secretary gains a key role in enforcing tougher regulations on larger firms and watching for systemic risk. The council also has veto power over new rules proposed by new consumer regulator.

Unwinding powers: Gives the FDIC new powers to take down giant financial firms in the same way it takes down banks. Banks would be taxed to reimburse the federal government for the cost of resolving these firms after a failure occurs.

True: To Big to Fail, Government takeovers and taxpayer bailouts will continue. This proposed regulation “institutionalizes” the Government’s ability to “take over” or “seize” private companies and use “taxpayer money” to resolve the company’s financial difficulties. Congress, unlike the citizens they represent, believe “TRAP’ was a success and that “We the People” would like to see “TARP” perpetuated.    


The fatal flaw involves the fact that he same Congress who proposed this law will be the one to enforce it. The Congress and the Executive Branch have proven themselves unwilling to enforce the laws of this land.

Fannie & Freddie, the firms who were primarily responsible for the “Financial Meltdown” are not even mentioned in this legislation. The “root cause” of the “meltdown”.

Remember the regulators warned Congress about the impending Fannie & Freddie Meltdown. Congress not only ignored the warnings, but accused the Regulators of “racism”. A “new tune, with the same old lyrics”.

One of the last motions Friday was to name the bill after the two chairmen, Sen. Chris Dodd(D –Conn)  and Rep. Barney Frank (D-Mass.), who had shepherded the legislation through the House and Senate over the past year. At 5:07 a.m., they agreed unanimously that it would be known as the Dodd-Frank bill, and the sound of applause echoed down the empty hallways.

TRUE: How fitting – naming this sham reform proposed by the Democrats after two of the Democrats most responsible for the original meltdown …

Contact your Congress Person and tell them to VOTE NO!

Lastly, the legislation does not impact CDS (Credit Default Swaps) issued to foreign nations or those who hold their debt. This legislation will do nothing to monitor or prevent AIG (a government owned entity) from trading in or issuing CDS on say, the National Debt of Greece.

Update: SEC Says New Financial Regulation Law Exempts it From Public Disclosure 

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