As An Encore to Bailing Out the Big Banks, Government to Backstop Derivatives Clearinghouses … In the U.S. and Abroad

… Which Will Lead to Bailouts and Encourage Even More Fraud

The government has been bailing out the giant, insolvent banks for years. (Many of the bailed out banks are foreign.)

That is preventing the economy from recovering … like countries that have grabbed the bull by the horns.

The government has allowed the amount of derivatives to reach 1.2 quadrillion dollars.

That is feeding the parasite of casino gambling … which is preventing the real economy from recovering and is killing the host of actual productivity.

What is the government doing for an encore? Bailing out the derivatives clearinghouses.

As the Wall Street Journal reported yesterday:

Little noticed is that on Tuesday Team Obama took its first formal steps toward putting taxpayers behind Wall Street derivatives trading — not behind banks that might make mistakes in derivatives markets, but behind the trading itself. Yes, the same crew that rails against the dangers of derivatives is quietly positioning these financial instruments directly above the taxpayer safety net.

***

The authority for this regulatory achievement was inserted into Congress’s pending financial reform bill by then-Senator Chris Dodd.

***

Specifically, the law authorizes the Federal Reserve to provide “discount and borrowing privileges” to clearinghouses in emergencies.

***

To get help, they only needed to be deemed “systemically important” by the new Financial Stability Oversight Council chaired by the Treasury Secretary.

Last year regulators finalized rules for how they would use this new power. On Tuesday, they began using it. The Financial Stability Oversight Council secretly voted to proceed toward inducting several derivatives clearinghouses into the too-big-to-fail club. After further review, regulators will make final designations, probably later this year, and will announce publicly the names of institutions deemed systemically important.

We’re told that the clearinghouses of Chicago’s CME Group and Atlanta-based Intercontinental Exchange were voted systemic this week, and rumor has it that the council may even designate London-based LCH.Clearnet as critical to the U.S. financial system.

U.S. taxpayers thinking that they couldn’t possibly be forced to stand behind overseas derivatives trading will not be comforted by remarks from Commodity Futures Trading Commission Chairman Gary Gensler. On Monday he emphasized his determination to extend Dodd-Frank derivatives regulation to overseas markets when subsidiaries of U.S. firms are involved.

***

If there’s one truth we’ve learned about government financial backstops, it’s that sooner or later they will be used. So eventually taxpayers will have to bail out one derivatives clearinghouse or another. It promises to be quite a mess.

(The government has actually been backstopping derivatives for some time).

Indeed, Nobel prize-winning economist George Akerlof demonstrated that if big companies aren’t held responsible for their actions, the government ends up bailing them out. So failure to prosecute directly leads to a bailout. Bailing them out- in turn – creates incentives for more economic crimes and further destruction of the economy in the future.

As financial incentive expert William Black notes, we’ve known of this dynamic for “hundreds of years”.

Note: It’s not just banks. The government has bailed out hedge funds and companies like McDonald’s and Harley-Davidson.

Indeed, drug dealers kept the banking system afloat during the depths of the 2008 financial crisis. So are the biggest drug cartels “systemically important” and “too big to fail”? Will the U.S. government backstop the Colombian drug lords?

Sure, their actions don’t help society, and instead harm a lot of people. But so do those of the giant banks speculating in derivatives.

And there may be more overlap than admitted in polite company.

This entry was posted in Business / Economics, Politics / World News. Bookmark the permalink.
  • http://www.examiner.com/nonpartisan-in-national/carl-herman Carl Herman

    Wow. I just tried and couldn’t think of anything, anything at all, more ridiculous for our 1% “leaders” to throw at our rigged-casino gambling system.

    Hey! Anyone out there have a more zany policy proposal to suggest???

    • par4

      Anoint a Rockefeller King?

    • http://shankystechblog.blogspot.com/ Shanky

      Let ‘em all burn in hell starting with the Rothschilds?

    • Vix Vigilante

      here is a zany idea for you: Americans getting off their fat asses and DOING something to stop this unending crime.

      start by not paying credit card bills for 90 days. 30 mllion citizens administering a direct injection of justice to the perps would yield a bit of leverage. even 20 million on a ccard boycott-strike if indictments havent been handed down? nonpayment for another 6 mos. what ever it takes.
      because the pillagers will not stop UNTIL WE STOP THEM.

    • Howard T. Lewis III

      We can talk the lobotomized president into ordering his entire economic advisory, staff into a bus and bury the bus under a quadrillion newly printed dollars and then set the quadrillion dollars on fire. Given a proper ventilation of the flame, that warm glowing feeling will eventually be replaced by a couple thousand degrees of just desserts, If we tell them that desserts will be served, and there will be a lot of it, they will arrive with spoons clenched in both fists.
      9-11 was the kick-off date for concerted attacks on the U.S. including a propaganda campaign through the Council on Foreign Relations, which I call CFRtv and the Rothschilds’ Associated Press and Reuters news service. The attacks all have an answerable “cui bono?” these attacks include the looting of Wall Street and the ‘derivative’ fraud. They also include 9-11, the DH oil well blow out(judged intentional by a mewling, prancing chicken shyt congress), the intentional sabotage of the Fukushima reactor array( see Jim Stone’s interviews at projectcamelot.com and elsewhere before watching enough videos of Fukushima to convince you that very little interior damage and next to ZERO exterior damage occurred before the tsunami hit. Nobody is seen out of tens of thousands trying to flee before the water because there was no major quake.
      We must adjust to the sneak thief in the living room and affect an immediate cure. Crime should not pay. If you voted for Obama or a Bush, you voted to have pirates have their way with you. What they are doing to people in the middle east, the bankers and their private guard are about to do to YOU.

    • Howard T. Lewis III

      We can talk the lobotomized president into ordering his entire economic advisory, staff into a bus and bury the bus under a quadrillion newly printed dollars and then set the quadrillion dollars on fire. Given a proper ventilation of the flame, that warm glowing feeling will eventually be replaced by a couple thousand degrees of just desserts, If we tell them that desserts will be served, and there will be a lot of it, they will arrive with spoons clenched in both fists.
      9-11 was the kick-off date for concerted attacks on the U.S. including a propaganda campaign through the Council on Foreign Relations, which I call CFRtv and the Rothschilds’ Associated Press and Reuters news service. The attacks all have an answerable “cui bono?” these attacks include the looting of Wall Street and the ‘derivative’ fraud. They also include 9-11, the DH oil well blow out(judged intentional by a mewling, prancing chicken shyt congress), the intentional sabotage of the Fukushima reactor array( see Jim Stone’s interviews at projectcamelot.com and elsewhere before watching enough videos of Fukushima to convince you that very little interior damage and next to ZERO exterior damage occurred before the tsunami hit. Nobody is seen out of tens of thousands trying to flee before the water because there was no major quake.
      We must adjust to the sneak thief in the living room and affect an immediate cure. Crime should not pay. If you voted for Obama or a Bush, you voted to have pirates have their way with you. What they are doing to people in the middle east, the bankers and their private guard are about to do to YOU.
      Say what you will about Norman Greenspan, he warned against using the ‘derivative financial instrument’ as anything beyond a short term bookkeeping stopgap. Deregulation is screwing the U.S. economy into the ground for a foreign power using derivatives and the ignorance broadcast by the CFRtv assault on the American sheeple. Wake up, bitsses. Turn that mutherfucher OFF!!!

      • Howard T. Lewis III

        AND don’t forget the HAARP weather attacks and the gaming of the ‘weather futures and derivatives’ market. Carpetbagging of distressed farmland is being undertaken on a grand scale, just like the ‘robber barons’ always do. This is being done and its high time a lot of you took that tit out of your mouth and grew up and paid attention.

        • Afearthenrut

          Yeah, but all orchestrated? Come on… it has to all be coincidence… Ok, DEW and HAARP I can buy; along with the nukes, and well, just our general position in the world how we frack everything and everyone and pay homage to these very select people who seem to “run” everything and talk of things many years in advance, sure. Besides that tho, it is all just a coincidence.

          I’m sure, nothing to see here; move along.

  • Dave Mowers

    As of last report I read about three months ago the worldwide registered derivatives count was 900 Trillion Dollars and growing by 150 Trillion a year. Basically it is now mathematically impossible to print enough cash to cover it so from now until the end of time all cash printed will go to Wall Street investment banks. I guess everyone else is just supposed to die.

    • Vix Vigilante

      which they will do, without so much as a peep

  • Johnny Ringo

    Why don’t we just get it over with and sign the entire planet, everything and everybody, over to the bankers?

    • Howard T. Lewis III

      Readopt the constitutional issuance of currency and coin it it may happen.

      • Afearthenrut

        we would be better off with any debt free money system with non-fractional reserve; through history, always have been. It just has a bad habit of not providing well for those who have no capabilities other than exploitation of the masses.

  • mikael

    “By three methods we may learn wisdom: First, by reflection, which is noblest; Second, by imitation, which is easiest; and third by experience, which is the bitterest.”
    ― Confucius

  • http://graysinfo.blogspot.com Stephen

    Very interesting article. We are prisoners of the moneychangers and their puppets in government.
    Shttp://graysinfo.blogspot.ca/2009/03/ecstatic-money-man-and-bad-bank.html
    http://graysinfo.blogspot.ca/2009/04/important-message-for-concerned-bankers.html
    http://graysinfo.blogspot.ca/2010/01/fictional-correspondence-between-bailed.htmlee links below
    http://graysinfo.blogspot.ca/2011/08/world-banking-politburo.html

    • Vix Vigilante

      Horse@@@@2. We are prisoners of our own apathy and refusal to take responibility to save our country- and our own skins. They didnt do anything to us that WE didnt allow them to.

  • ehswan

    We did not incur these debts so we shouldn’t pay them. No taxation without representation!

    • Vix Vigilante

      Not paying taxes hurts the little guy. BUT CREDIT CARD DEBT REFUSAL? Trillion + in USA and now we’re talking some REAL leverage targeted AT THE BULLSEYE of the bankster temple.

  • Ken Brodeur

    We have reached that point of the exponential curve that is hyperinflation. Everything seems to point to the end of the curve, the point it goes straight up and an insane, totally paranoid policy is an indicator. I believe the attention to a part of History that has been ignored, hidden and discredited, that of following the money, has been let out the bag for those looking to see. Usury is being understood for the evil that it is and unfortunately most Americans seem to be the last to understand.
    To the controlling forces on the Planet, the internet is Pandora’s Box and it has been opened.

    • Afearthenrut

      The great slowdown is about to occur; enlightenment or otherwise.

  • Tatiana Covington

    And our little Moon, too!

  • Jack Smith

    Looting isn’t enough for these bastards. Just as in Palestine, Iraq, Afganistan, Libya, etc they need to steal everything and enslave generations.

    “What if people had not simply sat there, paling with terror at every bang of the downstairs door and at every step on the staircase, but had understood they had nothing left to lose and had boldly set up in the downstairs hall an ambush of half a dozen people with axes, hammers, pokers, or whatever else was at hand?… The Organs would very quickly have suffered a shortage of officers and transport and the cursed machine would have ground to a halt! If…if…
    We didn’t love freedom enough. And even more – we had no awareness of the real situation…. We purely and simply deserved everything that happened afterward.” -―
    Aleksandr I. Solzhenitsyn, The Gulag Archipelago

  • http://www.writeindavidbrucehamrickforpresident.org David

    ENOUGH IS ENOUGH!
    As President, on day one, I will by Executive Order declare all Federal Reserve bailouts to the banks to be null and void, seize their assets and designate the banksters economis terroists thereby making them eligible for capture and indefinet detention or execution. I also have some plans for Fannie and Freddie, among others. See you in Chantily!

    • Vix Vigilante

      Annual demos dont change diddly squat. They rule with MONEY and money is the way to take them down.

  • Munford Coldwater

    I wonder how much money has been sucked out of the system by the fees and commissions associated with the writing and otherwise negotiating 1000 trillion dollars worth of derivatives contracts. IMHO that is the real story. Useless contracts sitting of shelves waiting for the end of the world, not so interesting. Where all of the real money (the kind that sits in off shore accounts and can actually be used to buy things) went, more interesting.

  • A. Benway

    “The Old Army Game, a matter of skill and science” – W C Fields and Carol Dempster – take a look… Big business has colonized government…

  • Big M

    With respect to income taxes, which I suspect is the main thrust of the bailouts mentioned, NOBODY is legally a taxpayer, and you shouldn’t allow anybody to call you one.

  • mike

    why am i not allowed to be anonymous in my comments? by requiring me to give an email, it lessens my enthusiasm for commenting….unless THAT is the goal. Oh, but…but it SAYS right there that my email WILL NOT be published? THEN WHY DO YOU NEED TO KNOW IT???????
    any “rationale” that is given about why it is required is a lie.
    Trust me, i have a comment, but you will NOT be allowed to see or hear or read it, unless my complete privacy is assured. it works both ways, shill.

  • Wil

    Vote Ron Paul for 2012, ,if you do not then do not complain.
    http://patrick.net/forum/?p=1212675&c=828497#comment-828497

    More about Ron Paul:
    http://www.ronpaul2012.com/
    http://www.dailypaul.com/
    http://www.ronpaul.com/

    Festival:
    http://www.paulfestival.org/

    He is the only one who care about the people the other just care about them self. Just read more about him.

    $16 Trillions debt = $ 16,000,000,000,000.00 !!!!!

    Check this out
    http://www.usdebtclock.org/

    Ron Paul for 2012

  • Wil

    Please if you do not know the word Corporatocracy please read this:
    http://en.wikipedia.org/wiki/Corporatocracy

    Ron Paul 2012

  • JWinstanley

    In a true WTF moment: “1.2 quadrillion dollars”?!!!!!

    Putting that in numbers, that’s $1,200,000,000,000,000.00.

    How in Hell do they come up with these numbers and throw them around so casually?

    • Afearthenrut

      It is all fake-believe; and if we stop it stops.

 

 

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