New Derivatives Rules Rescinded To Help Banks Make More Money

 

Source: Chip Somodevilla/Getty Images

Source: Chip Somodevilla/Getty Images

The rules originally established to help protect the system from bank greed and fraud connected to derivatives were just rescinded by the same Basel Committee that drafted the original blueprint – article link.  The original rules would have significantly curtailed the ability of banks to underwrite the derivatives they sell to pension funds and hedge funds. It would have required that the banks put up a lot more in reserve capital, which in turn would have forced the banks to charge a much higher premium – or cost to the buyers – for the derivatives it sells. Make no mistake about it, AIG and Goldman would not have blown up if both parties had been forced to properly reserve against their derivatives contracts.
Anyone who understands what is going on here and continues to keep their money inside the financial system is either extremely naive or tragically stupid.  Forewarned is forearmed.


 

Submitted by PM Fund Manager Dave Kranzler, Investment Research Dynamics:

The financial collapse in 2008 was largely triggered because banks systematically under-priced the risk premium built-in to derivatives.  The original rules were designed to help limit the disaster caused by the under-reserved derivatives which blew up Lehman, AIG and Goldman and triggered the massive bailouts.  If the risk premium had been properly priced in a way that reflected the degree of risk embedded in the derivatives deals, it would have made most derivative contracts unaffordable to the end-user – pensions, hedge funds, municipalities, insurance companies etc. In other words, the new rules were established to protect the system from extreme greed and risk.

But if banks were forced to properly put up reserve capital to protect against the risks for which derivatives are used, most end-users would never buy them. This in turn would shut off the spigot to Wall Street’s most profitable business line. The change in the rules now means that the banks can party on as usual and make huge profit spreads on the derivative ticking time bombs they dump into  the financial system.

Again, make no mistake about it, this rule change is going to lead to another financial system collapse.  Only this time everyone will be forced to contribute directly to the bailout of the big Wall Street banks in the form of “bail-ins.”  Now we know why the bail-in rules are being transitioned and we know why big banks are moving their derivatives exposure up to their bank holding company level.

Anyone who understands what is going on here and continues to keep their money inside the financial system is either extremely naive or tragically stupid.  Forewarned is forearmed.


Comments

  1. Gosh, golly…really? Wow, I didn’t know that they’d do that, gosh.

    Oh but more propaganda stories to anger the populace to further confuse them, only to break them down for subconscious and subliminal control of the helpless Sheople.

    And the ignorant and stupid gum-chewing public go “Baaa-aa-aa-aa-aa-aa-aa…”

  2. >>>Anyone who understands what is going on here and continues to keep their money inside the financial system is either extremely naive or tragically stupid.  Forewarned is forearmed.
     
    Unfortunately ‘We The INFORMED People’ are always vastly outnumbered by the dumbed-down Consumer Cargo Cultists, so Goldsacks and JPMorgue (etc…etc…) will always find plenty of slaughter house carcasses to ring dry of pensions and savings, and then when it all threatens to blow up the entire system AGAIN, they will do the same thing AGAIN; hold a gun to their own heads and threaten to shoot if the Feds don’t assume their toxicity and ramp up the looting of EVERYONE, including ‘We The INFORMED People’ who tried in every way to get out of the stack of cards system.
     
    Modern definition of Democracy seems to be a form of deified Mob Rule where if a Majority of the people can be made Dependents of the State then the informed minority are completely stripped of their rights and the term ‘Middle Class’ becomes a transitory phenomena of a bygone age where individual freedom and rule of law actually meant something.
     
    Central Banking is a disease, and the lynchpin of Crony-Communistic Fasci-Capitalism the world over; how Orwellian the world has become … there could be NO truly dangerous results of Free Market Capitalism without two fundamental pitfalls infecting the Free Market mentality; 1)Socialism and 2)no-holes-barredDemocracy (Mob Rule). I believe people should have to pass an IQ test before being allowed to vote for a start, and if you don’t know the difference between a Man-Man marriage and a Woman-Man marriage your lack of logic should deem you a danger to inviolable Natural Laws which underpin a healthy civilization that tries to prevent itself from morally collapsing from the inside out. Obama is a poster child for Sodom and Gomorrah, and the Demoncrats and most Republicans make me sick to my stomach. Harry Reid should be tarred and feathered and left out in the Nevada Desert to bake on both sides until he is as crispy as Joe Bidens face.

    • @WillNotBeASlave
       
      “Central Banking is a disease…”
       
      Agreed.  It is central planning, which has been proved MANY times not to work, applied to banking / economics.
       
      “ I believe people should have to pass an IQ test before being allowed to vote…”
       
      That or the equivalent of a high school civics and current events test.  Glassy-eyed sheeple will not be able to pass such a test because it is not about the completely irrelevant trivia that fills their lives.
       
      “Harry Reid should be tarred and feathered and left out in the Nevada Desert to bake on both sides until he is as crispy as Joe Bidens face.”
       
      That works for me, although, truth to tell, I was thinking more along the lines of 2 guys on horses each roping an ankle and dragging his naked @$$ through a mile-long cactus patch… backwards… and none too quickly either.
       

  3. An update from the meeting…

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