Here is a most interesting Op-Ed from the Washington Post today, Fed Up With Wall Street, the Democrats Look to the Left. As writer, Harold Meyerson states:
“The revolt against Summers was less about his positions on today’s economic issues than his adamant opposition to regulating derivatives during his tenure as Bill Clinton’s Treasury secretary, when he invoked as an argument against such oversight the dismay of the big banks at the one set of regulations that might have staved off, or at least diminished, the Great Recession of the past five years.”
Is this thesis to be believed? One has many doubts, but hope it is a ray of light to shift the balance to sustainable economic growth.
Easy profits from speculative trades have fueled a GDP that is now close to 45% derived from a multitude of unnecessary financial services activities. We do not have the precise numbers, but a chunk of that derives from raw speculation in OTC derivatives, which has resulted in the core fundamentals of essential markets for all Americans, such as proper hedges on oil and wheat positions, being destroyed by the lack of position limits on speculation.
Municipalities and sovereign governments, like Greece, decried the role of credit default swaps speculation distorting their credit picture. As the threat of a failure to raise the US debt limit, S&P lowered the credit rating of the US government. Speculation on credit default swaps on the demise of the US Government going into “technical default” on its interest payments soared.
ISDA, the industry body that regulates these derivative contracts, unequivocally stated, even if the US Government misses one payment, we will deem that a credit event, after a three day grace period and pay out to holders of these credit default swap contracts. It is quite a game of poker and it is indeed lucrative.
As we gear up to the next government deadlock on the budget, we rerun our Blog post from
May 22, 2012 – Congress Here is Memorial Day Required Reading and a Heads Up on Your Role in the Next Block Buster CDS Trade
Gentlemen, place your bets!
Senators, led by Elizabeth Warren (D- MA), that finally took a stand against President Obama and his preference of Mr. Summers for Federal Reserve chair, is the most critical event to happen since the financial crisis in 2008. Will we now move to restore an economy based on something other than income derived from speculating on the demise of the US government’s credit, if we have Congressional representatives willing to stand-up against the Executive Branch?
Can constituents hold those Senators in high regard that played it safe, such as Senator Amy Klobuchar (D-MN), that refused to listen to constituents, in 2008-2009 and speak-out against the continuation of failed policies, led by Mr. Geithner and Mr. Summers in the Executive Branch?
Senators that refused to take a stand, a leadership role on issues relating to banking and derivatives, the role of our Judiciary in prosecuting the wrongs and on executive branch appointments such as Timothy Geithner…. these Senators have significant culpability in the current state of the fragile economy.
Nothing has changed since 2008, the economy is weak, the recovery is slow, the middle class has been left out, and most of Dodd Frank has yet to be enacted. There were too many Senators, such as Senator Klobuchar, who refused to lead and act in the best interest of society overall.
A true leader is one who will make waves and go against popular opinion, the Executive Branch, and do what is in the best interest of society overall. Senators Warren, Brown, and Merkley are the first to do so since the most recent financial crisis.