5 Major US banks Face Potential Massive Default Due to credit default swaps

ice ice baby

There was no football on tonight, and I did not look at the debates either for I felt I would one, be disappointed in Obama and two, McCain would confirm that he has a semblance of post traumatic stress disorder. Instead I did a few stochastic models of how much this pork, I mean bail out would cost us. I wanted to post it but couldn’t put the equations on my blog and better yet thought folks would not pay attention so im gonna write about something else.

Im tired of talking about the economy and the banking system on their own, but I got a few more things I would like to shit out of my brain. I have mentioned the Commodity Futures Modernization Act a few week ago in a post and attributed a lot of this current mess to it being slid in a omnibus appropriations act by the Senator Phil Gramm of Texas and signed into law in 2000 (Got damn Bill Clinton).

The Commodity futures modernization act seemed to have been designed to help two types of folk - banks and oil companies. Before it was signed into law, back in the old days, commodities were regulated. This regulation namely occurred under NYMEX, the New York Mercantile Exchange. NYMEX was the only and largest and principal spot for the commodity futures exchange in the World. But once the Commodity Futures Modernization Act was signed, it allowed for private entities such as oil companies and banks to trade futures without regulation. Again thanks to Phil Gramm who added a loop hole to the bill. Specifically a loop hole that allowed for the electronic trade of buying energy (like oil) in unregulated markets outside of the United States and the jurisdiction of the Commodities Futures Trading Commission. They call this the "Enron loophole" which I stated prior "was codified” via the Commodity Futures Modernization Act of 2000.

Im not just Blaming Senator Gramm and Bill Clinton, for then Fed Reserve Chair Alan Greenspan wanted this as well. Gramm did this for one of his large donors, specifically Enron (remember them) and the Act was designed to keep regulators from controlling space-age financial tools called credit "swaps." Just like sub-prime mortgages, swaps are bundled up and sold as securities. The Act also made it impossible for state and federal oversight boards like NYMEX or the Commodities Futures Trading Commission to examine investment banks or hedge funds to make certain they had the assets necessary to cover losses they were supposedly guaranteeing.

With Enron, we saw how the company shifted the trade of electricity online and as well what happened. Likewise, Oil companies and investment banks followed suit. Crude Oil was not introduced into the futures trading market until 1983. This is when we started to see how such speculation impacted the price of oil and ironically, we did not see the prices go up as before until 2000, when theses companies started to manipulate world oil prices and again ironically the same year the CFMA was signed into law.

Unregulated exchanges got us into this mess. The prefect example was when the Intercontinental Exchange (ICE), which has its headquarters here in Atlanta, came into existence. A tight knit bevy of Banks and oil companies including the likes of BP, Shell, Total, Morgan Stanley, and Goldman Sachs started the ICE. As of today, the ICE is probably the leading online marketplace for “global commodity trading, primarily of electricity, natural gas, crude oil, refined petroleum products, precious metals, and weather and emission credits.”

The real problem occurred when these said banks wanted to get in on the game too and started purchasing oil fields, pipelines and refineries which meant these banks, were now also considered commercial traders and that they could make such trades unregulated. This means that they could produce, distribute control and trade without scrutiny, what they themselves owned, meaning they could control prices as well – talk about a monopoly.

This is one of the reason why I cant understand the logic of folks who say drilling is the answer to our domestic and national security, I mean how stupid are Palin and McCain, who talk about drilling, when we wont see no final product for another ten years ago and when these banks and big oil companies can sell or trade oil anywhere around the globe.

This is why I believe Banks on Wall street don’t need to be bailed out or “rescued” and why Big azz Oil companies shouldn’t be getting am tax breaks when they really need to be taxed up the azz. They supposed to pay us royalties when ever they drill on our (public US lad) and they don’t. In fact many operate lease free. I cant do that as a small business owner, I have to pay for what ever space I uses as my retail outlet. Every time I re-read the CFMA I get sick to my stomach and think of Vanilla ICE, who sang that song Ice Ice Baby. They say he from Texas, I wonder if he was trying to drop us a few hits back in the day of things to come. vote

the fat lady aint started singin' yet

For the record, tonight I am writing this without the assistance of Tequila and hot sauce – I know a shame. So If I make too much sense or not enough forgive me, for I left my wallet at the shop and I am eating black olives, brie cheese and drinking blueberry/pomegranate juice (dick hard food as I like to say). But for me it is a state of Emergency, especially since folk like Treasury Secretary Henry Paulson seems to always act ex post facto and put shit in place to deal with problems but not prevent them.

Now I will be the first to say I aint no investment banker nor am I an economist, but I read and don’t consider myself to be a stupid mother fucker. There are several things about the economy I want to point out. First, all of this shit has happened under the watch of republicans and all these chump bitch ass folk wanna do is put a band-aid on an amputated leg. And hate to say it, But Bear Stearns, Lehman Brothers and AIG is only the beginning of what is to come. I remember recently how Paulson said that the problem that we have is because “We have an archaic financial regulatory structure that came in place a long time ago, after the Depression. It really needs to be rebuilt."

From my understanding of history, the problem during the depression was stocks. Yep stocks, for back then they were not regulated as they are today. In the current economic picture, we got to deal with some other thangs, namely hedge funds and derivatives, which are a lot more complex and no where close in resemblance to the classic stock or bond. But like in the depression era when stocks went unregulated, today derivatives and hedge funds and what they call credit default swaps, can be bought and sold and packaged without ANY federal or state regulation (yawl economist and investment genius correct this layman if I am wrong).

No regulation, nada. And we came to this like I have said in many post before, due to many folks, but one I have yet to mention is Former Senator Phil Gramm. Yea, yawl know Jones, he said that Americans were whinning over the economy. He currently is McCain’s economic advisor and I must say with him at the helm, I can only see the economy getting worse. A few post ago I wrote about how he led efforts to pass the Gramm-Leach-Bliley Act in 1999, which served to reduce government regulations in that separated banking, insurance and brokerage activities that had been in place since the Great Depression. But more importantly to jones here was his role in getting the Commodity Futures Modernization Act of 2000 passed.

Now let me tell yawl about this. True, he is the VP of USB, a Swiss bank and one should expect such, but this was some sneaky and scandalous shit folk pulled mane because it made specific provisions that products offered by banking institutions would not be regulated as futures contracts – no regulations by feds or state governments, like stocks before great depression.

That’s another reason I say McCain is stupid, for picking a man who is the VP of a bank with 12 billion in losses last year as his top economic advisor and because McCain himself say he is learning economics by reading Alan Greenspan’s book – LMBAO. Not to mention Gramm aint write it but rather it was drafted by Wall Street lawyers. They do this shit via what are called structured investment vehicles and this shit aint even on the balanced sheets.

With the aforementioned and they way they keep they books, via Gramm’s help, we will never know what the actual losses are or will be. Add to that the way they cover this stuff is through another shady side bet called credit default swaps which are “expressly” deregulated via the Act mentioned above. Credit default swaps are the most widely traded form of credit derivative. They aint nothing but bets between folk on whether or not a company will default on its bonds. This is easy to do cause all the banks been doing is giving out mortgages for homes, bundling them up as securities and selling them to others

All I am saying is what we are seeing with Lehman Brothers, Bear Stearns, and AIG is only the beginning because these are based on faulty MBS. Next its gonna be credit cards, student loans and all loans – even private equity loans (corporations). Yep the fat lady aint even started to sing yet and we the tax payer got to pay for this and get the shaft with no Vaseline because the feds will bail these folk out and let the CEOs leaves with 100 millions and even pay for big company but not folk who loose their homes.

All I am saying is handle yours because it WILL get worse. But yawl don’t hear me though, but I bet you getting your toes done, smelling the microwave pop corn and talking about what you eating and dranking at some fancy retro chic Bar. Not me mane. Not me. Like I said, the fat lady aint even started singing, so I would advise you to stuff your mattress, at least a little at a time. vote