Helen & Harry Highwater's cranky weblog of news and opinion.
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"News that's not known, or not known enough." Helen & Harry Highwater's cranky weblog of news and opinion. |
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So what will JP Morgan Chase do with my account? We'll see. I left it there figuring that the hassle of getting it here along with unexpected fees would equal the loss due to inflation plus I need the money THERE not stuffed in some money belt as I try to go through airport security half a dozen times along the way. I don't use credit cards AT ALL. As for leveraging, I've already mentioned it in "Making it harder for speculators" and an UPDATE to it. Basically, for derivative transactions only 5 to 10% is actual cash and the rest (90 to 95%) is a loan. However, some commodity exchanges have finally required 15 to 30% down to slow
To complicate this picture even more, these bets can involve different types of contracts. There are "optionals" where the contract involves just the option to buy or sell (e.g. wheat) at a future time. There are the "futures" that involve actually buying or selling something (e.g. wheat) at a future date, but usually they are sold off before the time comes to buy or sell. Then, there are the swaps where the 2-parties agree to exchange the returns. So for a CDS -- credit default swap (2-parties), I assume we have the banks making the crappy mortgage loans and the speculators knowing that they will probably default getting to share the return on their bets. No one knows they've placed the bet either. I believe that is the gist of this short article. So how does a CDS, for example, play out? Based on Wikipedia, when the "credit event" occurs, NOT a surprise, a crappy mortgage defaults and we have a SUCCESSFUL CDS. Let's say that a bank (the buyer of the swap) after having paid out some fixed rates to a speculator loses out on their mortgage loan but gains the foreclosed home that goes to the speculator who pays a cash settlement for the house (at an agreed upon price related to the difference between the stated and today's lower market price) that the speculator can now sell/rent out. Of course, the question IS has everyone managed to carry out the tricky balancing acts involved in all of this? Obviously, not. Some banks and speculator firms have gone bankrupt. That means some of the SPECULATORS could not pay off their loans to the banks given their HUGE (90 to 95%) loans and/or related to their CDSs -- maybe they couldn't pay off their cash settlements for those foreclosed homes coming in rather quickly. With banks going bust, maybe still other speculators couldn't get enough loans to keep going with their deals fast enough. It WAS all a
How about that ban on short selling? That's a way of stopping speculators from selling off their contracts at a time when prices are going down which may also increase the downward pressure. The profit here comes from borrowing a security (e.g. stock) and then selling it. Then, at a later date when the price is lower re-buying it and pocketing the profit. The same thing can be done with future commodity contracts. Of course, this is now banned -- which should keep both stock and commodity prices HIGH. This hurts EVERYONE and will also hurt all of those speculators and the companies that do lots of short selling -- putting those companies at risk. Hmmmmm. Sounds like the FED is doing it's own "short selling" -- they aided the banks and speculators in getting all of those foreclosures, and now they will be buying up a whole lot of cheap houses. Of course, there are some cheap banks and firms of speculators going cheap, too. Again, with no oversight, it seems that they can keep that money, too. Then, there is the whole business of derivatives being/doing NOTHING. It is the actual commodities, stocks/real investing, industrial plants, manufactured goods, and property that involve real wealth. If enough money is NOT going into creating these, then as Mike Rivero, says "waving money around faster and faster" isn't going to do any real good -- thus, the string of bubble scams. Not only has there not been enough re-investment into and maintenance of what WAS created, but jobs have been shipped overseas so that the poor suckers there could continue to work for crap wages and benefits. Meanwhile with much fewer good paying jobs in the US, all that has been left are the service sector jobs that had and still have crappy wages and benefits. With a slow down, these jobs will go, too, as people tighten their belts. Of course, all of this unemployment means still more foreclosed homes that the FED can pick up cheap without even mentioning this whole "transaction." My assumption (as I've said) is that they can even avoid turning over what they earn to the Treasury. Logic tells me that this whole risk-filled super-structure of derivatives should just be dumped. It causes much more damage than any miniscule lessening of risk it is said to reduce in all of the textbooks that promote it. It may be "innovative" but this time we've gotten a really STUPID type of innovation (like GM foods). Classic banking worked and works better. Thankfully, a lot of the developing countries never got into it which if this whole subject was discussed transparently, they'd never aspire to getting into. It badly distracts people from putting money into real investment. If all of this derivative crap somehow seems necessary, then the percentage of the cash put down MUST be increased to at least the 20% that a typical house down payment requires. Will We the People EVER get angry at being scammed by the banks, derivative speculators, and the FED? It is beginning to look like the answer is YES, yeah! Marie K. PERMANENT LINK P.S. This article indicates that many economists think that some of the measures already taken are enough and that the "bailout" is NOT needed. One measure taken was a US$50 billion insurance plan for money-market funds. They stabilized. It doesn't criticize speculators, which seems strange. Plenty of other people are. Ralph Nader says that there should be detailed hearings to find out if there is a real need for a bailout. If there is, he recommends that any company that wants help must turn over stock to the Treasury which could be sold if the company turns around -- with the profits going to the Treasury. Also, he says that criminals should be prosecuted and that there needs to be comprehensive regulation and disclosure. Also, considering some reform measures makes sense. HOPEFULLY, wisdom will prevail. P.P.S. Again, I hope I haven't make any big mistakes here, but if I have, please let all us of know. Getting this all correct is very important.
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