[Marxism] The Derivatives Game By RALPH NADER

[David Thorstad <binesi@xxxxxxxxx>]

That does it. Till now I had been planning to vote for Nader, even though he 
thinks capitalism
can be reformed and I don't. No more. Any "socialist" on the ballot will be 
more deserving,
however pathetic most of them may be.
David
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^


>> The Derivatives Game
>> The Downward Spiral
>>
>> By RALPH NADER
>> http://www.counterpunch.org/nader10122008.html
>> Weekend Edition
>> October 10 / 12, 2008
>>
>>
>> The derivatives markets of today have become a high stakes casino of
>> unimaginable magnitude. Wall Street's bets have gone bad, and now the 
>> whole
>> financial system is in peril. In a best-case scenario, it appears, the
>> taxpayers will be required to rescue the system from itself. This is why
>> Warren Buffett labeled derivatives "weapons of financial mass 
>> destruction."
>>
>> Amazingly, there seems to be some lingering sense that current-day
>> derivatives properly perform an insurance function.
>>
>> Case in point: Alan Greenspan, the former Federal Reserve Chairman.
>> Greenspan says the world is facing “the type of wrenching financial
>> crisis that comes along only once in a century,” but, reports the New
>> York Times, "his faith in derivatives remains unshaken." Greenspan 
>> believes
>> that the problem is not with derivatives, but that the people using them
>> got greedy, according to the Times.
>>
>> This is quite a view. Is it a surprise to Alan Greenspan that the 
>> people on
>> Wall Street -- said to be ruled only by the opposing instincts of 
>> greed and
>> fear -- "got greedy?"
>>
>> This might be taken as just a bizarre comment, except that, of 
>> course, Alan
>> Greenspan had some considerable influence in driving us to the current
>> financial meltdown through his opposition to regulation of derivatives.
>>
>> A series of deregulatory moves, blessed by Alan Greenspan, helped 
>> immunize
>> Wall Street derivatives traders from proper oversight.
>>
>> In 1995, Congress enacted the Private Securities Litigation Reform Act
>> (PSLRA) of 1995, which imposed onerous restrictions on plaintiffs suing
>> wrongdoers in the stock market. The law was enacted in the wake of Orange
>> County, California's government bankruptcy caused by abuses in 
>> derivatives
>> trading. An amendment offered by Rep. Ed Markey would have exempted
>> derivatives trading abuse lawsuits from the PSLRA restrictions. In
>> defeating the amendment, then-Representative and now-SEC Chairman 
>> Chris Cox
>> quoted Alan Greenspan, saying “it would be a grave error to demonize
>> derivatives;” and, “It would be a serious mistake to respond to these
>> developments [in Orange County, California] by singling out derivative
>> instruments for special regulatory treatment.”
>>
>> The New York Times reports how the Commodity Futures Trading Commission
>> aimed for some modest regulatory authority over derivatives in the late
>> 1990s. Strident opposition from Treasury Secretary Robert Rubin and Alan
>> Greenspan spelled doom for that effort.
>>
>> Senator Phil Gramm helped drive the process along with the Commodities
>> Futures Modernization Act of 2000, which deregulated the derivatives
>> market.
>>
>> Defenders of deregulation argued that sophisticated players were involved
>> in the derivatives markets, and they could handle themselves.
>>
>> It's now apparent that not only could these sophisticated players not
>> handle themselves, but that their reckless gambling has placed the entire
>> world's financial system at risk.
>>
>> It seems to be then a remarkably modest proposal for derivatives to be
>> brought under regulatory control.
>>
>> Warren Buffett cut to the heart of the problem in 2003: "Another problem
>> about derivatives is that they can exacerbate trouble that a corporation
>> has run into for completely unrelated reasons," he wrote in his annual
>> letter to shareholders. "This pile-on effect occurs because many
>> derivatives contracts require that a company suffering a credit downgrade
>> immediately supply collateral to counterparties. Imagine, then, that a
>> company is downgraded because of general adversity and that its 
>> derivatives
>> instantly kick in with their requirement, imposing an unexpected and
>> enormous demand for cash collateral on the company. The need to meet this
>> demand can then throw the company into a liquidity crisis that may, 
>> in some
>> cases, trigger still more downgrades. It all becomes a spiral that 
>> can lead
>> to a corporate meltdown."
>>
>> That is to say, our current problems were foreseeable, and foreseen. 
>> There
>> is no excuse for those who suggest that present circumstances --what many
>> are calling a once-in-a-hundred-years event -- were unimaginable during
>> earlier debates about regulation.
>>
>> Some ideologues continue to defend derivatives from very strict 
>> government
>> control. As Congress moves to adopt new financial regulations next year,
>> hopefully the proponents of casino capitalism will be given no more
>> credence than those insisting that the sun revolves around the earth.
>>
>> Ralph Nader is running for president as an independent.





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