Re: [Marxism] The Derivatives Game By RALPH NADER

[Shane Mage <shmage@xxxxxxxxxxxx>]

On Oct 11, 2008, at 5:10 PM, David Thorstad wrote:

>
> 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
> ^ 
> ^ 
> ^ 
> ^ 
> ^ 
> ^ 
> ^ 
> ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Exactly what do you disagree with in Ralph's article?  That its  
readable, makes sense, and is jargon-free?  Sins, to be sure, but such  
mortal ones?


>
>>> 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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