Gary Rumor’s Anti-Entropic Continuum

Today on Ian Master’s program, Daniel Gross, author of ‘Dumb Money’, noted that there was too much concern for the opinions of bankers in Washington when they have screwed things up royally. He pointed out that much of this problem is because the bankers, regulators and academics are all from the same culture and rotate between Harvard Business School, Goldman Sachs and the Federal Government, to note one particularly tight circle of friends.
Moments after listening to this on the radio I tuned into CSPAN and caught a Congressman asking Secretary Geithner if the industry would be given special attention. Geithner groveled that they would. That perked my attention and I decided to record this hearing on Derivatives.

CSPAN rebroadcast hearings regulating derivatives. Here for anyone who cares to read this will be seen how tough minded Congress can be when it comes to protecting the interests of the Rich. If I were a wealthy American, Saudi, or of any other nationality I would feel very comfortable knowing that the US Congress was protecting my interests. But since I am not, and 99% of the world is not, then for us, this is an exercise in watching how the rich and their lawyers fleece us. What we need is a revolution. Virtually every one of these guys is culpable and corrupt. Read it and weep.

Treasury Secretary Geithner was asked by Jerry Moran Republican Representative of Kansas if they would be treated differently and Secretary Geithner said that they would be.
Randy Neuberger Republican of Texas is concerned that there won’t be a shopping around on the part of business in hunting for an agency to regulate that will be less stringent that another. This is for the custom products.
David Scott Democrat from Georgia is worried about accidental creation of bank monopolies through consolidation.
Geithner said that more stringent requirements with capital backing risk should eliminate that problem.
Scott noted that Oil is internationally traded and by regulating domestic markets wouldn’t traders move to less regulated markets?
Geithner said they are trying to limit volatility through disclosure.
Mike Rogers Republican of Alabama is concerned about the closing of the auto manufacturing industry. He notes companies are going out of business because banks won’t loan.
Geithner says we will be living with the consequences of the crisis for some time. It will take a while to come out. The recovery has a while to go. We took on too much debt and the country is starting to save.
Rogers wants to know why the government is spending like drunken sailors.
Geithner says that for a variety of reasons the government did what is required.
Gregory Meeks Democrat of New York is saying that there may be smaller firms doing riskier business and stifle competition.
Geithner says that the risk of standardization is allowing business to engage in more customized plans. They want to have more oversight on customized derivatives, put them on an electronic platform.
Rep Scott Garrett Republican of New Jersey wants to make sure we have time to examine regulations. Standardizing through clearing houses might be a problem with AIG for example.
Geithner does not want to ban risk but he wants to regulate. He also says the problem was that there was insufficient funding to back the derivatives.
Jim Costa Democrat of California is concerned about commodities. Commodity hedges don’t often have access to cash. What is the impact on non financial sectors?
Geithner says we are trying to get the balance right. We want to make sure that those who are taking risk have the capital to take the risk.
Costa wants to know if the commodity investors will be affected by this requirement for additional capital.
Geithner says we have to take a cold had look at how the banking system finances.
Mike Conaway Republican of Texas said if we put this system in place and business goes to markets around the world can you quantify how much business will go to markets overseas?
Geithner says we have to balance our regulation with bringing the rest of the world with us.
Brad Sherman Democrat of California says that derivative purchasers correctly deduced that taxpayers will cover the investments that were too risky to fail. Can you tell us that we will not be bailing out more of these risky investors through taxpayer money. Will a derivative issued today be subject to a bailout in the future.
Geithner refuses to answer that question. He says it is too complex for a yes or no answer.
Ed Royce Republican of California has a question about the regulations that seem to allow for a permanent bailout authority. It sounds as if the FDIC has authority to prop up failed industries.
Geithner says we are not doing that. He is adapting a framework that was used for the FDIC Resolution Trust Authority framework, for unwinding and dissolving unsuccessful thrifts that failed. It is not meant to prop up failed institutions.
Royce wants to have a detailed walk through of how this would have changed the way AIG was dealt with.
Jim Marshall Democrat of Georgia said that it is important to insure the money supply. We don’t want to disadvantage American Business or the Finance industry. He has no confidence that there will be universal agreement. He thinks there will always be places like the Cayman Islands that will not agree to the financial regulations.
Geithner says that there is an elaborate cooperative framework being designed with Europe and others.
Marshall wants to know if the USA will be disadvantaged.
Barny Franks Democrat of Massachusetts wants there to be strict sanctions on countries that do not agree to go along such as no access to the American market.
Bill Cassidy Republican of Louisiana wants to carve out Oil industry from the central clearing to avoid the increase in costs.
Geithner says that by using standardized clearing that when utilities are on this system that the cost goes down.
Cassidy says high volume would be standardized but he wants to make sure that they will not be done.
Chairman Democrat Colin Peterson of Minnesota said that the banks make more on customized derivatives than on standardized ones.
Barny Frank says we are talking about end users.
Geithner says that they don’t want to make the cash requirements so high that we push the investments overseas.
Judy Biggert Republican of Illinois thinks this will be telling business and consumers what they can and cannot do. She claims this is making government bigger.
Geithner says that we are moving existing authority into one place and to get rid of overlapping authorities.
Biggert thinks there will be a lot of duplication.
Geithner wants to rationalize by separating certain functions.
Rep Brad Ellsworth Democrat of Indiana wants to know how we got there.
Geithner says Value of credit default swaps in $600 Trillion range. Products emerged to cover different needs but there was no regulation to cover the increase in the need for coverage of insurance.
Rep Brad Ellsworth wanted to know if they had been called in.
Geithner says if we are successful then the risk to taxpayer will be lower.
Republican Glenn Thompson of Pennsylvania wants to know about FTC an CFTC breakdown in authority.
Geithner says they have to figure out the exact breakdown.
Stephen Lynch Democrat of Massachusetts noted that there is a big payday for banks on the custom side. Also there is a tendency for market to move to unregulated side. We are still allowing side bets and this is going to give us a system with gaping holes.
Geithner says we are giving regulators authority to intervene. Standard parts are open and exchanged on the open exchange. Custom items will have to be exchanged and he says that the business world will not want to have only standardized markets. People will go elsewhere if we try to make it all standardized.
Rep Jeb Hensarling Republican of Texas says that the corporation 3M says that there would be an increase in costs. He says that he agrees to transparency. Less hedging means less jobs. When will the administration be doing modeling on jobs created or lost?
Geithner is trying to preserve the capacity of people to Hedge with less risk to catastrophic damages.
Hensarling says that Freddie Mac and Fannie Mae are the major causes of the credit default crisis.
Geithner says it is something he is working on and it happened before they regulated it;
Scott Murphy Democrat of New York is concerned that there will be a race to the bottom of people looking for the cheapest hedge fund. He doesn’t want stuff driven to the OTC market that doesn’t belong there.
Geithner says there are some products that cannot be put on a clearing house for exchange.
Geithner says that accounting doesn’t always work with the market. He stopped in the middle of a statement about accounting.
What is the size of the problem with dealing with foreign counterparts? Republican Blane Luetkemeyer from Missouri
Geithner got them all to one table we got the supervisors to agree on certain common standards. He said with transparent reporting of standards. Geithner says that in Europe is used to having a European approach.
Barny Frank then trying to wrap things up told the three remaining Democrats to ask their questions quickly. CSPAN could not even identify this congressman who asked if there is no requirement that the derivatives have any relationship with the underlying risk, do the products do anything useful for society?
Texas Rep Al Green Democrat asked do we have a way to keep from over leveraging?
Melissa Bean Democrat of Illinois asked about safeguards.
Geithner said we need to have adequate safeguards. Yes there is advantage. This is a complicated problem.
Rep Christopher Lee Republican of New York wants to get answers for retirees.
Geithner says I will talk to you later about this.
Coin Peterson chairman Democrat of Minnesota then closed the hearing.
There is not much to say about this except that there is a lot of pressure from the interest groups who invest in this stuff who want to make sure that they still can do it here and if the US regulates too much they are very blatantly threatening to take their money elsewhere.
This shows up the weight these financiers have in the US economy. They have the ability to threaten the US government though the proxy of the Congressman that they happen to have bought. It is not a matter that Congress has a duty to represent the interests of the American people, there evidently is almost no one interested in doing that. Only one democrat from Massachusetts Stephen Lynch seemed even interested in questioning the validity of the mechanism. Most everyone else seemed to be only interested in protecting the interests of investors, not the public, not the working people, but of the people trying to make money in the derivatives market.
The message to Geithner was clear. Make sure you protect the American Financial industry or there will be hell to pay.

Tags: Financial Industry, Geithner & Congress On Derivative Regulation

This entry was posted on Sunday, July 12th, 2009 at 3:48 pm and is filed under Gnosis:, History, Politics, Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.