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UNSPOKEN CAUSE OF MARKET COLLAPSE IS DERIVATIVE TRADING
It is time to break the deadly silence on derivatives ~ the true, hyper inflationary factor in the current crisis situation is the unregulated, insanely leveraged derivatives trade. This is what is bringing down the stock market . This is the great crime of Alan Greenspan and there are many co-conspirators: Allen L Roland
Despite of what George W Bush and Secretary Paulson say ~ our largely unregulated financial system is NOT fundamentally sound and the Dow will tumble much lower when the closet on derivatives is finally opened, for we are looking at $ 531 trillion dollars of unregulated debt ~ with much of it at risk.
As I wrote on September 16th ~ First of all, you must realize that the Bush stock market is a giant crap shoot and much of it is unregulated ~ especially the unseen market of Derivatives. As I predicted last year, the sub prime mortgage market collapsed, which is now being followed by a giant credit crisis but the final nail in the coffin of the American financial system will be the collapse of the Derivative market ~ the mother of all unregulated debt structures. http://blogs.salon.com/0002255/2008/09/16.html
Lyndon LaRouche described the derivatives market as a "hyperinflationary bomb, crushing the international financial system," warning that "Until you just shut down the whole derivatives trade ~ wipe these gambling obligations off the books of the financial system ~ you are just kidding yourself."
"Unless and until you deal with this derivatives bubble, which cannot be bailed out, you are just kidding yourself," he continued. "It is time for Hank Paulson to swallow the only real medicine: bankruptcy reorganization of the entire, dollar-based financial system. And the first step in any such bankruptcy reorganization would be the cancellation of these quadrillions of dollars in pure gambling obligations. Without such action, this planet is doomed to a horrible dark age, just like the dark age of the fourteenth century, that followed the collapse of the Lombard banking system."
Peter Goodman, New York Times, reports that former Federal Reserve Chairman Alan Greenspan was the driving force behind persuading Congress to allow convoluted investment contracts ( Derivatives ) to run unregulated and now they are the 900 pound gorilla in the room ~ which virtually no one wants to acknowledge.
Greenspan argues that the it was the people using Derivatives that got greedy (a hallmark of the Cheney/Bush administration) not the contracts themselves ~ but many feel that the contracts have spread significant doubts about how companies value them.
Quite simply, such derivative contracts allow financial services firms and corporations to take more complex risks ~ like issuing more mortgages or corporate debt and then they are traded, further limiting risk, but also increasing the number of parties involved if problems occur ~ as they most certainly have now with the crumbling mortgage and credit markets. http://www.nytimes.com/2008/10/09/business/economy/09greenspan.html?_r=1&;oref=slogin
But now we are talking about $ 531 trillion of unregulated debt that can bring down our whole worldwide financial system.
" The global financial system is on the brink of a systemic meltdown despite interventions by the US and Europe to stabilize markets, " the head of the International Monetary Fund said yesterday and now you know why ~ no one knows what to do about derivatives. http://www.stuff.co.nz/4724614a12.html
On Thursday, the New York Times ran a masterful and revealing front page article exposing the culpability of Greenspan, Rubin and Summers for the era of dangerous turbulence we live in.
What these "three marketeers" ~ as they were called in a 1999 Time magazine cover story ~ were adept at was peddling the timebombs at the heart of this complex crisis: exotic and opaque financial instruments known as derivatives ~ contracts intended to hedge against risk and whose values are derived from underlying assets. To cut to the quick, Greenspan, Rubin and Summers opposed regulating them. "Proposals to bring even minimalist regulation were basically rebuffed by Greenspan and various people in the Treasury," recalls Alan Blinder, a former Federal Reserve board member and economist at Princeton University, in the Times article.
In 1997, Brooksley Born warned in congressional testimony that unregulated trading in derivatives could "threaten our regulated markets or, indeed, our economy without any federal agency knowing about it." Born called for greater transparency ~ disclosure of trades and reserves as a buffer against losses.
Instead of heeding this oracle's warnings, Greenspan, Rubin & Summers rushed to silence her. As the Times story reveals, Born's wise warnings "incited fierce opposition" from Greenspan and Rubin who "concluded that merely discussing new rules threatened the derivatives market." Greenspan deployed condescension and told Born she didn't know what she was doing and she'd cause a financial crisis. ( A senior Commission director who worked with Born suggests that Greenspan and the guys didn't like her independence ~ " Brooksley was this woman who was not playing tennis with these guys and not having lunch with these guys. There was a little bit of the feeling that this woman was not of Wall Street.") http://www.alternet.org/story/102559/
Brooksley Born was eventually proven correct ~ the unspoken cause of the current stock market collapse is unregulated Derivative trading and this must first be acknowledged publicly by Paulson and then delt with ~ regardless of how painful the remedy is.
Allen L Roland http://blogs.salon.com/0002255/2008/10/13.html
Freelance Online columnist and psychotherapist Allen L Roland is available for comments, interviews, speaking engagements and private consultations ( allen@allenroland.com )
Allen L Roland is a practicing psychotherapist, author and lecturer who also shares a daily political and social commentary on his weblog and website allenroland.com He also guest hosts a monthly national radio show TRUTHTALK on www.conscioustalk.net
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