Posted on 01/25/2012 9:35:12 AM PST by SpaceBar
On March 9, Lyndon LaRouche intervened in the economic crisis to propose a plan that is as simple and direct, as it is potentially effective in its execution: a sales or transaction tax on the turnover of ``financial derivative'' securities or financial instruments. Each time such a security or instrument is traded, he said, it should be taxed at 0.1 percent of its face value, or, as it is called in the derivatives trade, its notional principal amount.
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Talk to most people about ``derivatives'' and you pretty soon discover that they have no idea what they are. Still less do they have any comprehension that the financial practices which have developed, since especially 1981-82, represent one of the most serious threats to the very existence of their country and the human species.
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The growth of derivatives went past the point of no return at the end of last summer, on Sept. 16, to be precise. That was the day when the European Monetary System was wrecked, the day for which people like George Soros, and Citibank, borrowed billions of dollars to blow out the currencies of Britain and Italy. They showed that day that the speculative cancer that had been unleashed had grown beyond the point that monetary authorities could control.
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That's what derivatives do. They are purely speculative highly leveraged instruments, designed to capture spreads, or pricing differences between different interest rates, currencies, or commodities.
(lengthy article continues at link)
(Excerpt) Read more at american_almanac.tripod.com ...
No more Treasury Secretaries from Wall Street firms...they just can't help themselves.
It is a GSE (government sponsored entity) created by FDR. That is why it is socialism. If FDIC fails the taxpayers bail it out.
The way to bring derivatives under control is to refuse to bail out those who get in trouble using them.
The problem is that profits are privatized, while risk and losses are socialized....that’s not market-based Capitalism, that’s State Capitalism.
Learn what a GSE is and the try to figure out why a Freeper might hate the concept.
Anyone who advocates taxation to control behavior belongs on the DUmp, not here.
From wiki:
In light of apparent systemic risks facing the banking system, the adequacy of FDIC’s financial backing has come into question. Beyond the funds in the Deposit Insurance Fund above and the FDIC’s power to charge insurance premia, FDIC insurance is additionally assured by the Federal government. According to the FDIC.gov website (as of January 2009), “FDIC deposit insurance is backed by the full faith and credit of the United States government”. This means that the resources of the United States government stand behind FDIC-insured depositors.”[35] The statutory basis for this claim is less than clear. Congress, in 1987, passed a non-binding “Sense of Congress” to that effect,[36] but there appear to be no laws strictly binding the government to make good on any insurance liabilities unmet by the FDIC.
They didn’t get bailed out because the Gov decided to make it rain with newly printed FedReserve notes. They got Bailed out because there was a risk of massive pain to the countries especially to US, otherwise. Now, one can debate was that risk overblown or not. However its obvious that missive failures would not be good for all citizens of US. If a farmer bought a future from Goldman as CP to sell wheat for X amount of dollars per bushel. and Goldman goes bankrupt, then that Farmer is screwed,and goes bankrupt too,so you not getting a bread in the store. Thats how wall street affects main street,etc..
How about advocating laws like reinstating the Glass–Steagall Act? Is that DU material too?
“And I don’t mean hedged with your awesome wiz-bang trading algorithms. It must be hedged with cash equivalents (T-Bills )for the maximum exposure possible. Yes its very expensive to keep that much cash on hand,but tough luck,its still better then waiting for Tax payer bailout — that’s capitalism.”
I despise your mindset. I despise your fear and ignorance of derivatives. Your mindset is solidly in the mainstream for a Democrat. Your mind needs to be made right.
Yes if life gets really bad FDIC will print the money to cover withdraws,UNTIL it managed to liquidate the assets of the banks it took over. Again if you don’t want it happening,you should be pro Gov making sure that there is no major collapse.
BTW, the FDIC is not a GSE, like FNMA or Freddie Mac. It is an independent agency of the Federal Government. Yes, it does have the ability to borrow from the US Treasury.
The only way for the FDIC to fail is for its member banks to fail en masse, and wipe out the assets in the Deposit Insurance Fund. The FDIC has done a marvelous job of cleaning up the banking system.
OTOH, your industry (Wall Street) failed, and the taxpayers bailed you out. I haven't seen any tears of shame coming from the titans of Wall Street.
Then don’t bail them out - then losses won’t be socialized.
Precisely. Bail outs are a way to socialize losses. As are the GSEs Fanny and Freddie.
The GSEs were the reason the derivatives got out of control. They put the government behind liar loans, so the industry went hog-wild originating same, bundling them into derivatives and selling them to unwary investors. The easy credit drove the price of housing way above the value of housing, creating a giant bubble which finally burst in 2008. It was not too little regulation that caused the housing crash; it was too much.
I despise the lack of honesty and honor of the financial industry. You're Wesley Mouch in the flesh.
The only person who has ignorance of derivatives its YOU,since you don’t understand the risk of the tool with which you are trading. Just like if you go hunting you need to understand the risks and and dangers of your gun,and you have to manage those risks, that innocent by standers don’t get hurt.
Its not “fear” or “phobia” its risk management, derivatives are very useful tools,and speculation is good since it creates liquidity in the marked,however trading naked derivatives is very dangerous, if amounts are small its only danger to your job or to your firm if amounts are large its danger to whole country, I am not sure why its so hard to understand.
You need to learn about credit risk. If the farmer has an in-the-money hedge and the counterparty goes bankrupt - then too bad so sad for the farmer. It is a risk to hedge and it is a risk to not hedge. The farmer has to weigh his alternatives and choose his counterparty wisely.
The problem is that you think the farmer is too STUPID to decide for himself and needs nanny governemnt to protect him.
Are you saying all bundled mortgages were Freddie- or Fannie-backed? I'm pretty sure that's not the case.
We tried that with Lehman Brothers; it didn't work out well.
Not all, but enough.
By lowering lending standards, the GSEs helped the lenders comply with the Community Reinvestment Act, which allowed the government to lean on lenders who were not making enough loans to deadbeats probable Democrat voters. The derivatives market helped the lenders get the toxic loans off their books as soon as they finished originating them. An efficient wealth-destruction mechanism evolved. And the Democrat Party successfully blocked GOP attempts to get it under control by reining in the GSEs.
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