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 ...
How didn’t it work out well? What is wrong with Lehman going bankrupt?
According to Pelham:
"As the bubble progressed into the 2000’s the private market rivals to Fannie & Freddie began eating their lunch, growing market share at a much faster rate than the GSEs. One reason is that the private market firms offered the really exotic loans, the OptionARMs, the NINJAs (no income, no job, no assets), the 120% loans. All that F&F could deal in was conforming paper, even if the loan was subprime." -
http://www.freerepublic.com/focus/news/2832650/posts?page=8#8
"Immediately following the bankruptcy filing, an already distressed financial market began a period of extreme volatility, during which the Dow experienced its largest one day point loss, largest intra-day range (more than 1,000 points) and largest daily point gain. [...] The Dow eventually closed at a new six-year low of 7,552.29 on November 20, followed by a further drop to 6626 by March of the next year.
"The fall of Lehman also had a strong effect on small private investors such as bond holders and holders of so-called Minibonds."
- http://en.wikipedia.org/wiki/Lehman_Brothers#Financial_fallout
The Mortgage crash is just recent issue, the same could have happened with any other bubble that Finance Mangers decided to be profitable. (S&L from the 80’s0 In a few years Wall Street will start investing into sun spots or something like that,after a few quick guys make ton of money,everybody will jump on the bandwagon dumping all cash they have,and getting g 1 to 1000 leverage to buy the next sure thing,until the bubble bursts and if it is really bad the Gov will again bailout firms,otherwise we will have riots on a street. So if you don’t want bailout,riots,marshal law,etc.. much easier to make sure that firm can stand by their contracts with cash.
This article is a complete and utter joke: its analysis is embarassingly inaccurate and its recommendations are overtly Marxist. Lyndon F’in LaRouche? Really?
And to put “teeth” in that refusal, prohibit any company that gambles in derivatives markets from being insured by FDIC/SIPC/etc.
Nobody cares if people gamble with their own money.
But, IMHO, when “traders” try to gamble with the TAXPAYERS money by free-loading on FDIC/SIPC/etc., those “traders” should be stopped.
So do you trade your derivatives OTC or on an exchange?
He who would trade a little bit of liberty for a little bit of security deserves neither and will lose both.
Both.
Fannie & Freddie dealt in conforming loans, which require a lot of documentation, whether the borrower was prime or subprime. Fannie and Freddie had sold bundles of mortgages to investors for decades without any problem, they were a reliable and boring source of income investment for retirement funds, insurance companies, banks.
Liar loans were developed by F&F’s non-GSE rivals. No Doc, OptionARM, NINJA, all the exotic non-conforming paper commanded a higher interest rate than the conforming GSE paper, and that’s what Wall Street investment banks and hedge funds wanted and funded through an army of private mortgage brokers.
The Wall Street IBs and hedgies wanted all the subprime paper for the purpose of using the mortgages as fodder for the creation of derivatives. The derivatives they created were more exotic and higher yielding than the dull GSE paper. While it’s great political hay to place the financial crisis at the feet of Fannie and Freddie and the CRA the evidence doesn’t support that claim. They were big participants if for no other reason than because of their sheer size as the original secondary market for mortgage paper, but they weren’t the reason we had the bubble.
Can you tell me what exchange the derivatives trade on?
Then why did they need a federal takeover? Why were they delisted? Of course, freaks that they are, they never should have been listed in the first place.
Fannie and Freddie's government backing allowed them to set the stage for the irrational exuberance
that lead to the crisis. And their 'Rat protectors in the House and Senate prevented efforts to get them under control because that might have made house ownership less available to the typical Democrat voter.
I write software for a living - STAY AWAY FROM MY MONEY. Software is a complex instrument that non-technical users don't fully understand.
Unless your company name is AIG. At that point it becomes a taxpayer obligation.
“Then why did they need a federal takeover?”
There was no legal requirement, it was a decision made by the Bush administration. I haven’t seen them explain their reasoning, but my guess is that they thought allowing F&F to fail would bring down a lot of other pieces of the economy.
Without a doubt it would have seriously damaged the ability of banks and S&Ls to sell their mortgage paper in the secondary market. They need to do this in order to get liquid so that they can make new mortgages, which seems to be a big problem even with F&F still functioning.
“Why were they delisted?”
They fell below the capital requirements for listing on the NYSE. They still trade OTC.
“Of course, freaks that they are, they never should have been listed in the first place.”
LBJ sold Fannie off to the private sector in 1968 to get it off the federal budget. Freddie was created and sold to investors to give Fannie a competitor.
“Fannie and Freddie’s government backing allowed them to set the stage for the irrational exuberance that lead to the crisis.”
Not really. Irrational exuberance was a result of Greenspan’s extremely low interest rate policy, his unwillingness to let the economy go into recession. F&F functioned for decades without any problem, and they had no legal government backing. Bush didn’t have to bail out their investors.
“And their ‘Rat protectors in the House and Senate prevented efforts to get them under control because that might have made house ownership less available to the typical Democrat voter.”
Dubya was every bit as bad when it comes to pandering to home ownership for everyone. Dubya even championed a program of free downpayments for those who didn’t have one, a policy that even the Democrats hadn’t managed to think up. Google “American Dream Downpayment Initiative”. It wasn’t just a Democrat problem, although Fannie was certainly full of former Democrat activists stuffing their pockets by cooking the books.
We tried that with Lehman Brothers; it didn't work out well.
How didn’t it work out well? What is wrong with Lehman going bankrupt?
"Immediately following the bankruptcy filing, an already distressed financial market began a period of extreme volatility, during which the Dow experienced its largest one day point loss, largest intra-day range (more than 1,000 points) and largest daily point gain. [...] The Dow eventually closed at a new six-year low of 7,552.29 on November 20, followed by a further drop to 6626 by March of the next year.
"The fall of Lehman also had a strong effect on small private investors such as bond holders and holders of so-called Minibonds."
He who would trade a little bit of liberty for a little bit of security deserves neither and will lose both.
So in your view avoiding historic lows for the stock market and big hits to small private investors are a matter of "a little bit of security"? You'll have to understand if some of us don't share that view.
I agree. I will not advocate for government control of software. I am glad that you are on my side.
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