The Warning Part II: Financial Armageddon, Again - Blood Moon - Trump Trade Policy the Patsy?

"Ultimately, the same financial architecture that surrounded the housing mortgage crisis (almost certainly including 'naked' credit default swaps) has been replicated in the three key areas where debt is growing at a troubling rate: defaults in student loans, auto loans, and credit card debt...

Thus, as the tenth anniversary of the Lehman failure approaches, there is an understanding among many market regulators and swaps trading experts that large portions of the swaps market have moved from U.S. bank holding company swaps dealers to their newly deguaranteed foreign affiliates.  ['off balance sheet' part deux]

But, what has not moved abroad is the very real obligation of the lender of last resort to rescue these U.S. swaps dealer bank holding companies if they fail because of poorly regulated swaps in their deguaranteed foreign subsidiaries, i.e., the U.S. taxpayer.

While relief is unlikely to be forthcoming from either the Trump Administration or a Republican-controlled Congress, some other means will have to be found to avert another multitrillion dollar bank bailout and/or financial calamity caused by poorly regulated swaps on the books of big U.S. banks...

By their own design, large U.S. bank holding company swaps [derivatives] dealers and their representatives have crafted their own massive loopholes from Dodd-Frank swaps regulations, which they can exercise at their own will.

By arranging, negotiating and executing swaps in the U.S. with U.S. personnel and then ‘assigning’ them to their ‘foreign’ newly ‘deguaranteed’ subsidiaries, these swaps dealers have the best of both worlds: swaps execution in the U.S. under the parent bank holding companies’ direct control, but the ability to move the swaps abroad out from under Dodd-Frank.

As history has demonstrated all too well, unregulated swaps dealing almost always ultimately leads to extreme economic suffering and then too often to systemic breaks in the world economy, thereby putting U.S. taxpayers, who suffer all the economic distress that recessions bring, in the position of once again being the lender of last resort to these huge U.S. institutions.

The Obama CFTC tried to put an end to these loopholes through a proposed rule and interpretations in October 2016.  However, those efforts were never finalized
before Donald Trump assumed the Presidency.  There will almost certainly be no relief from these dysfunctions from the Trump Administration or Congress.

However, state attorneys general and various state financial regulators have the statutory legal tools to enjoin these loopholes and save the world’s economy and U.S. taxpayers from once again suffering a massive bailout burden and an economic Armageddon."

Michael Greenberger, Too Big to Fail U.S. Banks’ Regulatory Alchemy


"'We didn't truly know the dangers of the market, because it was a dark market,' says Brooksley Born, the head of an obscure federal regulatory agency -- the Commodity Futures Trading Commission [CFTC] -- who not only warned of the potential for economic meltdown in the late 1990s, but also tried to convince the country's key economic powerbrokers to take actions that could have helped avert the crisis. 'They were totally opposed to it,' Born says. 'That puzzled me. What was it that was in this market that had to be hidden?'...

'It'll happen again if we don't take the appropriate steps,' Born warns. 'There will be significant financial downturns and disasters attributed to this regulatory gap over and over until we learn from experience.'"

PBS Frontline, The Warning

While the mainstream media says 'Russia, Russia, Russia' and the Administration says 'Immigrants, Trade, and Deregulate' the Banks may be setting up the US taxpayer for another taste of Financial Armageddon and a multi-trillion dollar bailout under duress.

As Trumpolini says, the US Taxpayer is 'the piggy bank' that is going to be robbed.  But it may not be at the hands of foreign mercantilists, but by domestic predators, wrapping themselves in the Constitution and the flag.

Or perhaps Michael Greenberger and Brooksley Born are just alarmists that don't really understand modern finance.

But maybe, just maybe, the Fed and the regulators are conveniently asleep at the switch, again.  And we are going to be forced to go through that whole, horrible episode of hidden leverage and multi-tiered frauds for the great benefit of a very few and their enablers in the professions and the government again.

Do they really know?  Are the people charged with protecting the public sure?  Will we even care until its too late?  Is all this fear-mongering hoopla about external threats just another misdirection, a distraction from the real crisis unfolding?  Is Trump, and his trade policy, being set up as a patsy for the next crash?

I would say that the probabilities are unacceptably high that another black swan may be coming home to roost.  And that the beneficiaries of this rotten system will do nothing to stop it, again.


Related and h/t for link to this paper:  Wall Street’s Derivatives Nightmare: New York Times Does a Shallow [CYA] Dive

Michael Greenberger: Setting the Stage For the Next Wall Street Crisis

Michael Greenberger has long been one of my favorite commenters on regulation, and in particular on futures price manipulation.

Within the context of the uphill battle against the status quo, Gary Gensler and Bart Chilton may have looked 'good' as regulators, but all in all they looked better only by comparison with some very horrible alternatives.  Chilton, as you may recall, did not waste much time going through the revolving door to put on the feedbag from the HFT crowd.

I think that as Greenberger points out, once we were able to see Obama's early financial appointments, we knew that we had been had, once again.  Despite his soaring rhetoric for change, he was a loyal member of the Wall Street wing.

Obama and the Wall Street wing of the Democratic party, founded by the Clintons, is a brand, cobbled together and groomed for office by the moneyed interests, designed to misdirect and diffuse the angry reaction for reform by the people in the aftermath of the financial crisis.  And it was a job well done.

No matter what she says, no matter what promises she may make, no matter what identity branding they may choose to spin for her, I strongly believe that Hillary has been and still remains a product of Wall Street money, and will continue to follow the money once in office no matter what rhetoric she may wear during any political campaign.  

Further, the only major difference between the parties now is that the Republicans have sold out wholesale to the moneyed interests, whereas the Dems have been doing it one despicable betrayal at a time.  They merely wear different masks.  Money conquers all with this venal brood of vipers.

Financial reform comes with political campaign money reform.  The two are inseparable.

The Criminal Manipulation of Food and Commodity Prices

Michael Greenberger of the University of Maryland has been an outstanding spokesperson for financial reform.  I have carried his interviews before.

He served on the CFTC with Brooksley Born in the late 1990's. This is how I first became aware of his opinions about regulatory matters.

I had hoped he, among some notable others, might have found a place in the Obama Administration if it had been truly interested in financial reform. And we all know how that went, and how it still goes today.



h/t via Yves

See the entire story at the Real News Network here.

Since July 2001, Michael Greenberger has been a professor at the University of Maryland School of Law, where he teaches a course entitled "Futures, Options and Derivatives."

Professor Greenberger serves as the Technical Advisor to the United Nations Commission of Experts of the President of the UN General Assembly on Reforms of the International Monetary and Financial System. He has recently been named to the International Energy Forum’s Independent Expert Group that provided recommendations for reducing energy price volatility to the IEF’s 12th Ministerial Meeting in March 2010.

Professor Greenberger was a partner for more than 20 years in the Washington, D.C. law firm of Shea & Gardner, where he served as lead litigation counsel before courts of law nationwide, including the United
States Supreme Court.

In 1997, Professor Greenberger left private practice to become the Director of the Division of Trading and Markets at the Commodity Futures Trading Commission (CFTC) where he served under CFTC Chairperson Brooksley Born. In that capacity, he was responsible for supervising exchange traded futures and derivatives.

He also served on the Steering Committee of the President's Working Group on Financial Markets, and as a member of the International Organization of Securities Commissions' Hedge Fund Task Force. After service at the CFTC, Professor Greenberger served as Counselor to the United States Attorney General in 1999, and then became the Justice Department's Principal Deputy Associate Attorney General.

Greenberger: Secret Exemptions Allow Futures Price Manipulation - RealNews

Michael Greenberger is one of my lights into these types of issues. He is a nice remedy to the mistaken theories of many, including alas Paul Krugman, who does not believe that speculators can influence prices, even in the short term. But there are far, far worse, who know better but sell themselves for pay.

Greenberger highlights the speculative pools activity of Goldman Sachs and Morgan Stanley. But there are far worse excesses being done by other actors through their own trading desks, among these JPM and HSBC it appears at least from government records, in the derivatives markets.

Anyone who watches the markets closely knows full well how derivatives and leverage can be used to manipulate the physical markets with paper in a fiat regime, especially where the "delivery" of goods can be financialized, leveraged, and nakedly shorted, behind the cover of opaqueness and complexity.

Thus the use of such financial tools allows some participants to essentially defer the equilibrium of supply and demand for unusually long periods of time, until some event or accident triggers an exposure, a sudden reckoning, and a subsequent collapse.

I think the extreme fractional reserve nature of the current metals markets is an accident waiting to happen, awaiting only the right mix of margin calls and short term demand. And then everyone will be surprised that such a grand theft went on for so many years, unnoticed, except that is by a stalwart few, much in the manner of the Madoff fund and Harry Markopolos.

The remedy for much that is wrong in the markets today can be remedied by transparency and limitations on things like positions, and a return to laws passed after the last financial crisis of this magnitude that had served the nation well for over sixty years.

PBS Frontline Presents: The Warning - Roots of the Financial Crisis

It will be worth watching if we can see the role that the Fed under Alan Greenpsan played, during the Clinton Administration, to set the US on the road to financial crisis. This was done in concert with Bob Rubin, Larry Summers and Tim Geithner, representing the vested interests of the Wall Street banks.

Many of the same players that were involved in this have been brought back to Washington under the Obama Administration. This is the source of our initial disillusion with Obama as a 'reformer.' He was reforming nothing, just bringing back the crew that started the ball rolling.

Several Republicans played a key role in this sabotage of sound regulation even during the Clinton Administration, including Phil Gramm's crippling of the regulatory process. What was started under Clinton reached its fruition, if not a generalized looting, under the free market ideologues in the Bush Administration and in particular with Treasury Secretary Henry Paulson.

We have not seen it yet, but it is a story that deserves to be told. We hope that Frontline does it justice.

We hope that this is not the phase of the financial crisis when they start trotting out patsies and scapegoats to be thrown under the bus for the amusement and diversion of the crowd from the serious work before us. The US financial system needs a thorough investigation and substantial reform, not more headlines and high profile perp walks. Or we will be back at the brink most assuredly, if we are not there already. It will happen again.

PBS FRONTLINE Presents
The Warning
Tuesday, October 20, 2009, at 9 P.M. ET on PBS

The Warning (Video Preview)

"We didn't truly know the dangers of the market, because it was a dark market," says Brooksley Born, the head of an obscure federal regulatory agency -- the Commodity Futures Trading Commission (CFTC) -- who not only warned of the potential for economic meltdown in the late 1990s, but also tried to convince the country's key economic powerbrokers to take actions that could have helped avert the crisis. "They were totally opposed to it," Born says. "That puzzled me. What was it that was in this market that had to be hidden?"

In The Warning, airing Tuesday, Oct. 20, 2009, at 9 P.M. ET on PBS (check local listings), veteran FRONTLINE producer Michael Kirk (Inside the Meltdown, Breaking the Bank) unearths the hidden history of the nation's worst financial crisis since the Great Depression. At the center of it all he finds Brooksley Born, who speaks for the first time on television about her failed campaign to regulate the secretive, multitrillion-dollar derivatives market whose crash helped trigger the financial collapse in the fall of 2008.

"I didn't know Brooksley Born," says former SEC Chairman Arthur Levitt, a member of President Clinton's powerful Working Group on Financial Markets. "I was told that she was irascible, difficult, stubborn, unreasonable." Levitt explains how the other principals of the Working Group -- former Fed Chairman Alan Greenspan and former Treasury Secretary Robert Rubin -- convinced him that Born's attempt to regulate the risky derivatives market could lead to financial turmoil, a conclusion he now believes was "clearly a mistake."

Born's battle behind closed doors was epic, Kirk finds. The members of the President's Working Group vehemently opposed regulation -- especially when proposed by a Washington outsider like Born.

"I walk into Brooksley's office one day; the blood has drained from her face," says Michael Greenberger, a former top official at the CFTC who worked closely with Born. "She's hanging up the telephone; she says to me: 'That was [former Assistant Treasury Secretary] Larry Summers. He says, "You're going to cause the worst financial crisis since the end of World War II."... [He says he has] 13 bankers in his office who informed him of this. Stop, right away. No more.'"

Greenspan, Rubin and Summers ultimately prevailed on Congress to stop Born and limit future regulation of derivatives. "Born faced a formidable struggle pushing for regulation at a time when the stock market was booming," Kirk says. "Alan Greenspan was the maestro, and both parties in Washington were united in a belief that the markets would take care of themselves."

Now, with many of the same men who shut down Born in key positions in the Obama administration, The Warning reveals the complicated politics that led to this crisis and what it may say about current attempts to prevent the next one.

"It'll happen again if we don't take the appropriate steps," Born warns. "There will be significant financial downturns and disasters attributed to this regulatory gap over and over until we learn from experience..."

How Phil Gramm and the Banks Helped to Destroy the US Financial System - An Insider's Perspective

A well-informed explanation of how we got to where we are. Relevant even more now perhaps since Mr. Gramm, among other things, is John McCain's economic advisor.

Fresh Air from WHYY, April 3, 2008 · Perplexed by the U.S. economy? You're not alone. Law professor Michael Greenberger joins Fresh Air to explain the sub-prime mortgage crisis, credit defaults, the shaky future of other types of loans and what we can expect from the U.S. financial markets.

Michael Greenberger Our Confusing Economy - Explained (Audio)


Michael Greenberger is the Director of the Center for Health and Homeland Security (CHHS) at the University of Maryland and a professor at the School of Law. In 1997 Professor Greenberger left private practice to become the Director of the Division of Trading and Markets at the Commodity Futures Trading Commission. In that capacity, he was responsible for supervising exchange traded futures and derivatives. He also served on the Steering Committee of the President's Working Group on Financial Markets, and as a member of the International Organization of Securities Commissions' Hedge Fund Task Force. He has frequently been asked to speak both in the media and at academic gatherings about issues pertaining to financial regulation, and has appeared on the ABC Evening News, The Jim Lehrer News Hour, and C-Span to discuss financial issues arising out of the Enron, Arthur Anderson, and WorldCom, and Refco failures.

The Paulson Plan: a Foray into a Financial Iraq

We were asked if we favor the Paulson plan. After all, several noted academic economists have come out and spoken in favor of it. Wall Street complains that it will increase regulation and lessen their profits. Well, Wall Street complains all the time, but especially loudly when it has been caught with its hand in the cookie jar, and some economists will say just about anything for some of the cookie crumbs. The Banks protested the adoption of the Federal Reserve Act in 1913 in much the same manner, with false protestations while they privately were promoting it by incenting endorsements from economists and politicians.

Treasury Secretary Paulson softened his delivery this morning by couching the plan in terms of just 'a template' and a 'basis for discussion.'

Its important to realize that this study had its genesis in a Bush Administration effort to lighten regulation on Wall Street that has been underway for some time. The Bush cabinet is taking the opportunity of the Bear Stearns collapse to quickly bring this forward under the title "Financial Stability Act" in much the same way they were able to quickly bring out the "Patriot Act" after the 911 tragedy.

The next Presidential Administration will have to live with the problems created by eight years of Bush mismanagement. It would be better to leave sweeping changes to them, rather than follow yet another blank check proposal from a group in Washington that have proven over and over that they cannot, or will not, do what is required to act in the public interest.

When you have a massive failure in a critical system, you do not go to those on whose watch it occurred, with their proactive involvement, with strong elements of deception and fraud involved, with innocent people being victimized, and ask them what should be done to fix the system so it doesn't happen again.

We just have to ask how many times can someone lie to you, and cheat you, and take some of the goodness of life from you and your children, before you wise up and show them the door?

Not even a template. Not even a basis for discussion. No bonanza for the lobbying interests such as they had when the Banks went after the repeal of Glass-Steagall. And especially not something to distort and delay the real action that is required.

Are we in favor of this plan? No. Hell no.


It would be Congress and the president essentially giving a blank check to a regulator over which they have very little power,'' said Michael Greenberger, a professor at the University of Maryland in Baltimore and a former CFTC official. Paulson's proposal will ``allow Wall Street to do whatever they want until a crisis occurs, at which point the Fed would intervene.'' Bloomberg News

The Fed oversaw this meltdown,” said Michael Greenberger, a law professor at the University of Maryland who was a senior official of the Commodity Futures Trading Commission during the Clinton administration. “This is the equivalent of the builders of the Maginot line giving lessons on defense.”

"During the late 1990s, Wall Street fought bitterly against any attempt to regulate the emerging derivatives market, recalls Michael Greenberger, a former senior regulator at the Commodity Futures Trading Commission...“After that, all was forgotten,” says Mr. Greenberger, now a professor at the University of Maryland. "At the same time, derivatives were being praised as a boon that would make the economy more stable."

Speaking in Boca Raton, Fla., in March 1999, Alan Greenspan, then the Fed chairman, told the Futures Industry Association, a Wall Street trade group, that “these instruments enhance the ability to differentiate risk and allocate it to those investors most able and willing to take it.” Although Mr. Greenspan acknowledged that the “possibility of increased systemic risk does appear to be an issue that requires fuller understanding,” he argued that new regulations “would be a major mistake.”

“Regulatory risk measurement schemes,” he [Greenspan] added, “are simpler and much less accurate than banks’ risk measurement models."``

Mr. Greenberger, still concerned about regulatory battles he lost a decade ago, says that Mr. Greenspan “felt derivatives would spread the risk in the economy.”

“In reality,” Mr. Greenberger added, “it spread a virus through the economy because these products are so opaque and hard to value.” A representative for Mr. Greenspan said he was preparing to travel and could not comment."