3 Dec 2012

Banksters gone wild

A street sign for Wall Street hangs near the New York Stock ExchangeBy Avaaz Team: Remember when greed-crazed Wall Street bankers used absurdly complicated "financial instruments" to make themselves insanely rich? And then – when their speculative bubble burst, triggering the worst recession in 70 years – they required massive government bailouts so they wouldn't take the entire global economy down with them? Yeah, so do we.
Unfortunately, bankers seem to have forgotten all this already – and now they're busy investing all their time, energy and brain power into trying to squirm out of following the new rules coming down the pike.

Rigging the game ...

First, Wall Street did everything it could to keep new laws that would prevent a repeat of the Great Meltdown from being passed. Then, when the laws their lobbying helped weaken were passed, big banks did everything they could to weaken them further during the rule-making process. And now that the already watered-down rules are about to go into effect soon, they're coming up with creative new ways to avoid having to obey them at all.

Behold, for example, a Reuters article detailing how Wall Street is finding ways to sidestep new restrictions on the kinds of deals that were a prime driver of the crash of 2008. The Dodd-Frank law seeks – among other things – to bring a measure of transparency and accountability to the previously unregulated $640tn market in credit default swaps and similar derivative products. Bankers in the US fear the new rules will drive business away from them into the arms of bankers in countries with fewer rules. So, as Reuters explains ...
US banks such as Morgan Stanley (MS.N) and Goldman Sachs (GS.N) have been explaining to their foreign customers that they can for now avoid the new rules, due to take effect next month, by routing trades via the banks' overseas units, according to industry sources and presentation materials obtained by Reuters.
This quickly gets very technical, as does pretty much anything to do with derivatives. But the short version is, by doing their deals with the foreign subsidiaries of US banks, rather than with the US-based parts, investors can avoid oversight under US regulations.
As Reuters goes on to explain, that defeats the whole purpose behind the new rules:
US regulators want their derivative rules to apply to offshore trades by Wall Street banks as well as domestic ones, given that bad trades outside their borders can still rebound on the parent banks, weaken their balance sheets and add to risks that may be building up across the US banking system.
"Swaps executed offshore by US financial institutions can send risk straight back to our shores," said Commodity Futures Trading Commission chairman Gary Gensler in June. "It was true with the London and Cayman Islands affiliates of AIG, Lehman Brothers, Citigroup and Bear Stearns."

... But not for long

The good news is that Europe and other countries with highly developed banking systems are moving to put similar rules in place, so there may soon come a time when there's no place for investors who want to gamble on these risky derivatives can go to escape oversight. But there are also powerful vested interests pushing back against these efforts.
It's past time all these very smart people put less effort into avoiding the rules, and more into doing the honest, responsible business to help fuel the recovery the world so urgently needs.
Read more: Robert Reich details how banksters went all out to water down Dodd-Frank.
Sources: Washington Post, Bloomberg, Reuters, About.com, Baltimore Sun

Wall Street needs to do the right thing (Getty) 

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