why the government is on the hook for losses suffered by derivative trading.

I mean apart from the 'big banks suck' (I know they do) and 'too many politicians are serving their fat cats lobbyists' (I know they are).

What I'm curious about is what is in it for taxpayers?

Is it just that the banks are described by some (not by me) as too big too fail? That there would be job losses or some such if the banks lose money from derivative trading?

What I don't understand, apart from the above, is what is the rationale for the federal government in taxpayers being on the hook for corporate bank losses?

If there's nothing in it for taxpayers, how is this even legal?

I know all the arguments against it, and I strongly agree with them. What I don't understand is what are the arguments in favor of it.

dissolve the bank themselves so there is an out. now of course the gov has to chose to use it and you know president cruz wont force banks to do that so remember that when youre thinking 'dems need to give us a reason to vote'

Which is, "why in hell should the government have to?"

As far as I can tell, there are two reasons.

The first is very obvious: Wall Street contributes very heavily to politicians' campaigns. There are DUers who specialize in campaign finance reform; they have hard numbers on bankster largesse, and I hope they can chime in here. I can tell you, tho, the amounts are substantial. You don't have your PAC donate $804,000 to politicians' campaigns (Citigroup's PAC did this in 2014) just because you like good government.

The second, I can't prove but strongly suspect: Congress contains a LOT of derivatives players. Most Congress members - in both houses - are rich, and rich people over the last 20 years or so have added good-size chunks of derivatives to their portfolios because the returns on them are really good. Problem is, ever since that meddling Obama slightly restrained the derivatives industry the money hasn't been QUITE as good as it used to be...and they've been rarin' to bring back the Good Old Days ever since.

Third: if Bank of America failed, everyone it owes money to goes bankrupt too (this is the "too big to fail" scenario)

Fourth: the government usually makes a lot of money when it bails out banks, because it gets to sell the institution later once everything has calmed down

Wall Street's lobbyists wrote this atrocity, and you know they're going to make the legislation as beneficial to their employers as they possibly can.

Basically, when the FDIC takes over an institution, it fixes its problems and then sells it again, and will only sell it once it can get more money for it than it put in in the first place. Creditors of the institution (other than retail deposit customers) usually lose money, and equity holders (the original owners) generally lose everything; all the bank's assets are taken by the FDIC.

I appreciate your answering my questions so that I understand it better. I don't believe this is the best way to go. I think eliminating or heavily regulating derivatives trading and breaking up the big banks via antitrust laws is a better approach.

This just seems like a weird game of musical chairs and when the music stops the government gives them a chair. The chair of course is paid for by taxpayers. Though the additional tax revenue and the ability of the FDIC to seize the institution doesn't seem like such a bad thing.

Citicorp wants it.
Bank of America wants it.
JPMorgan Chase wants it.
Wells Fargo wants it.
Mellon Bank wants it.
US Bank wants it
HSBC wants it.

Any other questions? That is all you peasants need to know. Now why don't you just leave this to your betters who understand such things.

and the big banks, they will also pay for all the bonuses to the jerks who created the financial implosion............just like in 2008.
Nice, huh!
Obama should have vetoed it, but he was pushing for it? Go figure!

'this is the kind of compromise that you get from the divided government that you voted for'. sometimes your choice is bad or terrible we could have had nice but the left doesn't vote

It was a complete sellout to the right and the big banks/Wall Street.
He could and should have vetoed it, if for no other reason but to get that part of the bill eliminated. He really had no reason or excuse to push as hard as he did to get it passed. Without his pushing, it had a good chance of failing on its own. He really didn't have to advocate for the passage. And he shouldn't have.
BTW, he still had a majority in the Senate.

OR! The bill gets changed.

He doesn't need a Democratic majority in Congress to veto bills.

... it would become news, more people would become aware of why he vetoed it, and the leader of the Democratic Party would have stood for something besides Wall Street banksters.

say obama and the dems shut down the government. now with bill vetoed now what. a bill has to pass to run the gov what happens next

... minions to pass a budget the President will sign, and ASAP. They would be badly hurt by a government shutdown.

The threat of a shutdown is an idle threat. Wall Street won't let it happen.

Last edited Tue Dec 16, 2014, 10:52 AM - Edit history (1)

i agree with you though he should have vetoed it but i can see why he wouldnt

Second, the left voted the repukes out in 2008 and the president sold them down the river. Don't blame them if they refuse to vote for right wingers who just happen to call themselves Dems.

It's funded by fees paid by banks.

I seriously doubt that.

The FDIC receives no Congressional appropriations:

https://www.fdic.gov/about/learn/symbol/

The $700 billion was paid back, with interest. That did come from a combination of general revenue and central bank magic.

That is how essentially all money in the economy is created, which means that money supply M approaches this equation:

M = P

Since M is the source from which the interest and principal have to be paid back, you're left with the uncomfortable situation of P dollars being used to pay back P + I repayments, which obviously can't work if I is positive (which it is).

So, you basically know mathematically that I / ( P + I) percent of loans must fail repayment, because only P money has been created (there's a small amount of government-created money out there, but it's dwarfed by P and I).

Easing, however, like bailouts, is a way to create money as equity rather than debt.

There are probably better ways to create equity-based money (in fact, there are great ways to do it: easing infrastructure spending, for instance), but any way that it happens is probably a good thing.

trillion in derivatives, thats 17.8 times the annual GDP of the US.

not considering here is the damage it did to the economy, the job loses, peoples 401ks, the trillions of dollars in stimulus,
unemployment compensation, food stamps, the collapse of the Euro and the trillions spent in Europe shoring up their governments.I doubt anyone knows exactly how much it cost the world's economy.

if the banks hadn't been bailed out. Massive rise in unemployment, another great depression, collapse of some entire economies. It's really hard to understand but I'm doing my best to at least understand the various arguments. As opposed to just 'this is great' or 'that sucks'.

What's most interesting to me, and more along the lines of your point too I think, is that it seems like whenever there's a big 'reshuffling of the deck' so to speak, the super rich get richer while the rest of us are told that 'austerity measures' are now in place because 'everyone should share part of the responsibility'. Wait, what? I didn't cause it! The one or two percent who keep getting even richer did!

Something useful to watch for is under what terms does the government bail them out. If it enriches the feds, there should be a provision in there that they are gonna take it out in average people by cutting programs. In fact it should contain provisions that ensure jobs programs and other forms of economy stimulation.

Of course, what really raised the deficit was a drunk with power Bush Administration and Congress that spend trillions on a crappy war while cutting taxes and putting us into debt with other countries. That was unconscionable, imho.

dissolve the bank themselves so there is an out. now of course the gov has to chose to use it and you know president cruz wont force banks to do that so remember that when youre thinking 'dems need to give us a reason to vote'

Last edited Tue Dec 16, 2014, 11:16 AM - Edit history (2)

n/t

The government steps in and makes your creditors lose some/most of the money you owe them because you're more useful to the economy as a whole as a functioning producer and consumer than you are if all your economic activity is swallowed up by debts.

middle and lower classes are trapped in crushing debt right now -- and every fucking body in Washington, including Elizabeth Warren, knows it.

You need to do some actual research on bankruptcy.

You can file bankruptcy on $2,000.

Whoever told you that you must have a million dollars in debt to apply for bankruptcy is a liar or an idiot.

I'll keep looking for the original report.
It was either in the NYT or Tribune, which my hubz has gotten every morning.

And I doubt $2,000 qualifies anyone for bankruptcy. They'd be forced into Chap 13, instead. One of the reasons for this so-called reform was reduction of paperload on the courts, along with helping their banker friends keep the debt gravy train going.

If it's not a mill, sue me. But the standard for filing got a helluva lot stiffer. And that is the debt depression the lower 75% are in.

This isn't the original, but no reports of that time were endorsements. http://www.newyorkfed.org/research/staff_reports/sr358.html

http://query.nytimes.com/gst/abstract.html?res=9A00E1D7103FF936A15753C1A9639C8B63

Look how many fucked up Democrats voted for this abomination.

Stopping this was government shut down worthy if anything ever was.

It's almost like the government is not happy with the rate of destroying the middle class or how quickly the 3% are increasing their worth.

We are on a downward fall that was just pushed from a 45 degree angle to a straight down. Between this and campaign contributions, we're fucked.

I think the holders of paper will take some mighty big lumps. The trick is to stay out of their reach.

Except, as you point out, there's just not that much money in the universe.

not in banks, either. That should bring somebody to the public table to listen and act in the public interest. There are enough smart people out there to know what tax spending priorities should be, and they shouldn't be on the MIC. Or the inflated salaries and bennies of bag men.

Derritives can be used to reduce risk. If Air France wants to buy a 787, Air France wont pay for it until its delivered in a few years. Air france wants to pay in Euros, Boeing wants money is US dollars. They can use a currency swap to reduce risk and guarentee profits. Then a swap bank will try to find another set of people to take the opposite position.

A deal for a 300 million plane would have a 600 million nomimal value but the actual risk would be be significantly less.

It's a hedge, which over the entire economy may sum to zero, but a given derivative must have a counterparty. The money isn't conjured out of thin air (it's not a bank or anything...).

The banks no longer gamble. It's a sure win for them no matter what happens.

I am absolutely flabbergasted that this got through. Well, that's not exactly correct. I am flabbergasted by the support it received and who supported it.

Not voting is what allows the tea party to take over both houses. Just wait to see what they have in store for us next year.

This budget bill is just their holiday warm up. They are feeling VERY cocky that they can crash our economy, cut every social program, roll back every regulation, and blame the president for being too socialist.

Catastrophic failure is their only plan to beat Hillary and those loony liberals

this was the last chance to pass something before the Republican majority takes the Senate. Why do you think they put garbage in it?

So you think they have the option to vote on each item separately or just the whole bill before the deadline?

I lost income during the shutdown last year. So yeah, I would have voted for a crappy budget bill to avoid that hell again. And that was just because of Obamacare.

which is why a lot of people don't vote

since the criminals infesting all financial entities worked hard to insure that the derivatives market remained "dark." 303T is almost 18 X current US GDP. IIRC, it's more than three times the combined GDPs of all the nations on the planet.

Brooksley Born warned about these dark markets years ago, but was vilified and forced to abandon her efforts to effect regulations for this highly risky market.

Oops! May be he can't betray his friends and donors.

so a veto is unlikely

per the fan club.

"What does fighting accomplish".

I've seen both on these here pages.

We'll see how much their tune changes when they want us all to "fight" for Hillary or some other third way Wall Street Dems.

Won't matter. Either way it's all the lefts fault. No matter what the facts say, no matter what the issue, no matter anything else. It's all because "the left" didn't clap loudly enough.

President Obama can never fail us, he can only be failed by us.

in her famous speech last week. By their sheer power over our economy alone, Citigroup is too goddamn big and should be broken up. If it fails, the economy might collapse if we don't help bail them out. No corporate institution should be that powerful.

She has the guts to stand up to Wall Street. Sadly, not so with Hillary.

Chumps, indeed.

I had hoped not to live long enough to see this level of foolishness once in my life, but, now I have seen it twice. :smh: