Monday, September 24, 2012

Dodd-Frank Act:Dangerous Unintended Consequences...L&C

I've spoken before about the this foolish law. It was signed by the "appeaser" President Obama even though the  statues of the law that was passed by an equally stupid Congress, were still not completely written. Well, one of those unwritten, fine print aspects has been revealed. This has the word CRISIS screaming out of it.
Because our leaders are not true leaders, but party line pup its that tow the line, no one had the courage to oppose the banking industry, seek criminal charges where applicable and most importantly, put in place regulation that makes the banking industry and related industries like insurance reveal their transactions with bonafide accounting in correlation to derivatives.
Derivative Market
is a mind boggling $648 trillion dollar casino. Bank of America and JPMorgan Chase have together over $140 trillion on their balance sheet. Now, the US economy totals are around $14 trillion and the world figures would hit about $65 trillion. Folks, these people have total disregard for you, me or reality. If one small aspect in one contract goes wrong, then the chain reaction will destroy that entire contract with the possibility to effect other contracts and so on until a domino effect destroys the whole market. JPMorganChase just experienced this problem last quarter had it cost them over $4 billion. It was small and they were able to contain it, but what if it was a big? There is no one, no company, no nation that can pay off the compounded debts because 648t is 10 times 65t, give or take, whatever. There was only one person, Brooksley Born who spoke about the dangers of the derivative market when it began and Fed Chief Greenspan did away with her. Dear reader, the Fed and central banks everywhere are not for the people, but the banking industry. The value of the dollar has lost 95% since the Fed began and they have demonstrated countless times that they are here to bailout the banks when they fail. "Privatize the profits and socialize the losses" is their true motto.
How does this play into the Dodd-Frank Act? Keep in mind that because our so-called leaders lack the courage to face the banking industry head on, they have a back door solution. This is the danger.
Collateral Rule
They said that from now on, the traders of derivatives must have a backup security to their contracts. This security must be recognized as a top line asset. The law would allow gold, US Treasuries or other top-of-the-line assets for collateral. This falls in line with the Fed's action to push lower the interest rate for mortgages, which will drive up the price for housing and return the economy back to the status quo prior to the crisis of 2008. The problem as I see it is this. If, there is a run on a contract that is in peril, then the liquidating center would own the security asset, say gold. These centers clear their books on a daily basis which implies that the security, in this example, gold, would be sold at market and the proceeds placed on the closing book. This will cause a serious drop in the price of gold or US Treasuries or whatever asset is used. They are creating new pressures in the market for top rated assets as an unintended consequence of their actions. Forrest Gump would say,"stupid is as stupid does."
Liars and Crooks:Our two political parties for not having the courage to address the above, the military complex, free trade policies, the fiscal cliff or any serious issue in an intelligent, honest way.