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  • EU hits banks with credit default swap probe
    pricing of CDS in the United States A spokeswoman for the U S Justice Department declined to comment on the EU move Unlike other derivatives such as grain or metal futures credit derivatives are risk transfers It s a banking function that s been converted by this small group of banks into a trading instrument said Karen Shaw Petrou managing director at consulting firm Federal Financial Analytics The problem is no one knows what anything is worth unless or until the entity against which the CDS is placed defaults That s what makes it very opaque she said GREEK CRISIS In Europe CDS moved to center stage last year as Greece grappled with higher borrowing costs blaming the move on speculators raising default insurance costs The European Commission which regulates competition in the EU said it would investigate whether 16 investment banks had colluded or abused a dominant market position The opaque CDS market where industry players say the only record of some multimillion euro deals is just a fax has frustrated politicians who have struggled to understand it because there are few central records of trading It is not a transparent market said Shaw Petrou It s a liquid market but there s no real proof of value other than moment to moment exchanges that are then impossible to verify because it s not a public exchange The probe could hit banks bottom lines as the EU can fine companies up to 10 percent of revenues and has handed out penalties as big as 1 billion euros 1 5 billion Analysts said CDS trading was too concentrated Eighty percent of derivatives transactions on both sides of the Atlantic are done by about eight banks said Karel Lannoo of the Center for European Policy Studies a think tank EU countries

    Original URL path: http://www.911omissionreport.com/cds_probe.html (2016-02-14)
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  • Back-Door Taxes Hit Americans With Public Financing in the Dark
    year in which employees reported that he played a lot of golf and was rarely in the office It s nice to get this paycheck for doing nothing Fabrizio told employees once according to the July 2008 report by the county manager Fabrizio who received a 56 500 annual salary said he doesn t remember making that statement and was in the office every day He said he played nine holes of golf a day for two hours at lunchtime An employee s grievance sparked the investigation and ultimately a state audit which reported Aug 28 that the treasurer bought corporate bonds with no evidence of competitive bidding didn t vet brokers backgrounds and continued to value a 5 million Lehman Brothers Holdings Inc bond at full cost even after the firm s Sept 15 2008 bankruptcy Not an Expert The Lehman bond was purchased in late 2007 when the treasurer put 50 million about 25 percent of the county portfolio into 11 corporate bonds 10 of them in financial firms including Lehman and Bear Stearns Cos Even if it was a bad investment I wouldn t have known the difference I m not an investment expert Fabrizio said adding that he relied on his hired deputy for those decisions The deputy e mailed competing brokers and had them fill out questionnaires he said The county never sanctioned him and he was voted out of office last year The Lehman loss cost the 7 000 student district in Kingman Arizona the county seat almost 1 million according to Wanda Hubbard the schools finance director The real losers are taxpayers who will be levied more as a result she said The owner of a 250 000 house in the district may pay 25 extra this year Hubbard estimated Back Door Tax It was kind of a back door tax increase she said Officials are up against increasingly sophisticated financial products including interest rate swaps and so called swaptions A swaption grants the owner the option to force a particular party into a swap The Butler Area School District in western Pennsylvania paid JPMorgan 5 2 million last year to cancel such a pact The payment was about seven times more than the district had received under the contract Statewide 55 Pennsylvania school districts have paid counterparties to exit interest rate swaps since 2003 according to state records Some officials now say they didn t understand the deals The financial guys would come in with a lot of stuff that nobody at the district understood Penelope Kingman a former member of the Butler school board who voted against the deal told Bloomberg News last year Local governments are entering into these without fully understanding what they are doing Market Has Grown While such contracts aren t traded on regulated exchanges the market for municipal derivatives has grown to as much as 300 billion annually the MSRB says Derivatives are a category of contracts whose value is tied to assets including stocks bonds commodities and currencies or events such as changes in interest rates or the weather One type of derivative the interest rate swap helped put Jefferson County Alabama on the brink of bankruptcy The county refinanced 3 billion of sewer debt in no bid deals earlier this decade issuing variable rate bonds that were hedged with swaps The plan backfired last year as the global credit crisis took hold Interest payments due on the bonds more than tripled to 10 percent while the swap income decreased Last week the former president of the county commission Larry P Langford went on trial in federal court in Tuscaloosa Langford now the mayor of Birmingham pleaded not guilty in December to charges including bribery conspiracy and filing false income tax returns Political Witch Hunt Prosecutors say he took cash clothes and Rolex watches from a banker who received 7 1 million in fees on debt sales in 2003 and 2004 Langford has called the case a political witch hunt The Justice Department and the Securities and Exchange Commission are investigating whether Wall Street banks conspired with some brokers to rig bids and fix prices for municipal derivatives The probe centers on interest rate swaps and on investments that cities states and schools buy with bond proceeds according to subpoenas received by agencies in Alabama Illinois Pennsylvania and New Mexico While many municipalities turn to professional consultants for guidance on derivatives the MSRB reported in April that 73 percent of financial advisers who participated in the municipal bond market in 2008 weren t subject to the board s rules because they weren t registered securities dealers Legislation Considered Congress is considering legislation to regulate the financial advisers Still there are other gaps Federal law exempts the municipal market from rules regarding disclosure and enforcement that apply to companies And transactions between broker dealers and municipalities are rarely scrutinized by the self regulatory agencies that banks and securities firms use to police themselves including the Financial Industry Regulatory Authority said Taylor the former MSRB chief Finra and other regulators presume that institutional clients are sophisticated enough to look after themselves he said Typically what happens is nobody looks he said Finra doesn t look the firm doesn t look the city council doesn t look and the populace the taxpaying populace has no idea any of this is going on Nancy Condon a spokeswoman for Finra declined to comment The Strategic Programs Group of the authority s enforcement department in May sent letters to dealers seeking information about interest rate swaps structured notes and other products they may have sold Enforcement Questions Taylor questioned why the information gathering hasn t led to anything further Finra wants the world to think it is doing something for investors and the good of the markets without actually bringing any enforcement actions or adopting any rulemaking he said In Orange County the home of both Disneyland and the largest municipal bankruptcy in U S history officials echoed the mistakes of

    Original URL path: http://www.911omissionreport.com/back-door_taxes.html (2016-02-14)
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  • Carbon Capitalists Warming to Climate Market Using Derivatives
    market is still in its very early stages U S cap and trade would make an order of magnitude of difference Ruinous Course Although U S President Barack Obama and his economic team support cap and trade Washington politics could defeat it The House bill passed in June by just seven votes and senators on both sides of the aisle worry that imposing pollution caps on industry will result in higher energy bills for consumers at a time when U S unemployment tops 10 percent Karl Rove former president George W Bush s deputy chief of staff wrote in Newsweek magazine in November that cap and trade would put America on a ruinous course Republican Senator James Inhofe of Oklahoma who in 2006 called Nobel Prize winner and former Vice President Al Gore full of crap on global warming boycotted committee meetings on the Senate bill in November Senate Majority Leader Harry Reid said on Nov 18 that climate change legislation may not be discussed until the spring prompting speculation among others in the Senate that the bill won t be passed before Congressional elections in 2010 The Obama administration is also driving to overhaul U S health care and develop proposals to push down unemployment House Senate Bills U S cap and trade as currently configured in both the House and Senate bills would mean the government sets an upper limit on emissions of seven greenhouse gases including CO2 methane and nitrous oxide for thousands of power plants refineries and factories Over time the caps would fall pushing emitters to adopt clean air technology The government would give some pollution allowances to companies free to help them meet their caps during the first years of the program Emitters who invest in cutting their pollution would have allowances to sell those that don t would have to buy The allowances similar to those that sold in Europe in mid November for 13 5 euros 20 would be tradable on an exchange or if Congress allows it between parties in an over the counter market The credits garnered through offset projects such as the stoves in Uganda are distinct from allowances in that they may be generated on the other side of the world Accounting for Carbon U S companies would account for carbon in long term strategic plans bankers say For instance utilities such as American Electric Power Co which produces power from coal would hedge the price of carbon over periods as long as a decade or more Columbus Ohio based AEP is the biggest U S greenhouse gas emitter in the Standard Poor s 500 according to the London based Carbon Disclosure Project which collects such data Companies like AEP would retain financial institutions to come up with customized derivatives contracts to help them manage their risk Derivatives contracts designed for a particular company or transaction known as over the counter derivatives are a hot button issue in the larger debate over how the U S banking system should be regulated Most CDSs and CDOs are OTC derivatives They are created and traded privately not on any exchange and can be illiquid and opaque says Andy Stevenson a financial analyst for the Natural Resources Defense Council an environmental group that supports the Senate legislation The House cap and trade bill bans OTC derivatives requiring that all carbon trading be done on exchanges OTC Derivatives The bankers say such a ban would be a mistake OTC derivatives are a 600 trillion market much of which consists of interest rate swaps designed to hedge risks for individual companies It s a concern of ours if they limit the market says Pat Hemlepp a spokesman for AEP It reduces the options when it comes to cap and trade and we have told people that on the Hill We do feel it s best to have banks and other parties able to participate The banks and companies may get their way on carbon derivatives in separate legislation now being worked out in Congress In October the House Financial Services Committee headed by Representative Barney Frank a Democrat from Massachusetts approved a bill that would require collateral for all derivatives trading between financial institutions And broker dealers such as JPMorgan and Goldman Sachs would be forced to clear most derivatives contracts on regulated exchanges or through so called swap execution facilities However the new rules would not apply to end users companies such as AEP that use derivatives to hedge operational risks Price Collar The Senate environment bill dubbed Kerry Boxer for Senators John Kerry of Massachusetts and Barbara Boxer of California the two Democrats who introduced it contains little detail on how the cap and trade market would work It sets a price floor of 11 per ton on carbon The bill also creates a strategic reserve of allowances that the government could use to flood the market if the price of carbon shoots up It will be the best regulated market in the country Stevenson says The effort is to make all of the trading known to the regulator That wasn t the case in the mortgage market Wall Street sees profits at every stage of the carbon trading process Banks would make money by helping clients manage their carbon risk by trading carbon for their own accounts and by making loans to companies that invest to cut greenhouse gas emissions Chicago Climate Exchange A clear U S price on carbon determined in a large market would help drive billions of dollars into investments to clean the air says Richard Sandor founder and chairman of the Chicago Climate Exchange and the Chicago Climate Futures Exchange He is also the principal architect of the interest rate futures market What s important is the price signal Sandor says It will stimulate inventive activity and cause behavior to change The Chicago Climate Exchange the biggest U S voluntary greenhouse gas emissions trading system trades 180 000 tons of carbon a day up from 40

    Original URL path: http://www.911omissionreport.com/carbon_derivatives.html (2016-02-14)
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  • G.A.O. Urges Caution on a Glass-Steagall Repeal
    to extend the moratorium Additional impetus for banks participation in the securities business came Monday when the United States Court of Appeals for the Second Circuit in New York upheld the rights of banks to engage in some limited securities activities Charles A Bowsher the Comptroller General who heads the G A O told Congress that if it decided to give banks new powers the agency favored a plan in which banks would at first be allowed to commit only 5 to 10 percent of their total business revenues to securities activities Congress by using that approach could bring back the regulators bring back the industry people and ask for explanations as to how well things are going Mr Bowsher told the House Subcommittee on Telecommunications and Finance If everything is going well then the phase out could proceed Mr Bowsher said an alternative plan to limit the specific securities powers of banks might cause dislocations in the financial markets A leading banking industry spokesman reacted strongly to the percentage proposal formulated by the G A O which is the independent investigative arm of Congress Robert Dugger chief economist at the American Bankers Association a banking trade group said the

    Original URL path: http://www.911omissionreport.com/glass-steagall_repeal.html (2016-02-14)
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  • Companies push for derivatives exemption
    capital requirements on end users would significantly increase our cash requirements and costs Ford Vice President and Treasurer Neil Schloss testified Echoes of support came from several members of the Senate Agriculture Committee at a hearing Wednesday This has some very very serious consequences for farmers and other businesses said Sen Mike Johanns R Neb Sen Debbie Stabenow D Mich said it would be a hardship for manufacturing companies to have to divert sorely needed working capital to put up as collateral under the new requirements But Gary Gensler chairman of the Commodity Futures Trading Commission told the panel that if Congress decides to exempt some end user transactions the exception should be explicit and narrow Broader exemptions could allow financial market players such as hedge funds for example to benefit from them Gensler says The value of derivatives hinges on an underlying investment or commodity such as currency rates oil futures or interest rates The derivative is designed to reduce the risk of loss from the underlying asset Companies of all kinds use derivatives to hedge against risks airlines ensuring against spikes in fuel prices for example At the same time derivatives have become a growing vehicle for financial

    Original URL path: http://www.911omissionreport.com/derivatives_exemption.html (2016-02-14)
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  • Bank of America admits fraud in US antitrust case
    and 20 state attorneys general the department said The combined outcome provides for payment of restitution to the IRS and to municipalities harmed by the bank s anti competitive conduct in the muni bond derivatives market Bank of America employees engaged in illegal conduct including bid rigging in connection with the marketing and sale of tax exempt municipal bond derivatives contracts the department said The department also said the Charlotte North Carolina based bank the biggest US bank by assets had entered into a written agreement with the Federal Reserve Board to address certain remedial measures The bank s board of directors is to submit a written plan within 90 days to the Federal Reserve Bank of Richmond in Virginia aimed at strengthening the board s oversight of the bank in competitively bid transactions according to a document posted on the Fed s website The bank which repaid a 45 billion dollar government bailout in December 2009 also will have to file quarterly progress reports on its compliance program to the Fed Bank of America was the first and only entity to voluntarily report its wrongdoing before the department opened its investigation into antitrust activities in the municipal bond derivatives

    Original URL path: http://www.911omissionreport.com/b_of_a_fraud.html (2016-02-14)
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  • Barack Obama needs to re-introduce Glass-Stegall to begin to end this crisis
    state diktat crushing the entrepreneurial spirit that has long driven human progress So there are good reasons Mr Humphrys to be miserable not only about where we are but even more so where the policy consensus is taking us And when asked to give my opinion on the UK s most important radio show I d rather be miserable than wrong Commentators shouldn t only criticise but also suggest ways out of this mess So I ll repeat my call for banks everywhere to be legally forced to fully disclose and write down their sub prime liabilities BEFORE further taxpayer funded recapitalisation The Swedes took this hard headed approach during their early 1990s banking crisis We ve adopted instead the head in the sand Japanese variant creating our very own zombie banks which are technically alive allowing powerful executives to keep their jobs and save face but commercially dead and a drain on society given the weight of their toxic debts On top of full disclosure Barack Obama could now make a move which for all the hype of his inauguration later this month would prevent a repeat of this credit crunch The incoming President is fond of citing America s New Deal of the mid 1930s given that he wants to repeat the depression era use of public works But the most important part of the US policy response to the 1929 Wall Street Crash was the more obscure Glass Steagall Act of 1933 Named after the two Democrat senators who sponsored it Glass Steagall prevented commercial banks which take deposits from ordinary households and firms from engaging in the high risk speculative activities undertaken by investment banks Or at least it did until 1999 when after millions of dollars of political donations from investment banks Glass Steagall was

    Original URL path: http://www.911omissionreport.com/glass-stegall.html (2016-02-14)
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  • Greenspan urges expemption for derivatives
    against losses from unexpected market movements but also by high risk investment funds to speculate Derivatives played a key role in the near collapse in September 1998 of hedge fund Long Term Capital Management which sent shock waves through world financial markets Over the counter derivatives are traded privately between investors as opposed to those derivatives traded on futures exchanges Greenspan testifying before the Senate Agriculture Committee asked lawmakers to adopt the recommendations of a White House task force which included exempting over the counter derivatives from government regulation and allowing the financial institutions using them to police the market themselves Joining Greenspan in his request were Treasury Secretary Lawrence Summers and William Rainer chairman of the Commodity Futures Trading Commission Like Greenspan they are members of the President s Working Group on Financial Markets which was established after the October 1987 stock market crash I see a real risk that if we fail to rationalize our regulation of centralized trading mechanisms for financial instruments these markets and the related profits and employment opportunities will be lost to foreign jurisdictions that maintain the confidence of global investors without imposing so many regulatory constraints Greenspan said The legal uncertainty hanging over

    Original URL path: http://www.911omissionreport.com/derivatives_greenspan.html (2016-02-14)
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