Breaking News: Still Good to Gamble on Wall Street

MarketWatch has just reported that the Senate has made it safe to bet big and naked on Wall Street. An amendment to the Finance Reform Bill that would have outlawed  Naked CDS – Credit Default Swaps that are pure bets on what will happen on default positions taken by others. Now naked CDS are are a big, multi- trillion $  Casino operation on Wall Street and other global markets. It is the source of huge growth and profits, so the Banksters are loath to see their money making operations closed down. So there is major pushpack from the financial plutocrats against any  Washington or other government capitals where financial reforms are being considered. But naked or synthetic CDS are not very defensible because they are blatant gambling serving no insurance or other economic purpose.

So the Banksters SpinDoctors are arguing that gambling $trillions is vital to providing information on terms and conditions in the broader derivative markets.   Supposedly these naked bets are valuable for setting the rates in the Credit Default markets and  defining the value of the underlying CDOs. Of course, no one bothers to mention the fact that many of these markets are so opaque, complex and closed that little or no information gets transmitted, disclosed or otherwise disseminated to the public. The simple fact is that these are largely and deliberately private gambling  havens  where buyers and sellers and terms are only known to a small set of market makers and participants. This was the underlying problem in September 2008 when Lehman went tits up – nobody knew who owed what and to whom because of the complexity and opaqueness of many of the transactions. And so financial markets – and broad categories of lending and loaning just stopped working.

But hey one of the major causes – opaque and naked big bets in the multi-trillion dollar derivative markets are a Banksters growth industry. So the US Senate has seen fit to let that gambling haven continue on. Here is how MarketWatch describes the situation:

However, naked credit default swaps are derivative investments set up by two investor groups that have no insurable interest but are betting on whether another bond will default or not. The measure, which was introduced by Sen. Byron Dorgan, D-N.D., would have been attached to a bank reform bill under consideration in the Senate. A measure banning naked credit default swaps was approved by the House as part of a bank reform bill it approved in December.“There is not one social or economic benefit to these investments,” Dorgan said.


Meanwhile the Senate Republicans in all their wisdom decided to stymie the Volker Rule that would prohibit banks from investing in own account and speculative transactions. Again from Marketwatch:

the defeated amendment would prohibit big banks from making speculative investments in stocks, bonds and derivatives. It would also force big banks to sell hedge funds and private equity divisions. The provision also seeks to prohibit investment banks from packaging mortgage securities, selling them, and then betting against them.

In effect, the Volker Rule does not allow marketmakers to be at the same time market bettors on the same or “nearby” investment deals – the incentive to turn the bet in the marketmakers designated favor could include shading/deny disclosure and information provided to the pre-designed loser of the bet”.
So with the help of SCOTUS and the unlimited political funding privileges it extended to corporates, US Banksters have proved once again who has the real influence and power in Washington. For example, Republican Senator Corker, has proposed clawback provisions which would add real teeth to Financial Reform. What better way to get the attention of Boards and Senior Management at Financial Institutions if they knew if their institution failed, they would have to payback their compensation for the past 5 years. With a clause like that, financial managements would stop gambling and stick to their financial and business knitting. But after great fanfare in late April, Senator Corker has done nothing….need I say more?