The Fed is the major cause of this economic crisis
What did they do?
They defended and propagated the use of derivatives, the very same extremely leveraged
instruments that blew up in 2008, and the key reason why the libor rate and Ted spread
went ballistic.
Read and weep – this legal document removed all regulations from the expansion of OTC
derivative markets, including the infamous Credit default swaps that blew up Bear Stearns,
AIG, and Lehman. Nobody talks about 400 Trillion notional in interest rates swaps. Apparently,
JP Morgan and Goldman who hold most of these “slow bleeder” but “deadly” securities are
regarded as the safest “banks” (Goldman is only a bank cause that status allows them
to go to the government and beg for money)
Over-the-Counter Derivatives Markets and the Commodity Exchange Act
Specifically, with respect to OTC derivatives, the Working Group is unanimously
recommending:
• An exclusion from the CEA for bilateral transactions between sophisticated
counterparties (other than transactions that involve non-financial commodities
with finite supplies);
• An exclusion from the CEA for electronic trading systems for derivatives,
provided that the systems limit participation to sophisticated counterparties
trading for their own accounts and are not used to trade contracts that involve
non-financial commodities with finite supplies;
• The elimination of impediments in current law to the clearing of OTC derivatives,
together with a requirement that any clearing system for OTC derivatives be
regulated by the CFTC, another federal regulator, or a foreign financial regulator
that satisfies appropriate standards;
• A clarification of the Treasury Amendment that clears the way for the CFTC to
address the problems associated with foreign currency “bucket shops” and
excludes all other transactions in Treasury Amendment products from the CEA,
unless they are conducted on an organized exchange;
• A modification of the exclusive jurisdiction clause of the CEA to provide greater
legal certainty to hybrid instruments; and
• A statutory clarification of the inapplicability of the Shad-Johnson Accord to
hybrid instruments that reference securities.
Yes, the very same Larry Summers from the current Obama team.
For background on derivatives, see Wiki entry. According to the BIS report, the Real
value of these extremely leveraged instruments (not notional) was about equal to the
Global Stock market cap back in December 2008.
So, what did they do after the systemic crash of 2008?
They injected enormous amounts of liquidity into the financial system yet again,
and the derivative mega Ponzi scheme continues to grow in size exponentially. Cheer up, folks!
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