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April 25, 2017

Dealing from the Bottom of the Deck


Who’s Dealing the Cards?

 

When I speak of dealing from the bottom of the deck, I’m speaking of financial dealing. It is often a complex sleight of hand that most people do not understand well enough to see the wire manipulating the cards.

The Washington Post ran an op-ed on 4/19/2017 regarding discussion over reinstating the Glass Steagall Act of 1933. While I have a great deal of respect for the Washington Post, I think there is a major piece they left out of their assessment. However, they did address the fallacy of blaming Glass Steagall repeal for the financial crash:

The actual causal link between the repeal of Glass-Steagall and the financial crisis is a matter of great dispute, however, because the investment firms whose failures triggered the panic, Bear Stearns and Lehman Brothers, had never been subject to the law.

If it wasn’t Glass Steagall, what was it?

 

I have heard nobody else who is yelling about the repeal of Glass Steagall, or reinstating it, mention the CFMA. The only one I have heard mention it was Hillary Clinton during the debates, and it seemed to sail over everyone’s head.

Glass Steagall may have kept investment banks separate, but it was the CFMA (Commodity Futures Modernization Act of 2000) that came right on the heels of the repeal of Glass Steagall, that prevented regulatory bodies from monitoring credit swaps and derivatives. It was introduced by Thomas Ewing (R-IL).

Most people have never heard of the CFMA, but it’s common knowledge that credit swaps and derivatives played a large role in the financial meltdown. Those financial tools didn’t even exist in 1933 when Glass Steagall was written, so they were not covered by it.

Brooksley Born, then chairman of the CFTC, argued at the time that they needed to be able to regulate them, but nobody listened. Well, they may have listened, but Republicans ended up sticking their 200+ page poison pill into an 11,000-page omnibus bill, H.R, 4577, in Dec. of 2000 regardless.

That omnibus bill had to pass, so virtually everyone voted for it, including Sanders. It had to pass, and Bill Clinton had to sign it, or the last thing he would have had leaving office would have been millions of federal employees without a paycheck just before Christmas due to another government shutdown. And while Clinton still gets the blame for the repeal of Glass Steagall, that was the Gramm-Leach-Bliley Act also written and pushed by Republicans. Again I say watch for the hidden wire.

What are Derivatives and the Enron Loophole?

 

If, like many people, you don’t even understand what derivatives are, here’s a brief description Jerry Wyant, a colleague and friend who is an accountant and holds a degree in economics, gave:

You remember how they were blaming the housing crisis on Fannie Mae? Those agencies teamed with S&Ls to provide affordable mortgages. S&Ls covered their asses by selling the loans to brokers, who pooled the loans into bonds whose terms changed every month based on the repayment pattern of the people who bought the houses.

These mortgage holders were far removed from the bond buyers. The bond buyers didn’t know anything about the people who bought the houses. These are derivatives. On top of that, brokers figured out how to make more derivatives out of the derivatives, such as by selling the bonds’ principal and interest as separate investments.

Many blamed “substandard loans” for the crash, but Jerry makes it clear that it was what was done with those loans that was the problem rather than the loans themselves.

We’ve all heard this exception to regulation referred to as the “Enron Loophole.” That was addressed in Dodd-Frank in 2009. If you’re like most people, you probably have no idea what the “Enron Loophole” was except that it was bad. Watch for the wire, because the pieces you’ve been told to focus on aren’t necessarily the key.

Where’s the Wire?

 

If Trump & Co. are talking about replacing Dodd-Frank with Glass-Steagall, that isn’t a good thing. Dodd-Frank was written for 21st century financial activity while Glass Steagall was written in the 30s. You should also be aware that they have the CFPB (Consumer Financial Protection Bureau) in their crosshairs.

“…we will work with President Trump to follow through on his promise to dismantle Dodd-Frank,” Hensarling said.

That is Jeb Hensarling (R-TX) speaking of their “Financial Choice Act.” You could be excused for imagining them discussing this with millionaires and billionaires, with the glow of greed in their eyes, over a piece of Trump’s “best you’ve ever seen” chocolate cake. The safe bet would be that it’s not your home equity or 401K they are concerned about, so watch for the wire.

 

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Cheris Place

Cheris Place

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I am old enough to remember a time when Americans worked toward a bright future with hope and promise. We went to the moon because JFK said we would. We marched on seeking that more perfect union. People born after Reagan and the era of negativity never got to see what we can do when we stand together with and for each other, so I feel it is a duty for the ones who remember those times to tell the younger ones who haven’t seen what this country is capable of being. It's why I write.
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About Cheris Place

I am old enough to remember a time when Americans worked toward a bright future with hope and promise. We went to the moon because JFK said we would. We marched on seeking that more perfect union. People born after Reagan and the era of negativity never got to see what we can do when we stand together with and for each other, so I feel it is a duty for the ones who remember those times to tell the younger ones who haven’t seen what this country is capable of being. It's why I write.