HightAskins775
The government has to do even more than control hybrid derivative protections and the institutions who underwrite them. They have to inject reason. Calling for public registrations and a violent regulatory body are needed to guarantee public safety in future hybrid security issuance's. Directors and officers of banks who play with others' cash ought to receive heavy charges when their wagers fail. Both for the business's they represent and personally. They should lose all wide range they have accumulated and the accumulated wealth of their direct supervisors should be forfeited. Without consequences these individuals will certainly trigger an additional globe economic disaster. Because derivatives are complicated, I'm creating a metaphor to make them much easier to recognize for the easygoing reader as subjects such as derivatives can be fairly complicated.
Just what if General Motors were enabled to bet on the failing of an auto part? Imagine if they were permitted to remove an insurance policy which paid them a million dollars every time a fuel injector failed on a Chevy Malibu and caught it on fire. Everything if GM persuaded an insurance company to payout when one of its own items failed and injured someone? And the repayment went to GM. Let's telephone call these insurance agreements "GM injector default swaps" or "IDS's." Let's pretend that the insurance company has so much faith in the injectors that they over problem them due to the fact that of their analysis on past injector failures. The insurance business allow GM to place 50 or 100 of these bets out on each injector put in a vehicle. They let Joe Engineer get them in his 401k even though he is making the injectors. After all, injector failings have been extremely low and this seems like a no-brainer company decision from the actuaries at the insurance company. In their very own world, it represents a substantial volume of free premium, with no risk, and another person selling the contracts so everything the f *ck. Now let's just say for argument's sake that there were business in Detroit of low moral character, (most likely right wing republicans) who decided to in some way persuade GM to change the design of the Malibu injector. Let's assume that they convinced GM engineers to produce it to fail in order to profit themselves on the IDS's. Merely a little failure, no one truly gets hurt, but enough of a failing that causes IDS agreements. Let's also include in our metaphor that these companies who persuaded GM to make their very own injectors to fail loaded up on the injector failure insurance agreements. Even though they know that the significant, too big to fail insurance company will be financially devastated, and that the business is of some substantial value to the United States economy; in fact the entire globe economy because of its enormity and just how many people and other morally practical companies depend on it for all kinds of insurance items.
They are persuaded that the government will certainly conserve the insurance business if trillions of dollars are owed to these IDS owners due to the fact that allowing the insurance business to fail will certainly create a lynch pin financial occasion. So their wagers are thought to be secure. Let's pretend that convincing GM engineers to redesign the injectors to fail and load up on IDS' was more lucrative to the GM pro-forma than creating and selling sound cars. They know that this short term plan will ruin the economic climate and hurt lots of people. They do not care because of the huge payday they will get. They justify that the government would step in and bail out the insurance company (s) since of its (their) value to the economic climate. At the end of this game there are lots of dead bodies, but no one crucial.
OK, let's place a new twist on this. Let's say that the company plan to offer vehicles with f*cked up injectors is beginning to look so profitable that GM determines that providing these vehicles away to anyone who desired one might speed up and drastically improve the overall future IDS income accruals to GM and its cohorts. Let's additionally state that the engineers might in fact design the injectors to fail after exactly 2 years of usage. The two years will provide GM time to develop and present a substantial amount of injector failing made Malibus to wager against. The 2 years will give the insurance business, (who understand absolutely nothing of the injector failing design) an incredible amount of assurance in providing the IDS's. The insurance business will actually make billions of dollars on the insurance premiums over the two years. Their ignorance/naivete will cost them trillions beginning at the 2 year mark as they have not been privy to the unreliable injector design charade. All is well in Detroit.
OK, fast forward. The 2 years have passed and the very first buyers of reasonable Malibu's with defective injectors are starting to have injector failings. It's on the news, GM and their cohorts are laughing their asses off in closed door board room sessions. The backers in GM stocks and corporate bonds are not. The stock is getting pounded, the bonds are getting pounded. The GM managers determine to show S and P, Fitch and Moody's that they more than covered for flawed injectors through their injector default swap acquisitions. The securities rebound and savvy experts at Ford and Chrysler recognize the gig. They suggest their corporate directors to jump aboard and start creating vehicles with defective throttle bodies and flawed crank handles. On the other hand they acquire TBDS and CSDS coverage from the huge insurance business and GM follows suit. Quickly all vehicles produced in our beloved America are designed with flawed parts covered by substandard part insurance payable to greedy immoral b*stards. Automobiles stalled and burnt up all over our freeways are not being paid for are being repossessed. Rich guys are cashing checks from the insurance business who underwrote the IDS's and simultaneously placing massive pressure on the government, the general public and the fed to bail out the insurance company, or there would be economic catastrophe for all. They don't provide a f*ck about individuals who pass away in the burnt up autos or those who lose their cars ... Small rate for the uber rich to pay (a little smoke on the highway they only need view from their Lear Jet windows - it's challenging to see from up there).
This is what occurred in our mortgage loan sector. This is exactly how quick meals personnel purchased half million dollar homes. The mortgages were created to fail and presented to anyone breathing so that hedge funds and bankers (Scion cap, John Paulson, Goldman Sachs ... the list is not that long but obviously differentiated) could possibly make billions and billions betting against them. The moral risk - It could well be the relaxing of our economy, the global economic climate and political military stability around the globe.
My conclusion ... Just as long as we have business that are too huge to fail and who are permitted to DEPEND on citizens to bail them out when they screw up, as evidenced by the recent JP Morgan Chase - Jamie Dimon fiasco, we the people need to make d*mn sure that just how they do business is safe. They have to be regulated. Violently controlled. Better yet, they should have been permitted to fail.
Jeff Greenberg www.LegalForensicAuditors.com
