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Senator Dodd's Bill: Trying to Prop Up a Broken System

George Washington's picture




 

Washington's Blog.

I posted an 11-page summary of Senator Dodd's financial reform bill earlier today.

After
receiving input from one of the top experts on credit rating agencies
and various other smart people, I have now formed an opinion about
Dodd's bill.

Specifically, Dodd's bill - while sounding good - is really an all-out attempt to save the current, broken system.

Dodd's bill contains a number of concepts and catch-phrases that sound like reform. But the bill would actually:

  • Keep the current Federal Reserve system, even though it is a wholly-failed system (see this, this and this). True, the bill would take away some of the Fed's regulatory oversight powers, but the Fed has never used them anyway, so it is really maintaining the status quo
  • Keep the current NRSRO credit rating system - maintaining Moody's, S&P and Fitch as a government-endorsed rating monopoly - even though that is a wholly-failed system
  • While
    saying it "ends too big to fail", the bill would actually make sure
    that attempts to immediately break up the giant insolvent black holes
    dragging our economy down - such as Senator Sanders' bill - will be killed

We
can go on and on, as the bill - while using a lot of nice language -
attempts to prop up just about every aspect of the current system,
while appointing ("trust us, we're different") regulators to oversee
things. It does nothing to try to prevent future forms of looting (which Congressmen Grayson, Clay and Miller attempted to do in their bill).

But
we cannot be sure that such regulators won't be subject to the same
regulatory capture as all of the current regulators have suffered. Or
that Senator Dodd has suffered, for that matter.

Only by taking away monopoly power from the too big to fails, and the NRSROs, and the Fed can we ever have a stable economy.

In addition, the economy cannot recovery until trust is restored in the financial system, and trust will not be restored unless the fraud behind the financial crash is prosecuted.  Dodd's bill ignores past fraud.

 

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Wed, 11/11/2009 - 13:41 | 127186 Problem Is
Problem Is's picture

What is it about Connecticut that they just love douche bag Senators:

Joe "Super Douche" Lieberman

Reigning World Champ.

Leiber-Douche to his friends. "Just call me Joe Blow."

Chris "3 Mortgage Monte Friend of Mozilo" Dodd

Bankin' Bitch of the Year Award Winner.

Son of a Senator. "I was born silver spoon in hand, lord don't I help myself..."

Thomas "$100k Campaign Funds as Slush Funds" Dodd

Current Dodd's idiot old man who was run out of the Senate for financial fraud involving campaign funds.

Old man Dodd's claim to fame:

Blaming the Mia Lia massacre on "GIs on dope" instead of the CIA Phoenix assassination program that it was killing over 1 million Vietnamese civilians: See the Senate Church Report... and Americans don't torture... yeah that is reich... I mean rich!

And finally, Connecticut's original Douche Bag Senator:

Prescott "Nazi Investor & Collaborator" Bush:

Who managed to get his Union Bank assets sezied in 1942 by violating the "Trading With the Enemies Act" and the entire bank disbanded by the Feds in 1950 for continuing to launder Nazi money by way of Brown Brothers Harimann.

Let's face it. Connecticut loves their Douche Bag Senators...

Wed, 11/11/2009 - 21:25 | 127851 Rollerball
Rollerball's picture

+1,000

Wed, 11/11/2009 - 14:58 | 127288 Rainman
Rainman's picture

Sheesz.....And all this time I thought Massachugshit or Kalifornia were the leading douchebag producers. Thanks for the update.

Wed, 11/11/2009 - 12:45 | 127118 Casinoperson
Casinoperson's picture

http://www.counterpunch.org/andrew11112009.html

Crafting a Loophole.


Those who respect the law and love sausage should watch neither being made.

--Mark Twain.      

AMENDMENT TO THE PETERSON SUBSTITUTE FOR H.R. 3795 (a) OFFERED BY MR. PETERSON OF MINNESOTA (b) Page 21, after line 25, insert the following:

(19) by adding at the end the following:

‘‘(50) ALTERNATIVESWAP EXECUTIONFACILITY. (c).—The term ‘alternative swap execution facility’ means a service that facilitates (d) the execution ortrading of swaps between two persons through any means of interstate commerce, but which is not a designated contract market (e), including any electronic trade execution or confirmation facility (f) or any voice brokerage facility (g).’’

Now let’s see what went into this legislative sausage.

(a) Everyone agrees that the unregulated “dark markets” of  Wall Street’s trading in over-the-counter derivatives such as credit default swaps moved the financial crisis from major problem to total disaster.  Currently, most trades in these “products” are privately negotiated on the phone, dealer to dealer.  It’s appallingly risky – that’s why we have a multi-trillion dollar  bailout.  But because the dealers at major banks can quote different prices to different customers, with huge spreads between buy and sell quotes, the banks are making huge profits and want to keep it that way.

So while congress is busy working on reform legislation, Wall Street’s  lawyer-lobbyists in Washington are working hard to neutralize such efforts.

Who’s winning?  Over lunch across town from Capitol Hill,  I recently asked that question of a very smart attorney endowed with deep experience in keeping Washington safe for Wall Street.  In answer, he pointed to this seven-line paragraph buried in a 26-page amendment to “HR 3795, Over-The-Counter Derivatives Markets Act of 2009,” passed in a voice vote by the House Agriculture Committee the night before. Following the vote, the committee had issued a press release hailing their vote for  “strengthening” regulation. 

On the contrary, said my friend, “I guarantee you that not a single member, and almost certainly no one else, apart from the traders on Wall Street and the lobbyist who inserted it on their behalf,  understood the significance of this paragraph.  It means that nothing will change.”

(b)   Colin Peterson (D-MN) is the Chairman of the House Committee on Agriculture.  He is on record as asserting “The banks run this place…It’s huge the amount they put into politics.”

(c) An  “alternative swap execution facility” is intended by the original drafters of the bill to be a new, fully regulated market for trading over-the-counter derivatives – a technologically enhanced version of the various futures exchanges currently operating, such as the Chicago Mercantile Exchange, where transactions and prices are open for all to see.

(d)    A beautiful word.  Now the “execution” facility doesn’t have to be an actual exchange. It has just been redefined as merely something that “facilitates” the execution of a swap trade. 

(e)   Reinforces the point that a “facility” does not have to be one of those transparent exchanges.  But wasn’t that what the bill is meant to make happen?

(f)    In 2005 the major swaps dealers, under pressure from the New York Fed, set up an electronic “confirmation facility”  to keep track of trades, which the dealers control.  Not much openness here.

(g)    “Voice brokerage.”  This means a telephone, as used by a dealer setting prices that are not publicly disclosed.  That’s what the dealers were doing the last time they led our financial system over a cliff, and that’s the system that is preserved by this one little paragraph.


 

Wed, 11/11/2009 - 08:59 | 126916 Heroic Couplet
Heroic Couplet's picture

Reinstate Glass-Steagall verbatim.  Reduce the need to create new sentences.

Wed, 11/11/2009 - 08:35 | 126905 MBP_67
MBP_67's picture

Why can't we just end the fed bank cartel? 

Wed, 11/11/2009 - 08:25 | 126903 lieutenantjohnchard
lieutenantjohnchard's picture

paraphrasing the wise man: a broken system cannot be repaired by the very people who created the flawed system in the first place.

Wed, 11/11/2009 - 08:00 | 126900 Ned Zeppelin
Ned Zeppelin's picture

All over the news this morning, e.g., HLN says "Dodd's bill to strip Federal Reserve of its powers." Huh.  How about that. A noble stated goal, and one which merits further examination of his bill, such that even if the bill's provisions are "inadequate," if they move those powers to an agency other than the Fed, we should consider supporting it.  The rising stench bespeaks of a desperation-reelection tactic, to be trumpeted loudly on MSM to gain street cred as "working for the sheeple", even as bill is disemboweled in committee, not unlike Reid's very public "Road to Damascus" conversion to the public option late in the healthcare bill game. But reelection fears can cause a politician to temporarily lose his bearings, and do something right. Even GS knows a handsomely paid-off politician will turn on them like a rabid dog if their reelection is threatened (absent a promise of a high-paying job on exit).

For now, I'll take Grayson at face value, and face value is demonstrably anti-cephalopod.  If he lost money to Wall Street predations, so much the better - anger and thirst for revenge could cause him to do the right thing too, if only by accident.

Wed, 11/11/2009 - 09:31 | 126928 Green Sharts
Green Sharts's picture

Here's a very detailed article on Grayson's loss in a Ponzi scheme that was apparently pitched as a tax evasion scheme.  His actual loss of the money he put in is less than 10% of what he has claimed.  To anybody who is a Grayson fan, please read this and offer any plausible explanation for why a supposedly financially sophisticated guy like Grayson would enter a deal like this if not to evade taxes.  

http://www.clickorlando.com/news/20007006/detail.html

<Between 2000 and 2005, Grayson was the most frequent participant in Derivium’s “90-percent stock-loan” program, transferring about $29 million in stocks to Derivium and promptly receiving 90 percent of it – about $26 million – back in cash as “stock loans,” according to his court filings.

 

So Grayson spent only about $3 million out of pocket. When you include the nearly $600,000 he received back from stock loan proceeds, his net cash loss is about $2.4 million, according to court records.

 

But Derivium had promised to pay Grayson profits on his stocks, if they appreciated enough over the three-year loan period to cover the amount of his “stock loans” plus interest. And Grayson picked some lucrative stocks. His $34 million in damages is based on the profits he should have received on stocks that rose in value – had Derivium not run out of cash and filed for bankruptcy.

 

In all, about 800 clients provided about $1 billion in stocks they owned in various companies to Derivium Capital and its associates. The firm claimed their clients did not have to pay capital gains taxes on the transfers of stock.

 

But the Internal Revenue Service has another opinion, alleging Derivium was an illegal tax evasion scheme used by some of its wealthy clients to evade paying an estimated $235 million in income taxes.

 

Grayson said he is not one of those clients accused of tax evasion. “The difference is they broke the law and I didn’t,” he said.>

<In a lawsuit filed in San Francisco in September 2007 against Derivium and its associates, the government claims Derivium illegally helped some of its wealthy clients evade nearly $235 million in capital gains taxes.

 

In a February 2009 hearing, a U.S. Justice Department tax attorney told a federal magistrate he believes all of the 270 Derivium clients audited so far by the IRS were found to have used the loans as an abusive tax shelter. He did not identify in court any of those audited, nor would he comment to Local 6 about the investigation.

 

But U.S. Magistrate Judge Joseph Spero said during that February hearing, “Apparently, there’s no conclusion in any of those audits that it was not an abusive tax shelter.”

 

Grayson said he was not one of those audited, adding the IRS knows “very well what’s in my tax returns and they know if they did audit me, they’d end up owing me money.”>

<In 92 separate transactions between November 2000 and March 2005, Grayson turned over stock worth $28.7 million to Derivium, according to his lawsuit. Grayson got $25.8 million of it back in cash.

 

He said he used the cash to make loans to and invest in Latin American businesses.

 

“There are restrictions on what you can do with borrowed money in the United States. I didn’t have that opportunity to take that money and invest in the United States,” Grayson told Local 6. “That, of course, is my preference being an American … So I had no choice but to invest it in foreign countries.”

 

But first, he said he transferred the cash from the stock loans to the AMG Trust he established in the Cook Islands, a South Pacific government associated with nearby New Zealand.

 

According to Grayson’s congressional financial disclosure statement last year, his AMG Trust held between $25 million and $50 million in assets, producing dividends and capital gains income of between $1 million and $5 million last year, and more than $5 million the previous year.

 

Offshore trusts like those in the Cook Islands often attract wealthy people seeking to legally shield their assets from any potential lawsuit judgments, according to experts on wealth protection.

 

The Cook Islands is also among 34 jurisdictions listed by the IRS as “probable locations of U.S. tax evasion.”>

<The Derivium defendants Grayson sued in South Carolina tried to delve into all 92 “stock loans” Grayson participated in dating back to November 2000 – not just the 33 profitable ones that Grayson relied on to set his damages at $34 million.

 

And, to determine how Grayson treated them in his taxes, they asked the judge to order Grayson to produce his income tax returns.

 

In a June 2008 hearing, an attorney for one of Derivium’s owners said Grayson had taken some cash profits “and got that money sent to the Cook Islands … and I want to see how this shows up on his tax returns. Are all the gains shifted to (the AMG Trust) and the Cook Islands where they do not have to file tax returns?”

 

The attorney also suggested Grayson could have claimed losses on some trades to reduce his taxes, while concealing profits in the Cook Islands to evade capital gains. “If he is playing fast and short with the IRS, I think that’s relevant in this case,” the attorney argued.

 

Grayson’s attorney, Alisa Roberts, told the judge there is “absolutely no evidence or any basis upon which (the defendants) might possibly conclude that Alan Grayson or the AMG Trust committed tax fraud.” Even if there were, she said, any tax evasion by Grayson would be irrelevant to the fraud and racketeering counts facing Derivium.>

 

Wed, 11/11/2009 - 00:47 | 126808 JohnKing
JohnKing's picture

I wonder how many GS lawyers it took to write the bill.

Wed, 11/11/2009 - 00:11 | 126783 WaterWings
WaterWings's picture

And Grayson just wants attention. He's making sure everyone thinks we've got some real reps watchin' out fer us. BS.

He's trying to stir up partisan fervor with the Health Care bill lately - just another freak. Wouldn't be surprised if he's on Squidie payroll.

Wed, 11/11/2009 - 00:53 | 126811 truehawk
truehawk's picture

With Grayson it is personal

I don't have time to look for links right now, but evidently Grayson lost about 100,000,000 to Wall Street.

He still has 34 Mil but he used to have a whole lot more.

Wed, 11/11/2009 - 12:22 | 127091 ED
ED's picture

..all in all it's just a-nother 100million bricks in the Wall..

Wed, 11/11/2009 - 01:03 | 126818 _Biggs_
_Biggs_'s picture

A fool and his money are soon parted.

Tue, 11/10/2009 - 23:27 | 126759 Chignos
Chignos's picture

The Democrat world view is that no one should ever have to be held personally responsible because we're all victims.  Therefore, we need the Democrat nanny state--and 1900 page bills to obfuscate who's really responsible--to make sure that no one ever gets the death penalty.  Oh, did I mention that the trade-off is we all have to live under the statist thumb of dumb-dumb Dodd?

Support Peter Schiff's run for Senate against dumb-dumb Dodd.

http://www.youtube.com/user/schiffreport?blend=3&ob=4

Wed, 11/11/2009 - 12:00 | 127075 Anonymous
Anonymous's picture

The Republican world view is that deregulated, unrestricted, lassiez-faire, predatory capitalism is the way to go. The right wing is now disowning the results of their handiwork.

Wed, 11/11/2009 - 13:16 | 127152 koaj
koaj's picture

idiot. i'm sure fannie and freddie and the FED have nothing to do with any of this

Wed, 11/11/2009 - 13:32 | 127174 Anonymous
Anonymous's picture

fannie and freddie were symptoms, not causes. the fed is not government owned. idiot.

Wed, 11/11/2009 - 11:30 | 127037 Anonymous
Anonymous's picture

Anyone that proclaims the "Democrat world view ..." is just a Republican tool.

With that said, I support Schiff, because I think he understands our financial problems and Dodd clearly is bought and paid for.

Wed, 11/11/2009 - 01:18 | 126824 JohnKing
JohnKing's picture

+10

Give Schiff money while you still have some.

Tue, 11/10/2009 - 23:26 | 126757 Anonymous
Anonymous's picture

You can BET anything coming out of DODD is all-out FRAUD on a massive scale--

Read the fine print--so important! Thanks Tyler!

Tue, 11/10/2009 - 21:05 | 126627 Anonymous
Anonymous's picture

Is this new paradigm not Plato's cave allegory?

http://en.wikipedia.org/wiki/Allegory_of_the_Cave

Signed: Not too big to not fail.

Tue, 11/10/2009 - 20:46 | 126605 Anonymous
Anonymous's picture

Same faces ....same places ????

Dodd is part of the problem.....not the solution....

Wed, 11/11/2009 - 13:39 | 127184 Anonymous
Anonymous's picture

Dodd, part of the problem?
But...certainly the bill says politicians won't get sweetheart deals on cottages in Ireland? And certainly the bill forbids sweetheart deals to politicians on home loans?
No?

Tue, 11/10/2009 - 20:37 | 126596 tip e. canoe
tip e. canoe's picture

humpty dumpty sat on a wall...

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