Question for the feeble minded.

[ThomasSowell]

In light of the huge disparities between the size of each major investment bank and the size of its depository institution subsidiary, it is highly unlikely that the insured bank subsidiary could cause any serious financial problem for the parent investment bank or significantly enhance the financial problems the parent company created for itself through its own operations.

Accordingly, the banks that encountered financial problems got into trouble the old-fashioned way–by making imprudent loans or taking imprudent financial risks. There is no evidence of significant amounts of risky securities activities. Similarly, the investment banks got into trouble in their own way and not because of their affiliations with small banks. Thus, the repeal of the affiliation provisions of the Glass-Steagall Act had no significant effect whatever in triggering or enhancing the financial crisis.

 

[ThomasSowell]

Credit Default Swaps

What about the other claimed “deregulation” that is alleged to have caused the financial crisis? Here the culprits are derivatives, and particularly credit default swaps (CDS). These instruments are not as well understood, so they have given rise to wild and truly absurd claims about their responsibility for the financial crisis.

Routinely, the media contains unchallenged statements to the effect that CDS “brought the banking system to its knees.”[23] Dozens of articles have been written about the supposed dangers of CDS, without anyone having to explain how, exactly, CDS would or could have such a dire effect.[24] Two Outlooks have outlined how CDS work and questioned how they could have the key role in the financial crisis so readily assigned to them.[25] I will not repeat the analysis in those pieces but instead will focus on two cases–the bankruptcy of Lehman Brothers and the Fed’s rescue of AIG. Between them, they tell us a lot about whether CDS are the dangerous instruments they are made to appear.

Lehman Brothers was a major player in the CDS market, but there is no indication that Lehman was forced into bankruptcy by its CDS obligations. Instead, the most thorough accounts of the Lehman crisis in 2008 attribute the company’s collapse to its funding sources’ lack of confidence in the firm’s viability.[26] When Lehman went into bankruptcy, the firm had over 900,000 outstanding derivative contracts.[27] This would not be unusual for a dealer, which usually tries to hedge all its CDS obligations with an offsetting contract, thus doubling the number of its contracts. Once in bankruptcy, Lehman has not been able to perform on any of its CDS obligations, and many of them may have been canceled by Lehman’s trustee, yet there have been no reports of any counterparties being forced into bankruptcy because Lehman was unable to perform. This is not surprising, given how CDS work. A CDS can be viewed as an insurance or guarantee contract. Where Lehman was functioning as the guarantor, it promised its counterparty that if a company we shall call A defaults on its obligations, Lehman will pay the counterparty a notional amount specified in the guarantee contract. In return, Lehman would receive a quarterly payment from its counterparty known as a premium.

 

[ThomasSowell]

What happened when Lehman failed? Clearly, its counterparty in the CDS on A would not be paid, but what loss had the counterparty suffered? The answer is that Lehman’s counterparty has suffered no significant loss unless company A has also defaulted. In that case, Lehman would have owed its counterparty the notional amount, but was unable to pay. In the absence of a default by company A, Lehman’s counterparty had a simple remedy–it could go back into the market and purchase another CDS to cover its exposure to company A, agreeing to pay the necessary premium to that new guarantor. It is similar to what would have happened if a homeowner’s fire insurer had failed before the homeowner had a fire. The homeowner would simply call his broker and buy another policy. The loss, if any, would have been negligible. In other words, Lehman’s failure to perform on its CDS would only have been significant if many companies whose obligations Lehman was covering through CDS had defaulted before or simultaneously with Lehman’s default. That apparently did not happen in September 2008, when Lehman went into bankruptcy. Although many markets froze at that moment, the CDS market continued to function, and most, if not all, of Lehman’s counterparties probably covered their exposures with new CDS.

This was the state of things when Lehman was the party that had issued CDS guarantees to protect the exposures of others. What happened when it was Lehman’s debt itself that was protected by CDS written by other CDS market participants? There were CDS in the notional amount of approximately $72 billion written on Lehman, and Lehman’s bankruptcy meant that all the parties that had written protection on Lehman were now obligated to pay their counterparties. Within a month of the Lehman bankruptcy, however, all of these obligations had been settled by the exchange of $5.2 billion among hundreds of counterparties. The relatively small amount that was ultimately necessary to settle the CDS on Lehman probably reflects in part the fact that the CDS market naturally disperses risks among many counterparties–just as the advocates of the CDS system have claimed–and also the fact that the notional amount outstanding on any reference entity (the issuer of the obligation that is covered–in this case Lehman) is always many times the actual amount of the loss. Moreover, there is no indication that the bankruptcy of Lehman–a firm with assets of about $600 billion–resulted in such large losses for any of the guaranteeing parties that their solvency or stability was threatened. One would imagine that, if CDS are the source of such a dangerous “interconnectedness” in the financial system, the bankruptcy of a major player like Lehman would have had a greater effect on the CDS market than it did. Yet that market apparently took the Lehman bankruptcy in stride.

 

[ThomasSowell]

AIG, which was rescued by the Fed with loans that totaled over $175 billion, also offers some important perspective. AIG got into serious trouble because a substantial portion of the CDS it wrote were guaranteeing collateralized debt obligations (CDOs) backed by pools of MBS that were in turn backed by pools of subprime and Alt-A mortgages–the toxic assets that later drove many large banks and other financial institutions to the brink of insolvency. Although the exact terms of these CDS are not known, AIG was probably guaranteeing to the holders of these CDOs that it would reimburse their losses if the securities lost value. In addition, AIG apparently did not hedge its risks–a very unusual and risky approach to writing swaps. Thus, AIG is a kind of worst-case example; it wrote swaps without hedging, and it wrote them on the instruments that had caused the worst losses to hundreds (if not thousands) of other financial institutions. In other words, it is not an example of what would generally happen in the CDS market, but rather what would and should almost never happen. Lawyers often note that hard cases make bad law, and in the same sense, basing policy on a worst-case scenario like AIG would also produce a bad set of rules.

Nevertheless, it is worth considering what actually would have happened if AIG had been allowed to fail. In this thought experiment, we will assume that AIG is different from Lehman because its obligation to reimburse its counterparties had already in a sense matured; the CDOs it was covering had already lost value when its problems arose. As a result, as contemplated in almost all CDS contracts, its counterparties were seeking collateral from AIG to assure themselves that when they made a claim for their losses AIG would be able to pay. AIG did not have sufficient funds to provide collateral and thus would have defaulted on its obligations if the Fed had not stepped in. If AIG had been allowed to fail, and had not performed under its CDS obligations, its counterparties would have suffered real losses. This is different from the hypothetical circumstance of the homeowner and the fire insurance company. In this case, the “fire” has occurred–at least in part–before the insurance company has failed, and the homeowner has suffered a real loss that the failed insurance company cannot cover. René M. Stulz quantifies the potential loss to AIG as follows:

 

[ivan brunetti]

Have you seen the ratings of PBS
Very few do

What does ratings have to do with the quality of the information on their news?

 

[ThomasSowell]

By August 2008, AIG had a total amount of unrealized losses on its credit default swaps of $26.2 billion and had posted collateral worth $16.5 billion . . . .On September 16, after having been downgraded by S&P and Moody’s, AIG had to post $14.5 billion additional collateral. It could not meet these collateral requirements without a bailout.[28]

 

[ThomasSowell]

This implies that AIG’s total uncollateralized CDS obligations on the CDOs were somewhere between $25 billion and $41 billion. It is doubtful that this loss, spread among what were probably hundreds of counterparties worldwide, would have caused a systemic breakdown. In any event, it is important to recognize what an outlier AIG was in the swap market. It doubled down by taking only one side of swap contracts and did so massively, losing billions of dollars, covering an instrument that had been rated AAA–MBS backed by U.S. subprime mortgages–but which turned out to be a disastrous investment for virtually every financial institution that touched it.

Apart from AIG, it is difficult to find an example of a participant in the CDS market whose activities might have led to its insolvency. That was certainly not true of Lehman, which was a major market player. The fact that Lehman’s failure did not seriously disrupt the CDS market, or cause serious losses for its CDS counterparties, strongly suggests that the dangers of CDS are wildly exaggerated. Under these circumstances, it is not at all clear that the failure to impose regulation on the derivative markets in 2000 was the deregulatory blunder it has been made out to be.

 

[ThomasSowell]

Conclusion

The causes of the financial crisis remain a mystery for many people, but certain causes can apparently be excluded. The repeal of Glass-Steagall by GLBA is certainly one of these, since Glass-Steagall, as applied to banks, remains fully in effect. In addition, the fact that a major CDS player like Lehman Brothers could fail without any serious disturbance of the CDS market, any serious losses to its counterparties, or any serious losses to those firms that had guaranteed Lehman’s own obligations, suggests that CDS are far less dangerous to the financial system than they are made out to be. Finally, efforts to blame the huge number of subprime and Alt-A mortgages in our economy on unregulated mortgage brokers must fail when it becomes clear that the dominant role in creating the demand–and supplying the funds–for these deficient loans was the federal government.

Peter J. Wallison (pwallison@aei.org) is the Arthur F. Burns Fellow in Financial Policy Studies at AEI. This article draws upon the author’s article, “Did the ‘Repeal’ of Glass-Steagall Have Any Role in the Financial Crisis? Not Guilty. Not Even Close,” which was published by Networks Financial Institute as a Policy Brief, PB-2009-09, November 2009.

 

[ThomasSowell]

22. Board of Governors of the Federal Reserve System,
“The Supervisory Capital Assessment Program: Overview of Results,” news release, May 7, 2009, available at www.federalreserve.gov/newsevents/press/bcreg/bcreg20090507a1.pdf (accessed Novem-ber 4, 2009).
23. Lynn Stout, “Regulate OTC Derivatives by Deregulating Them,” 30.
24. Ibid.
25. See Peter J. Wallison, “Everything You Wanted to Know about Credit Default Swaps–but Were Never Told,” AEI Financial Services Outlook(December 2008), available at www.aei.org/outlook/29158; and Peter J. Wallison, “Unnecessary Intervention: The Administration’s Effort to Regulate Credit Default Swaps,” AEI Financial Services Outlook (August 2009), available at www.aei.org/ outlook/100065.
26. See, for example, David Wessel, In Fed We Trust: Ben Bernanke’s War on the Great Panic (New York: Crown Business, 2009).
27. Subcommittee on Commercial and Administrative Law of the House Committee on the Judiciary, “Too Big to Fail: The Role for Bankruptcy and Antitrust Law in Financial Regulation Reform,” 111th Cong., 1st sess., 2009, 1–13, available at http://judiciary.house.gov/hearings/pdf/Miller091022.pdf (accessed November 4, 2009).
28. René M. Stulz, “Credit Default Swaps and the Credit Crisis,” (Working Paper 15384, National Bureau of Economic Research, Cambridge, MA, September 2009), available at www.nber.org/papers/w15384 (accessed November 4, 2009).

 

[ThomasSowell]

What does ratings have to do with the quality of the information on their news?

pbs is no different than msnbc or cnn it's leftist bias has been documented

 

[ivan brunetti]

pbs is no different than msnbc or cnn it's leftist bias has been documented

Whatever you say, champ.

 

[ThomasSowell]

legal analyst Nina Totenberg literally wished aids on
Jesse Helms and his grandchildren as “retributive justice"

 

[ThomasSowell]

Whatever you say, champ.

legal analyst Nina Totenberg literally wished aids on
Jesse Helms and his grandchildren as “retributive justice"

 

[ThomasSowell]

Whatever you say, champ.

Sesame Street’s Oscar the Grouch mocking Fox News on PBS, to top NPR executives slamming the tea party movement as “scary” and “racist” to the undercover journalists of Project Veritas.

 

[ThomasSowell]

pbs+npr=air America radio
Without tax dollars they'd sink like aar did

Saying pbs/npr isn't biased is like saying gnome chumpsky is an expert in geopolitics or political science when he's only a linguistics professor

 

[ivan brunetti]

Sesame Street’s Oscar the Grouch mocking Fox News on PBS, to top NPR executives slamming the tea party movement as “scary” and “racist” to the undercover journalists of Project Veritas.

I am surprised you didn't mention Bert and Ernie living together as evidence.

 

[ThomasSowell]

I am surprised you didn't mention Bert and Ernie living together as evidence.

Keep blaming guns for the Orlando massacre

 

[ivan brunetti]

Keep blaming guns for the Orlando massacre

Subtract the guns and you wouldn't have much of a massacre.

 

[ThomasSowell]

Subtract the guns and you wouldn't have much of a massacre.

Yet what stopped it

 

[chitown sot]

AOC missed her calling as as stand up comedian.
Basic economics just dosn't come easy for her

Its unbelievable the absolute stupidity that comes out of that ding bats mouth.

 

[ThomasSowell]

Its unbelievable the absolute stupidity that comes out of that ding bats mouth.

I believe she's nothing more than a puppet to be used by Democrats to paint themselves as moderates in the 2020 election cycle to attract the independents

 

[Patrirish]

Its unbelievable the absolute stupidity that comes out of that ding bats mouth.

What’s even more bizarre is how the media has elevated her to deity status.

“Stupid” doesn’t come close to defining her intellect

 

[deadirishpoet]

NDE
Politico is not balanced ......only if you mean to the liberal cause

 

[NDEwing18]

NDE
Politico is not balanced ......only if you mean to the liberal cause

You're likely going to find an issue with anything that isn't far to the right.

 

[zonairish]

AOC. Led people and other Democrats to force Amazon out New York City. Amazing just because Bezos is wealthy. The crazy thing is 25k jobs will be lost. The lefts logic is crazy all because of social justice and so called equality. Yes he gets richer but other people will get opportunity. Yes the left and Democrats hate capitalism

 

[ThomasSowell]

You're likely going to find an issue with anything that isn't far to the right.

jussie smollett laughing JPEG

 

[zonairish]

jussie smollett laughing JPEG

That guy is a piece of work. accuses maga hat white guys beating him and now we are finding out it was 2 nigerians who he knew. he paid them $3500 each plus they bought the rope. Heck a lot people would have beat him up for free. the left and hollywood and democrats will lie about anything just for CNN and MSNBC to play the narrative. See Covington Catholic. Democrats are for everything and believe in nothing. Cowards

 

[Patrirish]

Subtract the guns and you wouldn't have much of a massacre.

Molotov cocktails, pipe bombs, cars, trucks and other methods produce massacres

 

[BGI User 1596]

That guy is a piece of work. accuses maga hat white guys beating him and now we are finding out it was 2 nigerians who he knew. he paid them $3500 each plus they bought the rope. Heck a lot people would have beat him up for free. the left and hollywood and democrats will lie about anything just for CNN and MSNBC to play the narrative. See Covington Catholic. Democrats are for everything and believe in nothing. Cowards

More libtard shiat...clearly a mental illness!

 

[8th Man]

Molotov cocktails, pipe bombs, cars, trucks and other methods produce massacres

Add them all up and in the US, still not as as many deaths as guns.

 

[deadirishpoet]

You're likely going to find an issue with anything that isn't far to the right.

Considering 2 former washington Post writers created it not suprising they lean left but I guess anything that isnt a liberal cause is far right to you isnt it?

 

[deadirishpoet]

Add them all up and in the US, still not as as many deaths as guns.

Make gun crimes tougher then.

 

[deadirishpoet]

What does ratings have to do with the quality of the information on their news?

Well if there was that much quality there would be much more viewership don't you think?

 

[deadirishpoet]

Subtract the guns and you wouldn't have much of a massacre.

Subtract the guns and the government would be left unchecked

 

[8th Man]

Lindsey Graham Says Talk About Removing Trump Will Be Probed in Hearing
"Republican Senator Lindsey Graham said he could subpoena Deputy Attorney General Rod Rosenstein and former FBI Deputy Director Andrew McCabe for a hearing to explore allegations they discussed whether President Donald Trump should be removed from office.
McCabe said in an interview to air on CBS’s “60 Minutes” Sunday that Rosenstein discussed with him in 2017 whether there were enough members of Trump’s cabinet who would support removing the president for being unfit under the constitution’s 25th Amendment. Rosenstein has denied that.
“There’s an allegation by the acting FBI director at the time that the deputy attorney general was basically trying to do an administrative coup, take the president down,” Graham, chairman of the Senate Judiciary Committee, said in an interview broadcast on CBS’s “Face the Nation” Sunday.
“We will have a hearing about who’s telling the truth, what actually happened,” he said. Asked whether he would subpoena McCabe and Rosenstein to appear, if necessary, Graham said, “How can I not, if that’s what it takes?”

https://www.bloomberg.com/news/arti...-trump-will-be-probed-in-hearing?srnd=premium

 

[deadirishpoet]

Lindsey Graham Says Talk About Removing Trump Will Be Probed in Hearing
"Republican Senator Lindsey Graham said he could subpoena Deputy Attorney General Rod Rosenstein and former FBI Deputy Director Andrew McCabe for a hearing to explore allegations they discussed whether President Donald Trump should be removed from office.
McCabe said in an interview to air on CBS’s “60 Minutes” Sunday that Rosenstein discussed with him in 2017 whether there were enough members of Trump’s cabinet who would support removing the president for being unfit under the constitution’s 25th Amendment. Rosenstein has denied that.
“There’s an allegation by the acting FBI director at the time that the deputy attorney general was basically trying to do an administrative coup, take the president down,” Graham, chairman of the Senate Judiciary Committee, said in an interview broadcast on CBS’s “Face the Nation” Sunday.
“We will have a hearing about who’s telling the truth, what actually happened,” he said. Asked whether he would subpoena McCabe and Rosenstein to appear, if necessary, Graham said, “How can I not, if that’s what it takes?”

https://www.bloomberg.com/news/arti...-trump-will-be-probed-in-hearing?srnd=premium

......"could"..... not will

 

[chitown sot]

Add them all up and in the US, still not as as many deaths as guns.

Earth to dumba$$, guns don't kill, people do idiot

 

[Patrirish]

Add them all up and in the US, still not as as many deaths as guns.

If guns weren’t used, those methods would be employed.

How about Opiods ?

How many people do they kill in a year ?

70,000 !

How many gun deaths in 2017 ?

39,772 of which 26,512 were suicides, leaving roughly 13,260 including accidental shootings.

So which is a bigger problem ? Opiods !

And what about those who are addicted to Opiods who didn’t die ?
What about the vast number of those who can’t function and/or commit crimes to support their addiction ?

 

[Patrirish]

Make gun crimes tougher then.

Chicago has the strictest gun laws in the country, and they’ve had little impact on reducing gun violence, which isn’t committed by law abiding citizens.

Criminals and gang members who have no regard for the law are the perpetrators !

 

[deadirishpoet]

Chicago has the strictest gun laws in the country, and they’ve had little impact on reducing gun violence, which isn’t committed by law abiding citizens.

Criminals and gang members who have no regard for the law are the perpetrators !

You are correct