Congress Woman Introduces Bill to Ban All Credit Default Swaps

I"m a little late to this story, but last week Congresswoman Maxine Waters introduced a bill to ban all credit default swaps.

As Waters said:

Preventing all credit-default swaps is essential to bringing stability to the market and preventing a similar crisis in the future.

Many top experts - including nobel prize winning economists and numerous other well-known PhD economists - agree.

Indeed, just today, Credit Sights published a report documenting - as I have previously pointed out - that CDS drive companies into bankruptcy.

But aren"t Obama"s new regulation of CDS good enough?

I have repeatedly argued that they aren"t.

But don"t listen to me. Satyajit Das is one of the world"s top credit default swap experts. Yves Smith says of Das:

Satyajit Das is a hard core derivatives expert, having worked with them in enough markets and enough vantage points to be very well versed . . .

This is Das" area, and if he says it"s an issue, it is ...

Today, Das wrote an essay arguing that the new credit default swap regulations not only won"t help stabilize the economy, they might actually help to destabilize it.

Indeed, the only people that are for CDS and the current half-baked regulations are the handful of giant banks that are making a killing from them. Everyone else is against them (indeed, the economy is the thing "being killed").

Call your Congress member and demand he or she support Waters" bill to ban all credit default swaps.

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Man revealed as bin Laden"s bodyguard released by U.S.

Source: The Miami Herald
GUANTANAMO BAY NAVY BASE, Cuba � Soon after Osama bin Laden"s driver got here in 2002, he told interrogators the identity of the al Qaeda chief"s most senior bodyguard � then a fellow prison camp detainee.
But, inexplicably, the U.S. let the bodyguard go.
This startling information was revealed in the fourth day of the war crimes trial of Salim Hamdan, 37, facing conspiracy and material support for terror charges as an alleged member of bin Laden"s inner circle.
Michael St. Ours, an agent with the Naval Criminal Intelligence Service, NCIS, provided the first tidbit. He testified for the prosecution that his job as a prison camps interrogator in May 2002 was to find and focus on the bodyguards among the detainees.
And Hamdan helped identify 30 of them � 10 percent of the roughly 300 detainees then held here. They had just been transferred to Camp Delta from the crude compound called Camp X-Ray, and U.S. intelligence was still trying to unmask them.
Chief among them was Casablanca-born Abdallah Tabarak, then 47, described by St. Ours as ""a hard individual,"" and, thanks to Hamdan, ``the head bodyguard of all the bodyguards.""
St. Ours said he was eager to speak with Tabarak. But the Moroccan was ""uncooperative,"" and St. Ours moved on to other intelligence jobs � and never learned afterward what became of him.
Then, on cross-examination, Hamdan defense attorney Harry Schneider dropped a bombshell:
""Would it surprise you to learn he was released without ever being charged?"" St. Ours looked stunned.
""Yeah,"" he said.
LinkHere

How to Solve the Toxic Asset Problem: Give Them to Bank Executives as Bonuses

James Kwak has the best idea I"ve heard this week: solve the toxic asset problem by give those assets to bank executives as bonuses.

As Kwak writes:

Why not say that all bank compensation above a baseline amount - say, $150,000 in annual salary - has to be paid in toxic assets off the bank�s balance sheet? Instead of getting a check for $10,000, the employee would get $10,000 in toxic assets, at their current book value. . . . That would get the assets off the bank�s balance sheet, and into the hands of the people responsible for putting them there - at the value that they insist they are worth . . . think about the incentives: talented people will flow to the companies that are valuing their assets the most realistically (since inflated valuations translate directly into lower compensation), which will give companies the incentive to be realistic in their valuations.

Of course, there"s an argument that the executives" base salary should be paid in toxic assets as well. Since these fatcats don"t seem to be motivated to run their companies well so as to save the economy and the people, maybe having their own salaries on the line will motivate them. But if you believe that is too harsh, at least demand that their bonuses be paid in this way.

Update: Apparently, Credit Suisse is already doing this.

Share this idea with your elected officials in Washington.

Fed Sponsored Feedback Loops and the Fed Uncertainty Principle Revisited

Caroline Baum has an interesting discussion of feedback loops and Fed policy on October 19 in Bernanke Frets Over Sherlock Holmes�s Next Stop.

Federal Reserve policy makers like to explain the world in terms of feedback loops, except those of their own making.

Last year, a negative feedback loop threatened to deepen the financial crisis as a weak economy and a teetering banking system led to layoffs and production cutbacks, which led to even bigger declines in output and employment.

Last month, officials heralded the onset of a �positive feedback loop,� wherein better financial conditions and stronger growth in employment and output lead to a stronger stock market and improved financial conditions, according to minutes from the Fed�s Sept. 22-23 meeting.

At some point, of course, the loop gets broken. Otherwise, the economy would head in one direction, up or down, forever.

Where is the discussion of the Fed�s inflation expectations feedback loop, which yields no feedback and less information?

Expectations Loop-de-Loop

If I have this right, we�re waiting for the Fed to do or say something to help us decide whether we should hoard cash (because we expect the dollar to buy more tomorrow if prices are falling) or buy and hoard hard goods (if we expect inflation to diminish the dollar�s purchasing power).

The Fed, in turn, is waiting for us to do something so it can decide what to do: either raise the volume on its anti- inflation rhetoric with talk of exit strategies and price stability; or talk softly to allay fears of premature rate increases to keep market rates from rising.

If I read the minutes and other Fed communications correctly, policy makers are relying on us to tell them what to do, we�re relying on them for direction, and we�re locked in this no-way-out feedback loop that provides no useful information for either party.

To say that you and I have the ability to create inflation on our own flies in the face of monetary theory. If we did have a set of keys to the printing press, the Fed would have more than just inflation expectations to funnel through its feedback loop.

Fed Uncertainty Principle

Caroline asks: "Where is the discussion of the Fed�s inflation expectations feedback loop, which yields no feedback and less information?"

The answer is right here, in the Fed Uncertainty Principle, written April 3, 2008.

Most think the Fed follows market expectations. Count me in that group as well. However, this creates what would appear at first glance to be a major paradox: If the Fed is simply following market expectations, can the Fed be to blame for the consequences? More pointedly, why isn"t the market to blame if the Fed is simply following market expectations?

This is a very interesting theoretical question. While it"s true the Fed typically only does what is expected, those expectations become distorted over time by observations of Fed actions.

For example: If market participants are expecting the Fed to cut on weakness and the Fed does, market participants gets into a psychology of expecting more cuts on more weakness. Here is another example: If market participants expect the Fed to cut rates when economic stress occurs, they will takes positions based on those expectations. These expectation cycles can be self reinforcing.

The Observer Affects The Observed

The Fed, in conjunction with all the players watching the Fed, distorts the economic picture. I liken this to Heisenberg"s Uncertainty Principle where observation of a subatomic particle changes the ability to measure it accurately.

To measure the position and velocity of any particle, you would first shine a light on it, then detect the reflection. On a macroscopic scale, the effect of photons on an object is insignificant. Unfortunately, on subatomic scales, the photons that hit the subatomic particle will cause it to move significantly, so although the position has been measured accurately, the velocity of the particle will have been altered. By learning the position, you have rendered any information you previously had on the velocity useless. In other words, the observer affects the observed.

The Fed, by its very existence, alters the economic horizon. Compounding the problem are all the eyes on the Fed attempting to game the system.

What happened in 2002-2004 was an observer/participant feedback loop that continued even after the recession had ended. The Fed held rates rates too low too long. This spawned the biggest housing bubble in history. The Greenspan Fed compounded the problem by endorsing derivatives and ARMs at the worst possible moment.

Would the market on its own accord be setting rates at the current Fed Funds Rate of 2.25? It"s possible, but there is no way to tell.

It"s even possible the Fed is behind the curve by not acting fast enough. This is of course all guesswork. I don"t know, you don"t know, and the Fed does not know what to do. This is part of the "Fed Uncertainty Principle" and a key reason why the Fed should be abolished. After all, how can you give such power to a group of fools that have clearly proven they have no idea what they are doing?

The Fed has so distorted the economic picture by its very existence that it is fatally flawed logic to suggest the Fed is simply following the market therefore the market is to blame. There would not be a Fed in a free market, and by implication there would be no observer/participant feedback loop.

Fed Uncertainty Principle:
The fed, by its very existence, has completely distorted the market via self reinforcing observer/participant feedback loops. Thus, it is fatally flawed logic to suggest the Fed is simply following the market, therefore the market is to blame for the Fed"s actions. There would not be a Fed in a free market, and by implication there would not be observer/participant feedback loops either.

Corollary Number One:
The Fed has no idea where interest rates should be. Only a free market does. The Fed will be disingenuous about what it knows (nothing of use) and doesn"t know (much more than it wants to admit), particularly in times of economic stress.

Corollary Number Two: The government/quasi-government body most responsible for creating this mess (the Fed), will attempt a big power grab, purportedly to fix whatever problems it creates. The bigger the mess it creates, the more power it will attempt to grab. Over time this leads to dangerously concentrated power into the hands of those who have already proven they do not know what they are doing.

Corollary Number Three:
Don"t expect the Fed to learn from past mistakes. Instead, expect the Fed to repeat them with bigger and bigger doses of exactly what created the initial problem.

Corollary Number Four:
The Fed simply does not care whether its actions are illegal or not. The Fed is operating under the principle that it"s easier to get forgiveness than permission. And forgiveness is just another means to the desired power grab it is seeking.

Where The Hell Is The Outrage?

I added a few more points to Where The Hell Is The Outrage? to take care of the above issues. Here they are:

I am outraged at a Fed that purports to be "inflation fighters" when the only source of inflation in the word are central bankers, and their fractional reserve lending policies.

I am outraged that Greenspan and Bernanke could not see a housing bubble that 1000 bloggers could see.

I am outraged at the selective memory of Bernanke when speaking to Congress about these problems.

I am outraged that Bernanke"s one sided response to asset bubbles, letting them grow without end, then bailing out the financial institutions that cause them.

I am outraged the Fed exists at all. It is a useless organization that cannot see bubbles, that panders to banks, that supports inflationary policies that are tantamount to theft by fraud.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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R.E.M. And MoveOn.org Team Up For Health Care Ad

An R.E.M. song provides the soundtrack for a new video from MoveOn.org in support of health care reform. The ad, which uses personal stories to make a case for a public option, uses the slogan "We Can"t Afford To Wait" to emphasize the urgency for far-reaching reform. MoveOn members from all walks of life hold up handmade signs explaining how their medical conditions or those of loved ones rendered them out of money and almost out of hope. The series of images is touching and plays towards an emotional reaction, which is only enhanced by the strained pleading of Michael Stipe"s vocals over a lonely mandolin. Everybody hurts indeed.LinkHere

The Health Care Question Should Be About the Insurance Industry Stranglehold, Not a "Government Takeover"

The battle is on. Remind your Members of Congress that none of them took an oath to protect the profits of private insurance companies.

LinkHere

Stephen Colbert Endorses (But Does Not Support) Barack Obama (VIDEO)

LinkHere

Iran Falls to US PSYOPS

By Paul Craig Roberts
June 22, 2009 "Information Clearing House" -- -President Obama called on the Iranian government to allow protesters to control the streets in Tehran. Would Obama or any US president allow protesters to control the streets in Washington, D.C.?
There was more objective evidence that George W. Bush stole his two elections than there is at this time of election theft in Iran. But there was no orchestrated media campaign to discredit the US government.
On May 16, 2007, the London Telegraph reported that Bush regime official John Bolton
told the Telegraph that a US military attack on Iran would �be a �last option� after economic sanctions and attempts to foment a popular revolution had failed.�
We are now witnessing in Tehran US �attempts to foment a popular revolution� in the guise of another CIA orchestrated �color revolution.� It is possible that splits among the mullahs themselves brought about by their rival ambitions will aid and abet what the Telegraph (May 27, 2007) reported were �CIA plans for a propaganda and disinformation campaign intended to destabilize, and eventually topple, the theocratic rule of the mullahs.� It is certainly a fact that the secularized youth of Tehran have played into the CIA�s hands.
The Mousavi protests have set up Iran either for a US puppet government or for a military strike. The mullahs are in a lose-lose situation. Even if the mullahs hold together and suppress the protests, the legitimacy of the Iranian government in the eyes of the outside world has been damaged. Obama�s diplomatic approach is over before it started. The neocons and Israel have won.
The US intervention and the orchestrated disinformation pumped out by the western media are so transparent that it is impossible to believe than any informed person or government is taken in. One cannot avoid the conclusion that the West wants the 1978 Iranian Revolution overthrown and intends to use deception or violence to achieve that goal.
It has become increasingly difficult to believe that facts and truth motivate the western news media. For the record, I would like to point out a few of the most obvious oversights, to use an euphemism, in the Iran reporting.
According to a wide variety of news sources (for example, London Telegraph, Yahoo News, The Globe and Mail, Asbarez.com, Politico), �Before the polling closed Mr. Mousavi declared himself �definitely the winner� based on �all indications from all over Iran.� He alleged widespread voting irregularities without giving specifics and hinted he was ready to challenge the final results.� Other news sources, which might not have been aware that the polls were kept open several hours beyond normal closing time in order to accommodate the turnout, reported that Mousavi made his victory claim the minute polls closed.
Mousavi�s premature claim of victory before polling was over or votes counted is clearly a preemptive move, the purpose of which is to discredit any other outcome. There is no other reason to make such a claim.
In Iran�s system, election fraud has no purpose, because a small select group of ruling mullahs select the candidates who are put on the ballot. If they don�t like an aspiring candidate, they simply don�t put him on the ballot. LinkHere