MarketWatch has just reported that the Senate has made it safe to bet big and naked on Wall Street. An amendment to the Finance Reform Bill that would have outlawed Naked CDS – Credit Default Swaps that are pure bets on what will happen on default positions taken by others; this prudish amendment has thankfully been rejected. Now naked CDS are a big, multi- trillion-$ Casino operation on Wall Street and other global markets. It is the source of huge growth and profits, so the Banksters are loath to see their money making operations closed down. So there is major pushback from the financial plutocrats against any Washington efforts or from other government capitals where financial reforms are being considered. But naked or synthetic CDS are not very defensible because they are blatant gambling serving no insurance or other economic purpose.
So the Banksters SpinDoctors are arguing that gambling $Trillions is vital to providing information on terms and conditions in the broader derivative markets. Supposedly these naked bets are valuable for setting the rates in the Credit Default markets and defining the value of the underlying CDOs. Of course, no one bothers to mention the fact that many of these markets are so opaque, complex and closed that little or no information gets transmitted, disclosed or otherwise disseminated to the public. The simple fact is that these are largely and deliberately private gambling havens where buyers and sellers and terms are only known to a small set of market makers and participants. This was the underlying problem in September 2008 when Lehman went tits up – nobody knew who owed what and to whom because of the complexity and opaqueness of many of the transactions. And so financial markets – and broad categories of lending and loaning just stopped working.
But hey one of the major causes – opaque and naked big bets in the multi-trillion dollar derivative markets are a Banksters growth industry. So the US Senate has seen fit to let that gambling haven continue on. Here is how MarketWatch describes the situation:
However, naked credit default swaps are derivative investments set up by two investor groups that have no insurable interest but are betting on whether another bond will default or not. The measure, which was introduced by Sen. Byron Dorgan, D-N.D., would have been attached to a bank reform bill under consideration in the Senate. A measure banning naked credit default swaps was approved by the House as part of a bank reform bill it approved in December.“There is not one social or economic benefit to these investments,” Dorgan said.
How could one let a Senator from North Dakota[?!] rule the roost? So let us not fault the US Senate when one of their kind goes astray! Here is a vital American industry, subject to great job losses and financial distress [in the latter case falling from 41% of all US business profits in 2007 to estimates of only 40% in 2009]. So Saints Preserve US, the US Senate had to and did preserve these vital “financial operations” so at least Wall Street should and shall live long and prosper!