HeilmanFowler26
The government needs to do more than control hybrid derivative safeties and the institutions who underwrite them. They need to inject reason. Needing public registrations and a violent regulative body are needed to ensure public protection in future hybrid safety issuance's. Directors and officers of banks who play with others' money must get heavy penalties when their bets fail. Both for the company's they represent and personally. They should lose all huge selection they have built up and the built up plethora of their direct supervisors ought to be forfeited. Without effects these staff will create an additional globe economic meltdown. Because derivatives are complicated, I'm developing a metaphor to make them much simpler to recognize for the laid-back reader as topics such as lfa can easily be quite complicated.
What if General Motors were allowed to wager on the failure of a car part? Think of if they were permitted to take out an insurance policy which paid them a million bucks every time a fuel injector failed on a Chevy Malibu and caught it on fire. Just what if GM convinced an insurance company to payout when one of its own items failed and hurt someone? And the payment went to GM. Let's call these insurance contracts "GM injector default swaps" or "IDS's." Let's pretend that the insurance company has so much faith in the injectors that they over concern them since of their research on past injector failures. The insurance business allow GM to put 50 or 100 of these bets out on each injector put in a vehicle. They let Joe Engineer get them in his 401k also though he is creating the injectors. After all, injector failures have actually been exceptionally low and this appears like a piece of cake business choice from the actuaries at the insurance business. In their very own globe, it represents a massive quantity of free of charge premium, with no risk, and someone else marketing the contracts so what the f *ck. Now let's just state for argument's sake that there were business in Detroit of inexpensive moral character, (undoubtedly right wing republicans) who determined to in some way persuade GM to alter the design of the Malibu injector. Let's presume that they convinced GM engineers to design it to fail in order to profit themselves on the IDS's. Merely a little failing, no one really gets hurt, but enough of a failure that triggers IDS agreements. Let's even include in our metaphor that these business who persuaded GM to create their own injectors to fail loaded up on the injector failure insurance contracts. Even though they understand that the massive, too big to fail insurance business will certainly be fiscally devastated, and that the company is of some considerable significance to the US economy; in fact the whole entire world economic situation because of its enormity and how lots of people and additional morally functional corporations depend on it for all kinds of insurance products.
They are persuaded that the government will save the insurance business if trillions of dollars are owed to these IDS owners because enabling the insurance companies to fail will certainly produce a lynch pin economic occasion. So their bets are thought to be secure. Let's pretend that persuading GM engineers to redesign the injectors to fail and load up on IDS' was more profitable to the GM pro-forma than producing and selling sound vehicles. They know that this short term plan will certainly damage the economy and harmed many people. They do not care due to the fact that of the enormous payday they will certainly get. They justify that the government would step in and bail out the insurance company (s) since of its (their) significance to the economy. At the end of this game there are lots of dead bodies, but no one vital.
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 chooses that giving these cars away to anyone who preferred one would accelerate and greatly boost the overall future IDS profits accruals to GM and its cohorts. Let's even say that the engineers might really create the injectors to fail after exactly two years of use. The 2 years will certainly give GM time to build and hand out a massive volume of injector failing produced Malibus to wager against. The two years will certainly give the insurance business, (who understand nothing of the injector failure design) an incredible amount of self-confidence in releasing the IDS's. The insurance business will really make billions of bucks 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 flawed injector design charade. All is well in Detroit.
OK, quick forward. The two years have passed and the first buyers of low-cost 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 knocked. The GM managers choose to show S and P, Fitch and Moody's that they even more than covered for defective injectors with their injector default swap purchases. The securities rebound and experienced analysts at Ford and Chrysler recognize the gig. They suggest their corporate directors to leap aboard and start designing automobiles with unreliable throttle bodies and defective crank shafts. On the other hand they acquire TBDS and CSDS coverage from the large insurance business and GM follows suit. Soon all cars manufactured in our beloved America are created with substandard parts covered by defective part insurance payable to greedy immoral b*stards. Automobiles stalled and burnt up all over our highways are not being paid for are being repossessed. Rich guys are cashing checks from the insurance companies who underwrote the IDS's and concurrently placing enormous pressure on the government, the public and the fed to bail out the insurance company, or there would be economic catastrophe for all. They do not give a f*ck about the people who die in the burnt up autos or those who lose their cars ... Small cost for the uber rich to pay (a little smoke on the freeway they only require view from their Lear Jet windows - it's difficult to see from up there).
This is just what happened in our mortgage loan business. This is exactly how fast food employees got half million buck homes. The mortgages were produced to fail and given away to anybody breathing so that hedge funds and bankers (Scion cap, John Paulson, Goldman Sachs ... the listing is not that long but certainly distinguished) could make billions and billions wagering against them. The moral risk - It might well be the relaxing of our economic climate, the worldwide economy and political military reliability around the entire world.
My conclusion ... Merely as long as we have companies that are too large to fail and who are enabled 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 have to make d*mn sure that exactly how they do business is safe. They need to be managed. Violently controlled. Better yet, they must have been enabled to fail.
Jeff Greenberg http://www.legalforensicauditors.com/
