In my view "derivatives" is a fancy word for bets. The financial companies that sell them are basically bookies. These bookies, instead of holding onto the bets and/or laying them off to make sure the winners get paid, book them as profits and pay them out to themselves in executive bonuses. If they start losing the bets the company goes up in smoke. This is the AIG situation.
Another illegal aspect of these contracts is that they were in many cases developed specifically to allow risky investments by customers who by law should not be able to take on risky investments. These customers include treasurers for companies, states and municipalities, money market fund managers and pension fund fiduciaries.
What the Chinese Government appears to be doing now is exactly what the US Government should have done as soon as the derivatives mess started to blow up. This approach would have had the best chance of preserving the banking system and avoiding hardships to the general public. Instead, the Fed and Treasury adopted an exclusive strategy of funneling public money to the entities that created the mess in the first place.
The Chinese Government’s action therefore has the potential to expose how massively Western governments mishandled the crisis and rewarded the people who should better have been criminally prosecuted. Candidly, I won’t be holding my breath waiting for that to happen. So far, the general public has not been able to connect the dots on any of this.
Related:
"Banks uneasy over report China state companies assert right to default of derivatives trades."
Another illegal aspect of these contracts is that they were in many cases developed specifically to allow risky investments by customers who by law should not be able to take on risky investments. These customers include treasurers for companies, states and municipalities, money market fund managers and pension fund fiduciaries.
What the Chinese Government appears to be doing now is exactly what the US Government should have done as soon as the derivatives mess started to blow up. This approach would have had the best chance of preserving the banking system and avoiding hardships to the general public. Instead, the Fed and Treasury adopted an exclusive strategy of funneling public money to the entities that created the mess in the first place.
The Chinese Government’s action therefore has the potential to expose how massively Western governments mishandled the crisis and rewarded the people who should better have been criminally prosecuted. Candidly, I won’t be holding my breath waiting for that to happen. So far, the general public has not been able to connect the dots on any of this.
Related:
"Banks uneasy over report China state companies assert right to default of derivatives trades."
