Banking Cartels 101 —>
The Glass-Steagall Act was a 1933 law (banking regulation) establishing a firewall between investment and commercial banking, it was in essence repealed in 1994 and 1999 with the Riegle-Neal Interstate Banking and Branching Efficiency Act and the Gramm-Leach-Bliley Act, both signed into law by Bill Clinton. This permitted Wall Street investment banking firms to gamble with their depositors’ money being held in affiliated commercial banks.
Deregulating the banks led to derivatives that will eventually contribute to financial armageddon in America.
One primary example of the corrupt system is the credit default swap invented by a young mathematics graduate hired by Chase Bank in NY. The then-fresh university graduate convinced her bosses at Chase to develop a revolutionary new risk product, the credit default awap – a credit derivative or agreement between two counterparties in which one makes periodic payments to the other and gets the promise of a payoff if a third party defaults. The first party gets credit protection, a kind of insurance, and is called the “buyer,” the second party gives credit protection and is called the “seller,” the third party, the one that might go bankrupt or default, is known as the “reference entity.”
CDSes became staggeringly popular as credit risks exploded during the last several years in the U.S. and Banks argued that with CDSes they could spread risk around the globe, because there is no requirement to actually hold any asset or suffer a loss, credit default swaps can be used for speculative purposes.
As it stands, the market is entirely unregulated which is creating mass corruption, mismanagement and reckless behavior that will ultimately lead to financial armageddon and possibly a total global financial collapse.
*For those who aren’t quite clear what derivatives are: In finance, a derivative is a contract that derives its value from the performance of an underlying entity. This underlying entity can be an asset, index, or interest rate and it’s often called the “underlying”. Derivatives can be used for a number of purposes including insuring against price movements (hedging), increasing exposure to price movements for speculation or getting access to otherwise hard-to-trade assets or markets. Some of the more common derivatives include forwards, futures, options, swaps, and variations of these such as synthetic collateralize debt obligations & credit default swaps. Most derivatives are traded over-the-counter (off-exchange) or on an exchange while most insurance contracts have developed into a separate industry.
Derivatives are one of the three main categories of financial instruments, the other two being stocks (i.e., equities or shares) and debt (i.e., bonds & mortgages).