Why The Citigroup Amendment Is So Dangerous And Who Is Responsible. In this 6 minute clip, Jered Bernstein explains the key reasons why the Citigroup amendment is bad for our economy. But what is more disturbing to me, is the media cover given to who specifically in congress is responsible for the amendment being in the bill. At about 3 minutes in, the question is asked: Who is responsible for the amendment getting in? The answer is shocking to me. The host and guests are dumbfounded. They purport to having no idea and suggest there is no way to find out. Well that is just ridiculous! It only took me a few minutes on the internets using the google to find the amendment came from the House Financial Services Committee. It was Jeb Hensarling (R) TX (Chairman), who pushed the amendment and it was originally introduced by Rep. Jim Himes (D) CT. And this is on MSNBC. Theyre the so called liberal news channel. MSNBC and CNN and Faux and the networks CBS, ABC, NBC, and even to a growing extent PBS, and every major newspaper are all owned by corporations. But I digress, back to the clip. In simple terms (as explained by the economist Mr. Bernstein), financial bubbles are caused by underpricing risk. During real estate run, when the phones were continuously ringing with potential borrowers shopping for the best rates, the first question they would ask me was: Whats your rate? To which I would reply: Whats your risk? The bottom line when it comes to credit is, the higher the risk, the higher the rate. The bubble was inflated by the lack of perceived risk in the market. As long as the price of real estate continued to rise, and that was the collateral behind the cash outlay for the loan, it really didnt matter that much if the borrower had the ability to repay the loan. Eliminate the risk and the price of credit dropped, and theres your bubble. So, the problem with the Citigroup amendment is, it eliminates the risk on derivatives trading by backing the bet with FDIC taxpayer money. The perception of a no risk bet allows the gambler to take higher and higher risks. If you dont have the taxpayer backstop, then the price of the derivative is accurately reflected, and then its much harder to sell these derivatives. And that is the real business and danger posed Citigroup and other investment houses. Its one thing to place these bets with their own money, thinking they have eliminated the risk for themselves. Its another thing altogether to sell these bets to pension and retirement fund managers. Bookies dont last long betting themselves, thats like getting high on your own supply. Bookies make money on the vig! They dont have any stake on the outcome of the game. They get fat as long as more and more people gamble. Like any good ponzi scheme, the game ends when the last sucker buys in. And the public is always that last sucker. As we saw in 2008, the seller of the under-priced risky bets will be bailed out, but the pension and retirement funds get decimated because they were sold a bill of goods that was under priced risk. Then the final insult comes when the politicians say we cant bail out the taxpayer, the borrowers, and the retirement fund because of moral hazard. And the corporate media plays their part in the construction of the con because they cant find who put the Citigroup amendment in the CRomnibus.
Posted on: Sun, 14 Dec 2014 15:37:02 +0000
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