Buying Washington with our money

$3.8 billion. That’s how much the people you elected to Congress and the Senate took from finance, insurance and real estate lobbyists in the past 10 years. That’s right, billion.

What did they buy? Protection from regulation that would protect consumers and investors. Protection from laws that would stop the outrageous risks, self-dealing, market making, collusion and investor deception. Protection from paying ordinary taxes on their extraordinary incomes. And protection from failure to the tune of more taxpayer money than, according to The Intelligence Daily,

“… the cost of all US wars (including such events as the American Revolution, the War of 1812, the Civil War, the Spanish American War, World War I, World War II, Korea, Vietnam, Iraq and Afghanistan, the invasion of Panama, the Kosovo War and numerous other small conflicts), the Louisiana Purchase, the New Deal, the Marshall Plan and the NASA Space Program combined.”

With Congress safely in their vest pockets, the financial sector has thrived and is expected this week to announce record bonus payments – “… expected to be 30 to 40 percent higher than 2008’s.” Wall Street and the mega-banks profits have so bloated during this period that, according to Robert Creamer,

“of every 12.5 dollars earned in the United States, one goes to the financial sector, much of which, let us recall, produces nothing.”

What wait, you must be thinking, what about the regulation and reforms we were promised to keep from having to save all the firms too big to fail from failing again? Surely voters won’t stand for more of the same. The tough votes will have to be made, right? We’re going to re-regulate these companies, get transparency, watch them and enforce our laws, right?

Hate to get your hopes up. On December 11, 2009, the House passed H.R. 4173, the Wall Street Reform and Consumer Protection Act of 2009 – according to the DNC, the bill is the  “most sweeping financial regulation since the Great Depression.” DNC Communications Director Brad Woodhouse, said,

“One year after nearly the worst financial collapse in our nation’s history — a collapse brought on by the excessive greed and risk taking of Wall Street and by the anything goes regulatory environment put in place by Republicans — not one Republican in the House thinks that consumers deserve additional protections or that the practices of Wall Street should be curbed.”

The Dems writing the bill, apparently, don’t think so either. The fix was in. To get the 1,300 page bill to a vote, they caved on the enforcement provisions so that the bill falls somewhere between a tediously long suggestion and a PR stunt. Sound tough to voters, but make sure the market sees the secret wink and the nod. Sure, the bill would shuffle the regulators, asks the Treasury to report stuff to Congress, requires a lot more forms to be filled out, and adds some councils and boards. It prohibits a few new things, but also repeals some regulation on the books that could make things worse. Dennis Kucinich (D-OH) voted against the bill, believing the legislation does not go far enough. On his website, Kucinich noted the loopholes in the bill “that sophisticated financial industry insiders will exploit with ease.”

But hey, the Senate just got a hold of it. Don’t expect it to be better, shorter, or even get to a vote until spring, if then.


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25 thoughts on “Buying Washington with our money

  1. Brenden

    Robert Creamer is an idiot. The financial sector produces everything. Without investment, how the hell do you think anything gets built or anyone gets a damned job? Oh, that’s right, the gov’t can provide everything for us since they’re all “noble civil servants.” Bang up job they’re doing in DC, as you point out here, Lee.

    I see healthcare is No. 2 on your hit list. I thought that the Democrats did such an impressive job bribing each other and looting the citizens that you were going to reward them with your vote?

    I hope you fools realize that beggaring Wall Street means beggaring yourselves. I won’t hold my breath though.

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  2. Lee Leslie Post author

    Thank you, Marilyn. Please share it with your associates.
    Brenden -- Quoting Mr. Creamer from the same story, ” Much of the financial sector does not produce anything. The principal missions of the financial sector are to take on risk and allocate capital effectively. Some of the industry -- especially community and regional banks — do just that. But in the last year the financial sector as a whole didn’t “take on risk,” it shifted risk to ordinary Americans through gigantic taxpayer bailouts. And often the Wall Streeters themselves escaped the recent economic debacle, having salted away hundreds of billions of dollars.”
    Regarding the list, it came from the Senate Office of Public Records. Not my list. But your point is well taken and I promise you that will not vote for those bribed by Wall Street or the Heath sectors. Both Senators were. My Congressman is John Lewis and while he did accept $18,150 in Health sector PAC money last year and another $2,550 from Wall Street, it was apparently not enough to purchase his votes. I am more fortunate than most to live in his district. I’m not sure how one votes conscious with so much scum to choose from.

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  3. Brenden

    That’s what I really loved about Creamer’s article — he faulted the bankers for the bailouts. Who issued the bailout? The gov’t. He also blames the bankers for the “easy money”. Who makes monetary policy? The gov’t. Now I know, Lee, you will say these legislators are but innocent pawns to the money and avarice of the evil bankers. Hence we must line the bankers up and… Then our noble gov’t workers can get back to the business of fixing all our problems.

    And furthermore, it wasn’t Wall Street that brought on this credit crisis. Again, the gov’t. The bankers weren’t holding billions in mortgages, in a loose monetary environment where the underlying assets were inflating unsustainably. Fannie and Freddie, the “quasi-“gov’t firms, where holding them and paying the investment banks to underwrite them into securities to fob off onto third parties, mostly gov’t pension funds. So, here we see the gov’t created the crisis by first on the front end creating the mortgage-backed security market and second buying all the securities on the back end.

    If left to private banks/investors, there never would have been a toxic mortgage-backed security market. There wouldn’t have been those “Fog this mirror and we’ll give you a mortgage” loans because the banks would have needed to keep those assets on their own books. Gov’t pension funds could have bought risk-free U.S. Treasurys. But John Lewis wouldn’t never have any of that.

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  4. Lee Leslie Post author

    Hardly. Our legislators are in the business of staying elected -- power corrupts, incumbency corrupts absolutely. The way lobby groups and the industries they represent is horribly wrong, but mostly legal. The way our legislators accept it and fall in line is reprehensible and they control what’s legal. Since we embraced the markets as the only measure of the economy that matters in the voting booth, they are all in it together. Too complicated to place all the blame, but most of my adult life our government has had a permanent war time economy and one scheme after another to replace our naturally aging industries with imaginary ones funded by games at the Fed in collusion with business too big too fail serving and leaders who cheer on those they serve while pretending they know best. I share your disgust.

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  5. Brenden

    Incumbency is not the problem, it’s idiocy. Specifically it’s people who think that a gov’t who is so catastrophically currupt that it creates havoc in global financial markets to protect a favored political fiefdom (Fannie and Freddie) — can then turn around and fix those same financial markets along with healthcare, employment, Afghanistan, the weather, etc…. This is our problem. If an elected official could only rein in these bloated useless bureaucracies that destroy far more than they create — I’d vote for that gal until doomsday.

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  6. Lee Leslie Post author

    Let me get this straight: the problem, as you see it, is not financial regulation, nor the finance industry, nor the companies or the people who run them, or the politicians, or the campaign finance laws, or the fed or treasury, or the lobbyists, or corruption, or even greed, it is people who see a problem and want government to address it? Wow. I’m all for reigning in bloated bureaucracies, but when bad laws have been passed or special interests unfairly served, I believe they should be fixed. Guess, I’m the problem.

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  7. Mike Copeland

    Actually, the financial sector does not produce anything. It is a great irony that an “industry” which has only one job, move people’s money around, has contrived to control the entire economy. Further, the insurance “industry” is merely a subset of the financial system. It too produces nothing. No matter what kind of insurance you speak of, no insurance company creates anything. All insurance companies exist to mitigate risk. That is it, nothing more.

    Before anybody begins to hyperventilate, I do recognize that it is, occasionally, helpful to rent a little money. I also admit that life can, sometimes, be made less stressful if one can mitigate some risk or other.

    That said, it is still not financial companies that create wealth. They do, sometimes, facilitate wealth creation but, in doing so, they never do anything other than move around wealth somebody else has already created. In theory, financial types do this in an attempt to allow some third party engaged in useful work to create more wealth. For this money handling, bankers, insurance folk and other finance types are supposed to collect a fee.

    All this movement of money should be relatively straight forward. When things get really complicated and “new financial instruments” are created and foisted upon the innocent public, it frequently means some super intelligent finance type has figured out a way to steal some money and get away with it.

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  8. Brenden

    I agree with this, “financial instruments created and foisted on the public.” But the agent often doing the foisting is the gov’t. Remember private investors would have never allowed the housing bubble and speculative mortgage-derivating trading to occur as it did.

    This is a contradiction: “the financial sector does not produce anything.” and “They do, sometimes, facilitate wealth creation…”

    Or at least a distinction without a difference. The mass of “produced” material would be far less but for the intervention of financiers, which is all that matters. If you think you made a novel discovery by pointing out that bankers don’t build the actual factories, cars, and hire welders. Well, duh. The people who do such things simply don’t have the start-up resources to conduct business, so they turn to Wall Street. We’re all very much better off for their efforts.

    Your objection to “new financial instruments” is similarly troubling. The purpose of futures, forwards and swaps — that is, derivatives — is, among other things, stablize forward price curves and reduce risk to transactions that occur and will occur in the future. You don’t take out a loan for the next five minutes; businesses carry inventories far into the future and nations undertake activities that can cause their currencies to move, affecting international trade. Like it or not, “derivatives” based upon future price movements are necessary and incredibly useful.

    I am not convinced the author, referenced articles or posters demonstrate a basic understand of the principles of finance. And yet, you feel quite comfortable saying all these folks are liars and thieves when you lack an elementary understanding of their work. This is, in liberal parlance, not fair. I agree that we need to look at regulation, but that should be with an eye toward encouraging investment and risk-taking — not destroying it.

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  9. Mike Copeland

    Claiming that bankers produce something because rented money is often used to pay for things required for producing something, is like saying natural gas makes bread. If the gas is used to produce heat to make bread, it is a component of production. However, gas, like Bankers, does not produce bread or anything else, excepting, maybe, hot air.

    Speaking of hot air, the first refuge of scoundrels is not patriotism or, even, religion. It is jargon. No matter how the scoundrels dress up the nomenclature, it is still simply moving money around. Mostly, other people’s money.

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  10. Brenden

    What is your point? Capital is a factor of production, just like labor or energy. But for obtaining financing, there would be no production. But for energy inputs, there would be no production. It’s no more complicated than that.

    “Moving people’s money around…” That this is your understanding of capital markets and the activities that occur there demonstrates your ignorance. I am guessing you support the current collectivist regime no doubt because they say things that make sense to you, like, “rich people did not obtain their wealth justly so we must confiscate it.”

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  11. Lee Leslie Post author

    Brenden --
    I am not convinced that you understand the principle of unintended consequences. Sure, the systematic dismantling of financial regulation and oversight which had protected our economy since the depression, most notably by Gramm, Gingrich, Clinton & Company, did result in a huge economic expansion, but also the great crash since the last great depression and the largest bailout in the history of the world. Sure, the mergers and acquisitions created a great deal of paper wealth that would be reinvested in new and expanding enterprises, but at the expense of community and regional enterprises, businesses small enough to succeed and stockholders powerful enough to have a voice to keep businesses responsible. Sure, the Wall Street innovations reduced the risks of investment bankers, conglomerates and government while also enabling transactions otherwise not possible, but the lack of transparency and self-dealing made it impossible for individuals to make intelligent investment decisions and led to our government -- the taxpayers -- owning 80+% of AIG and most all of the accumulated risk. Sure, once the banks got large enough, they could fund huge transactions and investments around the world, but they no longer lent money to small business, no longer kept the loans they made, no longer had to maintain capital adequate to safely face a downturn in values and no longer supported businesses by buying in their communities. Sure, the growth caused home values to skyrocket and allowed consumers to leverage the inflated values with the expectation of continued expansion, but the leverage and deflated values caused consumption to spiral down leaving us with excess capacity and led to countless foreclosures. Sure, all the leveraged deals and the hedge fund managers being taxed at capital gains rates meant New York’s budget could be balanced and funded the reelection of much of our Congress, but all of it just added to Washington’s deficit. Sure, turning defined pension plans into 401K’s allowed companies to cut costs and build their stock values, but it also put our future seniors’ future in great jeopardy. Sure, the bailout restored much of the financial industry, but they are using their capital to invest in the markets, not in businesses who badly need it.
    In liberal parlance, it is pretty to think that regulation, oversight and enforcement could make things fair, but we must have it to protect our way of life. We need our banking system working business, communities and people, but right now, the unintended consequence is that there’s just too much incentive for them to play the markets.
    A lot of business doesn’t produce anything -- except jobs, services, profits, wealth, consumption, taxes and that sort of thing. Why do you have a problem with that? Does the company you work for produce anything tangible?

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  12. Mike Copeland

    A new religion is born!

    “In the beginning there was the banker and the banker said, let there be production and there was production and the banker saw that it was good.”

    Brenden, this is your understanding of things? When was the last time a banker came to you and said, “Brenden me boy, I think you should borrow this great gob of money and build widgets with it. And, sure if you do, you will a great success and the world of widgets and widget users will be forever transformed.”

    The widget maker creates wealth not the banker. The widget maker may need to rent a bit of money in order to do so but he also needs to hire labor and acquire raw materials. Never the less, none of it happens unless the widget maker and his laborers, for very few among us know how to make a good widget, decide to do so.

    And, yes, ignorant savage that I am, no matter how sophisticated the scoundrels make the agreements, they are only moving money around. They are not producing anything and cannot survive without all the real producers. Nationally as well as locally, what is at risk here is not the banking system but the economy. The economy is at risk because it and the government are held hostage by the financial sector.

    No matter how they obfuscate the language, finance is, always has been and always will be a service activity. It is not an activity that creates wealth. It merely manages it.

    If anybody in the administration had ever actually done something other than finance or law or politics he or she would surely understand this simple fact: finance is a mere utility. It exists to serve other forms of economic activity. I use the word “fact” because this is not mere opinion. It is fact.

    By the way, understanding this fact does not make me a communist, a liberal, a conservative, a fascist or a bleeding heart centrist. Recognition of this particular fact cannot politically define a person. It cannot any more than does understanding that gravity generally works and the sun most always rises in the east and sets in the west. But, perhaps we disagree upon those facts as well.

    If there was anybody in the administration who had ever actually done something other than finance they would understand the simple fact that finance is a mere utility. It exists to serve other forms of economic activity. I use the word “fact” because this is not mere opinion. It is fact.

    By the way, understanding this fact does not make me a liberal or a conservative or a bleeding heart centrist. Recognition of this particular fact cannot politically define a person any more than does understanding that gravity generally works and the sun most always rises in the east and sets in the west. But, perhaps we disagree upon those facts as well.

    If there was anybody in the administration who had ever actually done something other than finance they would understand the simple fact that finance is a mere utility. It exists to serve other forms of economic activity. I use the word “fact” because this is not mere opinion. It is fact.

    By the way, understanding this fact does not make me a liberal or a conservative or a bleeding heart centrist. Recognition of this particular fact cannot politically define a person any more than does understanding that gravity generally works and the sun most always rises in the east and sets in the west. But, perhaps we disagree upon those facts as well.

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  13. Brenden

    Lee, tell me a specific, focused financial regulation that you believe would solve a particular problem. Try to avoid the word “lobbyist.” Obviously I have nothing against businesses, that’s why I support a strong financial sector.

    Do you think companies should not be permitted to merge or acquire?
    To what lack of transparency and self-dealing do you refer?
    Do you think banks should be forced to lend within certain communities and to certain businesses and individuals?
    Do you seek to limit consumer consumption?
    Do you think businesses should be forced to provide retirement plans to their workers?
    What are all the unintended consequences of these coerced activities you propose, I wonder?

    Mike, bankers don’t force people to take loans, though it appears Lee wants them to do so. Producers and financiers transact willingly to obtain a return. No one starts a business to provide a job or make a widget — they do so for profit.

    Banks who didn’t want bailout money were forced to take it, namely US Bank and Wells Fargo. The idiots at Treasury (under Bush) made Goldman Sachs gobs of cash by bailing out AIG. Again, a gov’t descion. The economy is at risk because of gov’t incompetence. Geithner is as bad as Paulson on his worst day. At least Paulson paid his taxes, though.

    Again, finance is as essential to production as labor or equipment. Without it, production simply does not occur. But by all means keep insisting otherwise.

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  14. Lee Leslie

    Brenden --
    One specific, focused financial regulation: H.R. 2834 (here’s a link: http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=110_cong_bills&docid=f:h2834ih.txt.pdf) -- it does not include the word “lobbyist”.
    Yes, however, anti-trust laws should be enforced.
    Generally, hedgefunds and companies trading stocks in which they make a market or have divisions with a business relationship which may cause conflict.
    No, I have never been a fan of the CRA, however, I do believe it is a good practice to lend money in the communities in which you take deposits.
    No, consumption is what drives all non-government subsidized businesses.
    No, business should be free to offer incentives or not as they wish -- that includes retirement and healthcare. Though I am not fundamentally opposed to business witholding SS or other taxes required by certain government plans.
    My unintended consequences -- that’s the catch 22, if I knew, the wouldn’t be unintended. My guess it would be in how the come up with another way around having their income taxed at ordinary income rate like the rest of us.

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  15. Mike Copeland

    Brenden,

    “No one starts a business to provide a job or make a widget — they do so for profit. ”

    I disagree. Though I have no verifiable research to back up my belief (I have never seen any that backs up your statement either. I think your statement is a “Chicago School Truism, never proved just believed. ALL HAIL MILTON!), only my personal experience and the experience of others I know, people do indeed start businesses primarily to produce something of social and economic value (not simply of economic value). I venture to say the vast majority of enterprises established every day are created to produce something first and make a profit later.

    Your and my major difference of opinion, it seems to me, is you do not believe folk are primarily human oriented, doing things for many complex and inter-related purposes. You seem to believe in an economic imperative. I do not.

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  16. Brenden

    If you don’t believe businesses exist to make profits — then you have no understanding of financial derivatives or their regulation. Obviously you’re entitled to your opinion, but of course no one should listen.

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  17. Lee Leslie

    There you go again… serving up a meaningless platitude. Not everything has a simple convenient label. Many businesses exist for reasons other than profit. To say otherwise denies reality. Most exist for many reasons, especially in the early years when they are owned by people and not the margins of a Wall Street firm.

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  18. Brenden

    The most elementary understanding of finance requires the basic notion of return on investment. That’s right, in dollars — not personal fulfillment or supplication to Gaia. It really is that simple. How in the hell would you value an asset but for the income it generates in terms of profit, rent, appreciation, etc.?

    Ventures that exist to provide jobs or self-esteem are not businesses; or if they call themselves businesses they’re lousy ones that lose money. Hence they would have limited or no access to capital markets because their future earnings would be zero. Their net present value would be zero. With a zero net present value, you could not trade on a forward curve. If you cannot trade on a forward price curve, then you don’t need to worry about derviatives.

    This discussion has been very enlightening because we’ve exposed your underlying assumptions about commerce. You put ventures that exist “for the good of the people” (Marxism) at equal footing to those with objective valuations based on bidding in open markets. Since you believe that the better business model is one that encourages personal fulfillment, self-expression or free love at the expense of profit, you cannot possibly expect to be taken seriously in a discussion about financial regulation.

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  19. Mike Copeland

    Breden,

    One other observation and I’ll let it go. Markets cannot regulate themselves any more than armies can. Markets move toward monopoly as surely as the tide comes in. Anybody who believes in the ability of a free market to regulate itself is simply naïve. Whoever the jackass is who was the head of the Fed before the jackass we have now used to believe markets could regulate themselves. He has said he no longer believes that. He apologized. It helps to know he is sorry.

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  20. Lee Leslie Post author

    Brenden -- Again, and as always, I appreciate your patience to take a moment and teach us these lessons on complex issues. Even with my elementary understanding of business, I get the need for income, appreciate the concept of profit and even ROI. However, there are thousands of not-for-profit businesses in this land and, I assure you, most who operate those businesses, profit differently than you describe.
    Most always a pleasure.

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  21. Brenden

    Lee, I see you concede my point by adding “not-for-profit” in front of the “businesses” you describe. You of course realize that non-profits don’t acquire capital through capital markets but rather beg for their revenue. Such ventures are not valued on their investment returns, but rather by whatever their other goals are. From a purely financial perspective, these businesses are worthless because they provide no return on investment. Since you’re bringing them up in a discussion about derivatives trading, they have no place in that discussion. There is no financial instrument or derivative of any kind that a non-profit could possibly issue because their net present value is zero.

    Mike, yet another irrelevant observation. I never said markets shouldn’t be regulated. My point is that your opinions are worthless as it relates to derivatives trading and regulation. This is true because you believe that businesses exist for reasons other than making money. Your opinions upon how capital markets should operate are informed by an anti-capitalist agenda. That agenda has no place in this discussion because the goal of anti-capitalism is to eradicate capital markets.

    Take heart! You’re not alone. I believe the current regime and the people supporting them hold similar views. Fomenting populist fear against bankers and insurance companies is the most-played card in the Marxist deck because financiers are the most conspicuous proponents of capitalism. Hence the current regime is saddling bankers with fees and taxes, telling the public they’re “Evil!!!” and trying make them pay the costs of bailouts given to auto-companies and their bankrupt union workforces. And also make them pay for the corrupt and feckless failed “stimulus” projects which were designed to redistribute wealth to other favored constituencies. Where’s the outrage?

    Obama and pals take advantage on your ignorance to conduct their populist, collectivist warfare on the private sector. Because of you don’t understand financial markets, they scare you. Fair enough. The unknown can be frightening. But reality is that the financial sector, where people freely and voluntarily transact the present and future valuees of private property, has existed legitimately for centuries providing wealth and opportunity to all people.

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  22. Lee Leslie Post author

    Plenty of not-for-profits didn’t beg their way into business nor beg for revenue to continue but were created with founders capital, foundation they had set-up or are enterprises whose profits go to support other non-profits (Newman’s Own, comes to mind). Then there are co-ops. I’m aware of many that were founded out of principles far from Marxism.
    I realize it may seem irrelevant to where you have taken my forum, but was offered to the early discussion on the purpose of business.
    On the other hand, many public utilities, mass-transit companies, universities, hospitals and the like operate as co-ops or not-for-profits that have significant assets and issue securities which are actively traded. And then there are mutual insurance companies and credit-unions. I think it is, perhaps, not so cut and dried.
    As for evil, banks are not inherently evil nor are bankers (my son is a banker). However, the financial industry has bribed policy makers to act contrary to the public interest -- that is wrong and it effects are evil.

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  23. Brenden

    True quasi-public agencies issue bond debentures which likely have default probabilty derivatives trading upon them. Still these are backed by rate revenues, assets and taxes in a fee-for-service arrangement, something clearly different from altruistic charity (the beggars). Nations issue currency to facilitate commerce and trade. And there are many currency-based and soverign debt derivatives. Still, these are valued according to the creditworthiness, revenue streams and assets of the issuer, and traded to make a profit.

    At any rate, public debt markets face different sorts of regulation from stock markets, the source of most all derivatives and their regulation. I believe this discussion is about derivatives regulation and I am unconvinced you understand the nth part of derivatives trading, what a derivative is, its purpose and necessity, that entitles you to criticize so stridently the professionals who work in this area.

    You blame bankers and traders for actions taken by lawmakers. Take your anger out the gov’t, rather than demonize a legitimate profession about which you know precious little.

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