Items like FX and Interest-Rate swaps can easily be exchange traded, as the closing price can be computed daily and for most of these products a minute-by-minute price can be computed using transparent and simple formulae. The underlying instruments for these products are real and trade every day - interest rates of course are a matter of public knowledge and trades in the treasury and agency debt market, while currency pairs are quoted on a near-continuous basis. Both sorts of OTC contracts have no real reason to change hands over-the-counter, except to allow some bank to insert a hinky clause here or there that disadvantages the customer, charging an outsize spread or commission for the "privilege." Indeed there have been several major disputes over this practice between these banks and municipalities that were sold complex interest-rate swaps that in some cases came with allegations of outright bribery or inside dealing.
But when it comes to these other things like CDOs and CDS, there is no observable market price on which to base the derivative as there is no actual underlying basis. What, for example, is the "risk that GE will go out of business in the next year"? Document how you arrive at your answer please, and good luck coming up with anything that is objectively defensible.
In short, the nonsense, patronage and outright fraud within both our government and the cabal of dealers must stop now.
This marks two warnings Congress has had on this matter in written testimony, the first prior to the repeal of Glass-Steagall predicting exactly what has now happened and now, this from Mr. Whalen.
I have written to Congress on many occasions, including spending thousands of dollars faxing Tickers, white papers and other documents to all 535 members over the previous two years on these points. Congress seems to think that America is a bunch of dolts and will tolerate being literally stuck up at gunpoint to the tune of hundreds of billions if not trillions of dollars in a massive collusive scam that reaches all the way to the top of the American Regulatory and Political Systems.
The American people have every right to hold The Board of Governors of The Federal Reserve, The Federal Reserve Bank of New York, Henry Paulson, Tim Geithner and all 535 Congressional members personally responsible if the abuses, frauds, and scams that have been enabled by the intentional blindness and even complicity of these individuals are not stopped immediately and all past transgressions prosecuted to the fullest extent of the law.
We the people have every right to demand and expect that a passel of special prosecutors be empaneled immediately to go over each and every one of these allegations, investigate every agency including The Federal Reserve and its member banks, and where appropriate bring indictments and prosecutions for frauds perpetrated upon the taxpayers, investing public, the states and municipalities of this nation.
