From Pine View Farm

Bankster Boo-Hoos 0

David Weidner at MarketWatch predicts that forcing banks to spin off the units that market derivatives would

strike a blow to heart of the industry that would, more than any regulation, change the way the industry does business.

They go on to say, in the same story (emphasis added),

Derivatives — contracts based on underlying securities such as commodities, mortgages, stocks and bonds — represent an estimated $500 trillion market used across Wall Street to hedge, insure and bet on the future prices of those underlying assets. It represented $20 billion in revenue last year to Wall Street.

Actually, they didn’t insure anything. We have seen how that worked. As soon as the real estate and related credit markets fell, they became (remember this phrase?) “toxic assets,” toxic because they were worthless.

What the heck kind of insurance is that? (Oh, I forgot, it’s like WellPoint heath insurance–great as long as you don’t get sick.)

MarketWatch concludes

The unintended consequences of such a move could be devastating to banks such as Bank of America Corp., Citigroup Inc., and J.P. Morgan Chase & Co. On
the other hand, the move would definitely bring much needed credit evaluation since banks would no longer be able to take insurance on their risk.

“Devastating,” I reckon, because they would have to stop the three-card monte and pay attention to fiduciary responsibility and sound business practices–things they may have forgotten how to do.

That should be an intended consequence.


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