Use and Abuse of MMT

Finance Capitalism vs. Industrial Capitalism

Venezuela Myth Keeping Us From Transforming Our Economy

"Most if not all derivatives contracts are predicated on interest rates because derivatives, to a great extent, are time-based.

Interest rates set a valuation on derivatives products as they measure opportunity cost, i.e. the profit foregone by putting money into product A when money could also theoretically be made by investing in product B.

Manipulating these rates, particularly in the interest of protecting derivatives investment, does indeed gum up the "immense and recondite" financial machinery of the world.

The interest rate derivatives market, in which the underlying asset is the right to pay or to receive a notional amount of money at a given interest rate, is the single largest derivatives market.

The Bank for International Settlements (BIS) estimated that in June 2012 the value for over-the-counter interest rate derivatives contracts (in notational terms) totaled $835 trillion; 90 percent of the world's top 500 companies now use them to control their cash flows." - Patricia Goldstone

"Between 1973 and 1985, US financial sector accounted for about 16% of domestic corporate profits.

In the 1990s, it ranged from 21% to 30%.

After 2000 it soared to 41%." - David Brooks


Finance and insurance together account for less than 4% of G.D.P.


"After 1980, in the deregulation minded Reagan era, old-fashioned banking was increasingly replaced by wheeling and dealing on a grand scale.

Banks used securitization to increase their risk. In the process they made the economy more vulnerable to financial disruption." - Paul Krugman 03/26/09


Dow Jones Industrial Average contains not a single financial corporation.

Market May See Risky Stock 'Melt Up'


"The sudden failure or abrupt withdrawal from trading of any of these large US dealers could cause liquidity problems in the markets and could pose risks to federally insured banks and the financial system as a whole.

In some cases intervention has and could result in a financial bailout paid for or guaranteed by taxpayers."- Charles A. Bowsher, Comptroller General, Government Accountability Office 1994


Myron Scholes, the "father" of financial derivatives, wins the Riksbank Prize in Economics for inventing the model that has led to financial derivatives.

Myron Scholes later declares derivatives and credit default swaps have gotten so dangerously out of hand that authorities should shut down the market and start over with regulation in place to begin with.

Brooksley E. Born, Commodity Futures Trading Commission chairwoman, is concerned that unfettered, opaque trading could "threaten our regulated markets or, indeed, our economy without any federal agency knowing about it," calls for greater disclosure of trades and reserves to cushion against losses and seeks to extend the Commodity Futures Trading Commission regulatory reach into derivatives.

Brooksley E. Born's opinions incited fierce opposition from top officials of the Treasury Department, Federal Reserve and the Securities and Exchange Commission including Alan Greenspan* and Robert Edward Rubin* who claim traders would take their business overseas.


"While OTC derivatives serve important economic functions, these products, like any complex financial instrument, can present significant risks if misused or misunderstood.

A number of large, well-publicized financial losses over the last few years have focused the attention of the financial services industry, its regulators, derivatives end-users and the general public on potential problems and abuses in the OTC derivatives market." - Commodity Futures Trading Commission, May 1998

What is a 'Derivative'?

What is an 'Economic Derivative'?

An insight into OTC Derivatives

Earth-Shaking Potential of Public Banks

Outstanding OTC Derivatives Volumes

Naked Gold Shorts: The Inside Story of Gold Price Manipulation

November 1999

Larry Summers, deputy secretary of the Treasury, Robert Edward Rubin, secretary of the Treasury, and Alan Greenspan, the chairman of the Federal Reserve work overtime to insure that derivatives are not regulated.

Larry Summers testifies before Congress that "the shadow of regulatory uncertainty over an otherwise thriving market - raised risks for the stability and competitiveness of American derivative trading."

Larry Summers blasted the Commodity Futures Trading Commission for having raised" the possibility of regulation over this market."

Even "small regulatory changes," Larry Summers cautioned, could throw the whole system out of whack.

Larry Summers, Alan Greenspan and Robert Edward Rubin recommend that Congress permanently strip the Commodity Futures Trading Commission of regulatory authority over derivatives.

Larry Summers' Debt Swap


David X. Li's Gaussian copula function

David X. Li's Gaussian copula function

Li was born as Li Xianglin and raised in a rural part of China during the 1960s.

His family was relocated during the Cultural Revolution to a rural village in southern China for "re-education".



"The development of "electronic" mortgages managed by MERS went hand in hand with the "securitization" of mortgage loans chopping them into pieces and selling them off to investors.

In the heyday of mortgage securitizations, before investors got wise, lenders would slice up loans, bundle them into "financial products" called "collateralized debt obligations" (CDOs), ostensibly insure them against default by wrapping them in derivatives called "credit default swaps," and sell them to pension funds, municipal funds and foreign investment funds.

There were many secured parties, and the pieces kept changing hands; but MERS supposedly kept track of all these changes electronically.

MERS would register and record mortgage loans in its name, and it would bring foreclosure actions in its name.

MERS facilitated the rapid turnover of mortgages and mortgage-backed securities while serving as a "corporate shield" that protects loan originators from claims by borrowers of predatory lending practices." - Ellen Brown

"MERS has reduced transparency in the mortgage market in two ways.

First, consumers and their counsel can no longer turn to the public recording systems to learn the identity of the holder of their note.

Today, county recording systems are increasingly full of one meaningless name, MERS, repeated over and over again.

But more importantly, all across the country, MERS now brings foreclosure proceedings in its name even though it is not the financial party of interest.

This is problematic because MERS is not equipped to provide responses to consumers' discovery requests with respect to predatory lending claims.

In effect, the securitization conduit attempts to use a faceless and seemingly innocent proxy with no knowledge of predatory origination or servicing behavior to do the dirty work of seizing the consumer's home.

MERS actually succeeds in foreclosing without producing the original note "the legal sine qua non of foreclosure" much less documentation that could support predatory lending defenses." - Timothy McCandless

"MERS as straw man lacks standing to foreclose, but so does original lender, although it was a signatory to the deal.

The lender lacks standing because title had to pass to the secured parties for the arrangement to legally qualify as a "security."

The lender, paid in full, has no further legal interest in the claim.

Only the securities holders have skin in the game; but they have no standing to foreclose, because they were not signatories to the original agreement.

They cannot satisfy the basic requirement of contract law that a plaintiff suing on a written contract must produce a signed contract proving he is entitled to relief." - Ellen Brown

Goldman Sacs


What is the 'ABX Index'

"The simultaneous selling of securities to customers and short selling them because they believed they were going to default is the most cynical use of credit information that I have ever seen." - Sylvain R. Raynes


Wall Street brokers introduces a new index, the ABX, that becomes a way to 'bet' on the value of mortgage backed securities.

This index, modeled on the Enron Trading Desk, allows traders to bet on or against pools of mortgages with different risk characteristics using variable stock indexes enabling traders to bet on whether the overall stock market, or technology stocks or bank stocks, will go up or down.

what you gonna do

Goldman Sachs did quite well on the collapse using the ABX to bet against the housing market.

Wall Street, with Goldman Sachs leading, inflated through deception a credit bubble that burst and cost tens of millions of Americans their jobs, incomes, savings and home equity.


"I continue to be concerned about the influence of pooled vehicles in the marketplace. I see it as a ticking time bomb that is going to blow at some point." - Securities and Exchange Commission Chairman William H. Donaldson, May 24, 2007

What is the difference between exchange-traded funds and mutual funds?


JP Morgan Chase generates $5.6 billion profit.

Matt Zames, a Long-Term Capital Management veteran, runs the JP Morgan Chase derivatives trading desk.

JP Morgan Chase profits from the collapse of Lehman Brothers and the takeover of Bear Stearns.

JP Morgan Chase dominates derivatives trading - $87.7 trillion worth of outstanding derivatives contracts as of September 30, 2008.

JP Morgan's Financial Herpes

"In the last quarter of a century the whole American economic system has lived off the speculations generated by the financial sector - sometimes given the acronym FIRE (for finance, insurance and real estate). FIRE has grown exponentially while, in the country's industrial heartland in particular, much of the rest of the economy has withered away. FIRE carries enormous weight and the capacity to do great harm." - Steve Fraser 01/08

"The banks are trying to win back their losses by arbitrage operations, borrowing from the Federal Reserve at a low interest rate and lending at a higher one, and gambling on options.

Options and derivatives are a zero-sum game: one losses, one gains.

So the banks collectively are simply painting themselves into a deeper corner.

They hope they can tell the Federal Reserve and Treasury to keep bailing them out or else they'll fail and cost the FDIC even more money to make good on insuring the "bad savings" that have been steered into these bad debts and bad gambles.

The Federal Reserve and Treasury certainly seem more willing to bailout the big financial institutions than to bailout savers, pensioners, Social Security recipients and other small fry.

They thus follow the traditional "Big fish eat little fish" principle of favoring the vested interests." - Michael Hudson 06/08

onerous debt

March 11, 2009 Jamie Dimon, chief executive officer of JP Morgan Chase, said the US government can rescue the financial system by the end of the year if officials start cooperating and stop the "vilification" of corporate America.

"Giant corporations arose early in the last century followed by wars, depression, and more wars.

Profit-making oligopolies and monopolies resulted competing not on price but mainly in the areas of cost-cutting and the sales effort.

Beginning in the late 1960s and 1970s, financialization came to the rescue, and "to some extent (shifted) control over the economy from corporate boardrooms to the financial markets.

Corporations were increasingly seen as bundles of assets, the more liquid the better.

Financialization produced new outlets for surplus in the FIRE sector (finance, insurance, and real estate), mostly for speculation, not capital goods investments in plant and equipment, transportation, and public utilities that earlier fueled business cycle expansions.

In the 1970s, it was about one-and-a-half times GDP.

The 1980s saw an unprecedented upsurge of debt in the economy.

By 1985, it was double, and by 2005 it was three-and-a-times GDP, rising, and approaching the $44 trillion (level) for the entire world.

Ever since, the way was open for a proliferation of financial instruments and markets, which (until the present) proved to be literally unlimited.

Keynes warned about "enterprise becoming the bubble on a whirlpool of speculation" like in the 1920s, the price being the Great Depression.

Bubbles grow until they burst.

Minor by comparison, the 1997-98 Asian crisis showed how fast contagion can spread.

Today it's global and out-of-control.

No one's sure how to contain it, so bankers are printing trillions in a desperate attempt to socialize losses, privatize profits, and pump life back into a corpse through a sort of shell game or grandest of grand theft process of sucking wealth from the public.

Speculation and debt need more of it to prosper, but in the end it's a losing game." - Stephen Lendman

David X. Li's Gaussian copula function

unique library index

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