need to add title here

Credit Default Swaps

October 27, 2008 4:32 AM

Steve Kroft examines the complicated financial instruments known as credit default swaps and the central role they are playing in the unfolding economic crisis.

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by NAFRANK September 5, 2009 10:35 PM EDT
I would like 60 minuts to run a more comprehensive report on the causes of the Banking Crisis which answers the following questions:

1. President Bush and the Republican controlled congress had the power to re-peal the damaging aspects of the Commodities Futures Modernizaton Act. I would like to know why nothing was done from 2001-2006. 2. Please explain how raising the debt limit on investment banks in 2003 contributed to the wild speculation in real estate from 2003-2006.
3. Please explain why the financial regulators did not require banks to do proper due diligence when writing mortgages and loans. Why were banks allowed to write loans with no income verification and no money down. Why were banks allowed to move their liabilities off balance sheet and not keep proper capital requirements. These practices were un-presidented and exploded from 2003-2006. What regulatory structures changed from 2001-2008 that allowed this to occur. If it was Bill Clinton, why did President Bush just sit on the sidelines versus putting more regulation in place.
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by nokool-aid October 29, 2008 4:04 PM EDT
Pres. Wilson said in 1919, %u201CI am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is now controlled by its system of credit. We are no longer a government by conviction and the vote of the majority, but a government by the opinion and duress of a small group of dominant men.%u201D

On September 18 2008, McCain said, if elected, fire Cox for failing in his oversight of Wall Street. "The chairman of the SEC serves at the appointment of the president and, in my view, has betrayed the public''s trust, if I were president today, I would fire him."
McCain called for a 9/11 type investigation of CDS''s, naked short selling and other forms of Bear raiding in 2005 %u2013 not good for Goldman Sachs (GS).

Does anyone even think about why media is so against McCain in such an unprecedented way? How about that GS was the one to invest 4 times more in Obama than McCain for contributions and was his 2nd largest contributor? Or that GS was on top w/tremendous earnings? That if they would only cover their shorts how good it would be for the market and McCain? Or that Paulson let GS competitor Lehman Bros hit the cement and cripple the corp. debt market? Oil went to $150 and now is around 60 but we still pay over $3/gallon? Or that the Fed stopped its policy of raising rates to slow the debt market? Or that Paulson IS Goldman and he knows very well that the market and the press can cause a population to vote against the incumbent?
Coffee Not Kool-Aid
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by heyyour October 29, 2008 2:36 PM EDT
60 Minutes,
Your two pieces on Wall Street Credit Default Swaps are informative. But like the Congress, who passed the law, President Clinton, who signed the law and the Bankers who obeyed the law, 60 Minutes as a major player in the news media institution is culpable and part of the problem.

After all, expert reporting on the roots of an graph and corruption, failed and cheating institutions at America''s expense AFTER THE FACT, is like PBS exposis on the Civil War.

But, 60 Minutes sells quite well and is entertaining.

Keep up your bush league work rather than fulfilling your institutional duty. I%u2019m sure your celebrity will continue.

Hey Your
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by gubbly33 October 28, 2008 8:18 PM EDT
The SEC hides behind the Freedom of Information ACT, when anyone got close to exposing the culprits. Why is that?

Kyle Ramsay
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by mbhiii October 28, 2008 7:10 PM EDT
ACORN had absolutely nothing to do with the crash. They registered poor people to vote, and fired and reported anyone working for them who did it fraudulently. The current financial crisis is way beyond the scope of a economic fly-speck like ACORN who had nothing to do with credit default swaps (CDSs). The problem now seems Low Information Voters (LIVs) spinning convoluted stories about a story so convoluted already they have no grasp of it at all. "Liar loans" didn''t bring down the economy; huge unregulated side-bets on them did.
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by franssusan October 28, 2008 6:43 PM EDT
No one will talk about the REAL reason for the financial melt down. The blame should go to the beginning of the problem: the "liar loan" mortgages that were made to people who KNEW they could NOT afford them and bought more house than they could afford. That''s the root of this problem. Face it. Wall Street was trying to make lemonade out of the lemons they were handed. After all, their job is to make money, not lose it. Slimy groups like ACORN force government to force banks to make loans they knew wouldn''t work. Face the facts & stop the convoluted stories that put the blame everywhere but where it belongs!
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by mbhiii October 28, 2008 6:09 PM EDT
Financial derivatives, like "credit default swaps" on mortgage backed securities, were specifically deregulated by Phil Gramm, et al, in the Commodity Futures Modernization Act of 2000. Though many Democrats signed it, the bill was pushed through by the GOP with Alan Greenspan cheer-leading. Until July 18, 2008, Gramm was a senior economic adviser to John McCain''s presidential campaign. In 1996, McCain chaired Gramm''s presidential campaign. So, just like WMDs, this crisis sits squarely on the GOP, and McCain''s, doorstep.
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by brockowitz October 28, 2008 5:28 PM EDT
If you like this video then everyone should watch this video as well: http://www.cnbc.com//id/27218295

Additionally, read this article at the New York Times dated September 30, 1999: http://query.nytimes.com/gst/fullpage.html?res=9C0DE7DB153EF933A0575AC0A96F958260&sec=&spon=&partner=permalink&exprod=permalink
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by iBanker October 28, 2008 2:16 PM EDT
THIS IS A GREAT OPINION:

''60 Minutes'' Financial Crisis Expose Ignores Election Ramifications

By Noel Sheppard
October 27, 2008

With nine days left before Election Day, "60 Minutes" aired a segment Sunday evening addressing a complex investment tool at the heart of the current financial crisis without fully explaining the presidential campaign ramifications behind the laws that made the market meltdown almost inevitable.
Despite accurately calling credit default swaps "The Bet That Blew Up Wall Street," CBS didn''t properly inform viewers that George W. Bush had absolutely nothing to do with the Clinton-signed legislation that deregulated them, and that frequent campaign statements by Barack Obama and Joe Biden blaming the current financial crisis on Bush economic policies are therefore completely false.
The producers also chose not to expose the key Democrats -- most notably House Speaker Nancy Pelosi (D-Cali.) and House Financial Services Committee Chairman Barney Frank (D-Mass.) -- that voted in favor of this legislation back in 2000 but have in recent weeks dishonestly blamed President Bush for the current crisis.
Instead, CBS''s Steve Kroft offered viewers a very general and nonpartisan political background to the passage of the Commodity Futures Modernization Act of 2000 (video embedded right).
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by edmcphee-2009 October 28, 2008 12:41 PM EDT
It took Steve 10 minutes to explain what happen and
congress and the white house both democrates and republicans involved. Republicans wrote the bill
and a Democrate signed it ( Clinton) on Dec 21 2000
When nobody was looking and no debate. This caused
the down fall of Enron and now maybe Wall Street.Congress doesn''t want you to know what caused
this because now their all rich it will be a cover up.
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by tcdiaz October 28, 2008 2:18 AM EDT
Greed for a lack of a better word is (not) good. We all remember the movie Wall St.
The individuals that bet on the likely hood of investment firms becoming insolvent using
Credit Default Swaps (CDS) should be tried and sent to prison for
ECONOMIC TREASON! If I buy a lottery ticket I purchase it with the probable intent of winning. If John Paulson and Bill Ackerman (investment bankers) placed several side bets on mortgage backed securities defaulting. Did they just get lucky cashing in on hundreds of millions ($3.7 billion)? Or did they have the savvy and access to the mortgage portfolios of the various investment firm holdings of the Sub-Prime and Alt-A which would eventually evolve as non-performing. Did they place a good bet?
The Commodities Modernization Act of 2000 should have never been revised.
Lawmakers are human just like me. We can only prey that the 700 billion bail out will not bleed us to death! The bail out should cover the front-end of the risk by paying monies toward the mortgages to avert non-performance and foreclosure.
Instead the bailout appears to be paying off all the bets that were made on mortgage backed securities defaulting. Can you say. %u201CInvestment banker high roller baby%u201D!
Betting on the potential failure of investment firms and Wall St. was not my intent with investing my money in the market over the last 20 years.

Middle Class, Ft. Wayne, IN
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by vhammon October 27, 2008 4:10 PM EDT
#1. There has been a private, unregulated market to bet on whether our houses burn down. Now that we are sitting in the ashes, who is investigating to discover whether the markets were manipulated (Enron-like) to benefit a few big gamblers? Remember Elliott Spitzer, NY DA, wrote an editorial in February 2008 (NYT) drawing attention to these risks, and sadly, he was easily seduced and effectively sidelined, because we are more obsessed with sexual peccadillos than with effective oversight of our markets.


#2. The paragraph in the bill overriding gambling laws should have been an enormous red flag to every one of our lawmakers. They read the bill, and are either corrupt or astoundingly naove and unfit for office, or they did not read the bill before passing it, and should be fired for astounding incompetence and a breach of fiduciary responsibility. I%u2019m not buying the, %u201CNo one could ever have imagined that some people would act selfishly, greedily and criminally.%u201D

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by bmwstock1 October 27, 2008 4:01 PM EDT
People, before you assign blame please do some research first, and remember who controlled the House and Senate in 2000!!!
The "Commodity Futures Modernization Act of 2000" (H.R. 5660) was introduced in the House on Dec. 14, 2000 by Rep. Ewing (R-IL) and cosponsored by Rep. Bliley, Jr. (R-VA) Combest (R-TX) LaFalce (D-NY) Leach (R-IA) and never debated in the House.
The companion bill (S.3283) was introduced in the Senate on Dec. 15th, 2000 (The last day before Christmas holiday) by Sen. Lugar (R-IN) and cosponsored by Fitzgerald (R-IL) Gramm (R-TX) Hagel (R-NE) Harkin (D-IA) Johnson (D-SD) and never debated in the Senate.
The bill by-passed the substantive policy committees in both the House and the Senate so that there were neither hearings nor opportunities for recorded committee votes. In substance, it appears that the leadership of the Republican-controlled Senate and House incorporated the deregulation of credit default swaps into an omnibus budget bill (without hearings or recorded votes)at a time when the outgoing president was in no position to veto anything.
The Republican leadership of the house incorporated "The Commodity Futures Modernization Act of 2000(H.R. 5660)" by reference, as Section 1(a)(7), in a long and complex conference report to the 11,000 page long "2000 omnibus budget bill" formally known as "The Consolidated Appropriations Act for FY2001(Labor, Health and Human Services, and Education Appropriations Bill) (H.R. 4577)."

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by alildazed October 27, 2008 3:38 PM EDT
Why can''t congress just make these swaps null n void, as long as they are legal those still holding them stand to make a mint. And I would love to know how many blind trusts held by congressmen actually hold CDS in them. Why didn''t 60 minutes ask who is profiting?
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by fartymous October 27, 2008 2:38 PM EDT
well yes it was phil gramm who reintroduced the 262 page rider to the more than 11000 page fed appropriations bill on the last day of the session 15 dec, 2000 in the midst of gore v. bush. it was calculated to get hidden in the atmosphere. the legislation led directly to the collapse of enron and the california energy crisis. gramm''s wife was working for enron at the time of the bill''s passage. the same phil gramm that stood behind john mccain until he said that the american consumer is in a psychological recession and that we were whiners. hope that answer''s your question.
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by gp382 October 27, 2008 2:28 PM EDT
Would anyone care to comment on how the commodities futures modernization act got added to budget bill? Who did it? When? Who actually voted on it? Who read it? Anyone know?

Mike
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by gp382 October 27, 2008 2:27 PM EDT
Would anyone care to comment on how the commodities futures modernization act got added to budget bill? Who did it? When? Who actually voted on it? Who read it? Anyone know?

Mike
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by usaeddie69 October 27, 2008 2:23 PM EDT
It is a good thing for the HEDGE FUNDS that congress does not read or understand the legislature that they create.
Now, here is the real question who are the other side bettors?
That is what I want to know.

Who had the capital to bet Trillions?

Without having the Funds to back the bet.

It is Fraud and should be prosecuted.
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by vbilt-2009 October 27, 2008 2:17 PM EDT
Very informative and well done. Manrunldlte (posted above) left out the culpability(moral evil) of Maxine Waters, Barney Frank, Senator Dodd and others who pushed "Subprime Mortagages". However, and earlier, The Bill, Commodies Futures Modernization Act of 2000, had to be passed to further the lending practices being pushed at that time by President Clinton (See the NY Times Sept 30 1999).
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by lulumn47 October 27, 2008 12:06 PM EDT
Seems to me Congress approved legal documents, similar to the homeowners who signed mortgage loan papers without reading or having a clue how it all worked. Time for the line item veto!!!
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