Could Moody's and the Greek CDS time-bomb take down the 'Goodfellas of Wall Street?'
The rating agency moody's has warned it is considering downgrading the investment banking world's biggest players – this includes Bank of America, Goldman Sachs, JP Morgan, Morgan Stanley…the list goes on and on. I like the way the Wall Street Journal put it: "Moody's is worried about everything in investment banking." And speaking of worries – Art Cashin of UBS in his note this morning says traders are worried about a Greek default, but not for the reasons that you may think. What they are really worried about isn't the bond holders, but the guy's holding the insurance: the credit default swap (CDS) market. Wait, we thought everyone was perfectly hedged? So what kind of risk is really lurking in the US banking system then, and what could it do to an economy on zero percent interest rate life support? Well, our guest Henry Blodget may have an answer to that. He is CEO and founder of Business Insider, and is with us to talk about this, as well as the subject of a recent article of his titled "Dear Walmart, McDonald's, Starbucks: how do you feel about paying your employees so little that most of them are poor?" Henry makes a fair point in this article, but if it's true that CEO's and executives are paying their employees so little, then why are we so worried about taxes and not focused on the deterioration of wages in America? Henry Blodget points out that Henry Ford made a point of paying his workers better than other firms with the added hope that they could eventually be not just the producers, but also the consumers for his own products: his automobiles. And is the solution to our economic disease a forced redistribution of wealth through taxes, or is there something more fundamentally and structurally flawed at work here that is responsible for the inequities in today's wealth? How important is the banking sector in all of this, and how can a banking sector that is so corrupt and so broken possibly play a constructive part in bridging these tremendous gaps? We spend the first half of our show speaking about this with Henry Blodget of Business Insider.
And, remember the MF Global debacle? So just what's going on with the missing customer money and what does it mean for the future of commodities trading and regulation? And why isn't Jon Corzine in jail? Should he be? Backing up, MF Global is the firm that declared bankruptcy last October. As usual, the problem was leverage and debt. Huge positions on European sovereign bonds pushed the firm over the edge. The CEO was Jon Corzine, former CEO of Goldman Sachs, former US senator and governor of New Jersey. Customer money went missing in the bankruptcy, to the tune of $1.6 billion, according to the bankruptcy trustee. Jon Corzine and other executives testified before Congress saying they didn't know where the customer money was. Then we heard from regulator Terence Duffy that MF Global “informed the CFTC and CME that the shortfall was real and customer segregated funds had been transferred out of segregation to the firm’s broker dealer accounts.” These customers range from farmers, to hedge funds, to famous trends forecasters like Gerald Celent (a Capital Account guest). Some reports say the money has vanished. It's still being searched for – there's customer money trapped overseas. And because of the way the bankruptcy has been treated, the customers are at the end of the line to get the money back, meaning MF Global's creditors (namely JP Morgan) got their money first! So what's the deal here? JP Morgan gets its money, some poor farmer gets screwed over, and Jon Corzine – what happens to him? He gets off scot-free? What is this – a mafia operation?
We speak to Mark Melin, author and host of the Uncorrelated Investing Show, in the second half of our show, who is a veteran of the derivatives industry. He talks to us about the power of Too Big to Fail banks and the uber-connected-progeny they produce. Melin argues MF Global is the “Watergate” of our time, and says the way the Too Big to Fail Banks operate is not unlike a drug cartel. Melin argues, “the integrity of the commodities market has been put in jeopardy by this entire scandal that is unprecedented and done with certain people with regulatory power observing allowing this destruction to take place.” He goes on to say, “if you compare how a Mexican drug cartel operates and apply it to howtoo big to fail
banks operate there aren’t a lot of differences. There is an exception, Melin notes, “the TBTF banks influence rules and regulations to make what should be fraud legal.”
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