As President Barack Obama vowed in a Sept. 14 speech in New York’s Federal Hall to correct “reckless behavior and unchecked excess” on Wall Street, Mike McMahon and Barney Frank sat in the audience discussing how to ease proposed rules for the $592 trillion over-the-counter derivatives market.
Side by side at 26 Wall St., across from the New York Stock Exchange, freshman congressman McMahon told House Financial Services Committee Chairman Frank he was worried that Obama’s derivatives plan, released in August, would penalize a wide swath of U.S. corporations and could push jobs in his home district overseas, McMahon said in an interview. Read more about derivatives lobbyists…
Let’s get one thing straight: It’s patently insane that $592 trillion in derivatives even exist. They cannot be safely unwound. The standard definition of them is that they’re derivatives of underlying assets. The underlying assets are, in some cases, subprime mortgages. These mortgages only retain value as derivatives for as long as homeowners can continue to make the payments. When homeowners default, the derivatives become worthless. See the problem?
