Obama demands derivative legislation

Obama obviously doesn't understand how futures markets work. He doesn't understand that these trades minimize expected price swings.

"I want to see what emerges, but I will veto legislation that does not bring the derivatives market under control and some sort of regulatory framework that assures that we don’t have the same kind of crises that we’ve seen in the past," he told reporters before beginning a meeting with the Economic Recovery Advisory Board. . . .

Obama charged that "some in the industry are not happy with the prospect of these reforms" and said lobbyists have "found some willing allies on the other side of the aisle in Congress." Still, he voiced his hopes for a "bipartisan bill" that stops firms from taking reckless risks. . . .

Obama claims that we have to adopt his proposals or disaster will occur.

The U.S. is destined to endure a new economic crisis that sticks taxpayers with the bill unless Congress tightens oversight of the financial industry, President Barack Obama said Saturday.
The overhaul is the next major piece of legislation that Obama wants to sign into law this year, but solid GOP opposition in the Senate is jeopardizing that goal.
"Every day we don't act, the same system that led to bailouts remains in place, with the exact same loopholes and the exact same liabilities," Obama said in his weekly radio and Internet address. "And if we don't change what led to the crisis, we'll doom ourselves to repeat it.
"Opposing reform will leave taxpayers on the hook if a crisis like this ever happens again," the president said. . . .

Is it any surprise that the Obama administration is going after securities fraud just as this legislation is coming up. What Goldman is being accused of is similar to what Fannie and Freddie did.

"Politically the timing could not have been worse for Wall Street." -- Damian Paletta, Wall Street Journal Reporter.

"Goldman Sachs case could help Obama shift voter anger" -- Los Angeles Times

But Obama has vulnerabilities of his own. Goldman Sachs employees contributed nearly $1 million to his 2008 presidential campaign, the second largest source of his donations, according to the Center for Responsive Politics. . . .

"Hedge fund manager in Goldman Sachs case is major Democratic donor" -- The Hill

The Wall Street Journal describes Goldman Sachs as defending themselves this way:

Goldman says "we did not structure a portfolio that was designed to lose money." It says the investors involved were sophisticated and were provided "extensive information about the underlying mortgage securities." As for not disclosing Paulson's role, it says "As normal business practice, market makers do not disclose the identities of a buyer to a seller and vice versa." It says it never represented to ACA that Paulson was long. The firm is fighting the charges. . . .

Just a reminder about Fannie's and Freddie's role in creating the current problems (here, here, and here).

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