DARK MATTER IN THE FINANCIAL UNIVERSE
WHY WE ARE BUSTED
Here is a frightening statistic: In 1980, almost 98 percent of traded financial assets met transparency guidelines, exchange-based rules and anti-fraud requirements. By 2008, over 90 percent did not. Yet, nothing has been implemented to restructure this precarious system. Hanging over the economy are some $700 trillion (not billion) in hidden derivatives. Yet nothing has been done other than to ignore them -- only repeated efforts to prop up AIG and the big banks. In fact, nothing can be done because the figure is 50 times the size of our economy.
These have become the dark matter of the financial universe -- unseen, vastly greater than visible matter, and exerting a dark force. Consider futures contracts on regulated exchanges: the open interest is also much larger than the commodity available, but the contracts (almost all except for the few genuine buyers who accept, and sellers who deliver the commodity) are closed out or settled before the expiration date. The parties accept the gains / losses; the transactions are transparent, the prices open. But with credit default swaps no one knows -- the ball-park figures are informed guesswork. It is imperative the government wield some muscle, particularly as the vast majority of credit default swaps have not been used for hedging credit but as trading proxies.
While the debate on jobs remains in terms of one plan claiming to generate one million , another party's plan claiming to produce two, what we actually need is in the range of twenty million -- a figure not close to realization if the lending institutions are hobbled by unrealized losses, and addicted to trading (gambling) instead of returning to commercial lending. This despite the billions from taxpayers to bail them out. Or, as the Indian writer Arundhati Roy expressed succinctly, "You take from the poor, subsidize the rich, and then call it the Free Market."