The Fourteenth Banker Blog

May 26, 2010

Derivative Reform

Filed under: Running Commentary — thefourteenthbanker @ 8:08 AM
Tags: ,

Blance Lincoln’s derivative reform amendment needs help. Italian Authorities, Jefferson County, the State of California have all been reported on. The average businessman on Main Street has not been heard from. This is not surprising given that they generally would not have the ability to assess how they may have been damaged. There is also the powerful dynamic of not reporting victimization because of embarrassment or not wanting to harm the friendly banker who sold that swap, and there are disclaimers and waivers in the paperwork. Do not think because they are uncounted victims that there are not victims by the thousands. I wish some of them would speak out now. Perhaps some attorneys know of cases they did not pursue on legal grounds because the case would be unlikely to succeed. I am sure that nevertheless these stories need to be told.



  1. While derivatives reform may have been watered down, investors as well as clients of investment banking firms must begin exerting leverage and influence to affect change. All too often a derivatives contract involves a serious conflict of interest between the client/investor and the bank. When a bank both gives advice and then acts as a counter-party on the derivative (i.e. takes the other side of the transaction), this is a conflict.

    Collectively, investors and fiduciaries must reject this conflict. If Bank A advises a client that a particular derivative would meet the clients financial objective, then Bank A should shop the deal around to other banks, and advise the client of the best terms in the market place. If Bank A maintained its status as an advisor, these conflicts would be eliminated.

    Although the reform legislation has its weaknesses, clients and fiduciaries have no limitations on demanding conflict free advice.

    For more details on the conflicts inherent in the derivatives market place, see my comments,

    Comment by MItchell Shames — May 26, 2010 @ 9:14 AM | Reply

  2. How about every single homeowner with a mortgage in this country?

    The lack of accountability to each and every consumer mortgage customer can be directly associated with the institutionalized lack of accountability generated by the prevalent use of SWAPS generally and CDS specifically.

    Also attributable to mortgage-backed derivatives are: 1) the prevalence of ‘Servicing Companies’ – designed to enable the ‘outsourcing’ of customer service and as a result, the diminution of customer service standards and accountability, 2) the prevalence of predatory lending, 3) the diminution of the level of sophistication at the branch employee level, and the corresponding diminution of respect for these roles, 4) the corresponding increase in distance between a customer’s local banking representatives and branch employees, again resulting in greatly lowered service levels, 5) the diminution in all kinds of consumer and business-lending due to a ‘Don’t Know your Customer’ standard, 5) the shift of control/accountability from branch networks to corporate boardrooms, reducing the number/quality of useful banking services offered to consumers, 6) the millions of mortgage delinquencies, defaults, jingle-mails, and outright foreclosures the plague our economic recovery.

    I could go on and on describing the obvious cause and effect correlations, but to answer your question net/net, there are certainly grounds for millions of law suits just on the grounds of predatory lending.

    Not sure you can litigate against a broken system, but the last 10-20 years’ prevailing shift from the downstairs to the upstairs business from a control perspective at our biggest banking institutions is CERTAINLY to blame for the economic mess that millions of consumers find themselves in today.

    Comment by lucyhoneychurch — May 26, 2010 @ 12:58 PM | Reply

    • So true!!!

      For years good bankers have been slowly and helplessly watching the deterioration of what used to be banking. Personally it was such a releif to hear Prof Black openly talk about how deliberately good upright employees are forced out because they are not useful in promoting the CEOs agenda (stealing as much as possible, as soon as possible).

      The deliberate removal of decision makers to remote locations is part of the grand plan of cheating as well. All in the name of efficiencies, such bull!!!!!

      The moral deterioration and mass delusion is unbelievable!!!!!

      Comment by Vocalbanker — May 26, 2010 @ 8:21 PM | Reply

  3. Matt Taibbi’s latest on the dog and pony show we just agonized through:;kw=%5B36899,157778%5D?RS_show_page=0

    Comment by Sandi — May 27, 2010 @ 1:44 PM | Reply

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