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Greenspan "covering his butt"?

  1. AnnaPhylaxis

    470 Posts.

    By Bill Murphy, Chairman
    Gold Anti-Trust Action Committee Inc.
    11p CT Tuesday, November 19, 2002


    The following remarks by Fed Chairman Alan
    Greenspan sound like "cover your butt" talk.


    * * *


    Greenspan Says Central Banks
    Must Watch Derivatives


    By Michael McKee


    WASHINGTON, Nov. 19 (Bloomberg) --
    Governments must be careful not to over-
    regulate financial derivatives and central
    banks should not give the impression they
    will always bail out institutions if those
    instruments fail, Federal Reserve Chairman
    Alan Greenspan said."


    * * *


    The whole report on Greenspan's speech is
    appended here.


    Something is up and this wimp knows it. This
    is exactly what the Gold Anti-Trust Action
    Committee, the GATA Army, and Doug Noland of
    www.PrudentBear.com have sounded the alarm
    about for years.


    My guess is that the gold/interest rate
    derivative neutron bomb is slowly going off.
    Now that it is too late to do anything about
    it, Sir Blowhard is speaking out, after
    blocking any sort of regulation of
    derivatives while he supposedly was minding
    the store.


    Remember that a GATA delegation consisting of
    Frank Veneroso, Reg Howe, Chris Powell, and
    myself met with with House Speaker Dennis
    Hastert at the U.S. Capitol on May 10, 2000,
    and warned him of a looming derivatives
    crisis. We gave him a copy of our Gold
    Derivative Banking Crisis report, which we
    also gave to U.S. Rep. Spencer Bachus,
    chairman of the House Subcommittee on
    Domestic and International Monetary Policy,
    which has supervision of gold and silver
    issues. Bachus brought seven staff members to
    that meeting.


    GATA then met with the Dr. John Sylvia, the
    chief economist of the Senate Banking
    Committee.


    The next day I delivered a copy of the Gold
    Derivative Banking Crisis report to the
    office of every House and Senate banking
    committee member.


    The retiring chairman of the Senate Banking
    Committee, Phil Gramm of Texas, is a hack. He
    refused to acknowledge what GATA had to say.
    His wife, Wendy, a former chairman of the
    Commodities Futures Trading Commission, was
    on the Board of Directors of Enron. I could
    go on and on about our "behind-the-curve"
    Congress. When it comes to taking on the
    big-money crowd, they don't want to hear
    about it.


    No one is more calculating than Sir Blowhard,
    down to his use of adjectives. This story is
    no fluke. We are close to the day when all
    heck breaks lose. Greenspan is close to his
    day of reckoning.


    Buy gold and the gold shares.


    Got to be in it to win it!


    * * *


    Greenspan Says Central Banks
    Must Watch Derivatives


    By Michael McKee


    Washington, Nov. 19 (Bloomberg) --
    Governments must be careful not to over-
    regulate financial derivatives and central
    banks should not give the impression they
    will always bail out institutions if those
    instruments fail, Federal Reserve Chairman
    Alan Greenspan said.


    Derivatives, such as futures and options, are
    based on other assets and used to insure
    against price swings. They have become
    "central" to global growth because they
    make it easier to take risks, Greenspan told
    the Council on Foreign Relations.


    At the same time, derivatives' reliance on
    leverage creates the "remote" possibility
    of a chain reaction of failure, "a cascading
    sequence of defaults that will culminate in
    financial implosion if it proceeds
    unchecked," he said.


    Fed officials feared that could happen
    following the September 1998 collapse of Long
    Term Capital Management, a hedge fund which
    lost $4 billion mainly from wrong bets on
    differences between bond and futures prices.
    While the Fed didn't use its lender of last
    resort power by putting money into the firm,
    the central bank helped organize a rescue by
    Wall Street banks and other creditors.


    "Such a public subsidy should be reserved
    for only the rarest of occasions," Greenspan
    said. "If the owners or managers of private
    financial institutions were to anticipate
    being propped up frequently by government
    support, it would only encourage reckless and
    irresponsible practices."


    Gauging Risk


    The increased use of derivatives has helped
    lenders better gauge risk because the
    possibility of default is built into their
    price, Greenspan said.


    In recent months, derivative interest rates
    have risen on concerns about corporate
    governance, he said. "The perceived risk of
    default of both financial and nonfinancial
    firms has risen markedly in the wake of
    company-threatening scandals, though levels
    remain moderate for both."


    The Fed chairman's text, similar to remarks
    he delivered in London on Sept. 25, didn't
    discuss the U.S. economy or monetary policy.
    On Nov. 6, the central bank voted to lower
    the U.S. benchmark overnight bank lending
    rate to a 41-year low of 1.25 percent.


    Instead, he expanded on arguments he's made
    in the past against over-regulation of the
    derivatives market. Derivatives are measured
    by notional amount, the value of underlying
    assets. Their use is growing as a slump in
    stocks prompts investors to seek returns
    elsewhere.


    $128 Trillion


    Derivatives trading outside exchanges grew 15
    percent to a record $128 trillion in the
    first half of the year, driven by contracts
    pegged to interest rates, the Bank for
    International Settlements said earlier this
    month. The market is more than four times
    global gross domestic product as measured by
    the World Bank.


    The development of derivatives such as
    securitized bank loans, credit card
    receivables, and secondary mortgage markets
    is helping build a "far more flexible,
    efficient, and resilient financial system
    than existed just a quarter-century ago,"
    Greenspan said.


    For that reason, governments must be careful
    to ensure they don't stifle risk-taking in
    regulating derivatives.


    "We have the responsibility to prevent major
    financial market disruption through
    development and enforcement of prudent
    regulatory standards," Greenspan said. "But
    we also have the responsibility to ensure
    that the regulatory framework permits
    private-sector institutions to take prudent
    and appropriate risks, even though such risks
    will sometimes result in unanticipated bank
    losses or even bank failures," Greenspan
    said.


    Terrorist Attacks


    "While regulation must change as financial
    structures do, such regulatory change must be
    kept to minimum to avoid fostering
    uncertainty among innovators and investors,"
    Greenspan said.


    Over the past year, the U.S. was able to
    withstand the Sept. 11 terrorist attacks, the
    "draining impact of a loss of $8 trillion in
    stock market wealth" and a "sharp
    contraction" in capital investment largely
    because derivatives spread risk, particularly
    for major banks.


    "Importantly, despite significant losses, no
    major financial institution was driven to
    default," he said.


    Derivatives have also made possible the
    secondary mortgage market that has been "so
    critical" in supporting consumer spending by
    allowing Americans to refinance their homes,
    he said. And they kept the collapse of
    telecommunications companies at the end of
    the 1990s from cascading into a wider
    financial crisis, he said.


    Because banks and other lenders could
    mitigate their credit risk, damage from
    defaults by Enron Corp., Global Crossing
    Ltd., Railtrack Group Plc, and Swissair Group
    was limited, Greenspan said.


    "In particular, the still relatively small
    but rapidly growing market in credit
    derivatives has to date functioned well, with
    payouts proceeding smoothly for the most
    part," he said. "Obviously, this market is
    still too new to have been tested in a
    widespread down-cycle for credit. But so far,
    so good."


    ----------------------------------------------------

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