Just as Greenspan as new Fed chairman turned to his old cronies at J.P. Morgan when he wanted to grant a loophole to the strict Glass-Steagall Act in 1987, and as he turned to J.P. Morgan to covertly work with the Fed to buy derivatives on the Chicago MMI stock index to artificially manipulate a recovery from the October 1987 crash, so the Greenspan Fed worked with J.P. Morgan and a handful of other trusted friends on Wall Street to support the launch of securitization in the 1990’s, as it became clear what the staggering potentials were for the banks who were first and who could shape the rules of the new game, the New Finance.It was J.P. Morgan & Co. that led the march of the big money center banks beginning 1995 away from traditional customer bank lending towards the pure trading of credit and of credit risk. The goal was to amass huge fortunes for the bank’s balance sheet without having to carry the risk on the bank’s books, an open invitation to greed, fraud and ultimate financial disaster. Almost every major bank in the world, from Deutsche Bank to UBS to Barclays to Royal Bank of Scotland to Societe Generale soon followed like eager blind lemmings.
None however came close to the handful of US banks which came to create and dominate the new world of securitization after 1995, as well as of derivatives issuance.
The only US law regulating rating agencies, the Credit Agency Reform Act of 2006 is a toothless law, passed in the wake of the Enron collapse. Four days before the collapse of Enron, the rating agencies gave Enron an “investment grade” rating, and a shocked public called for some scrutiny of the raters. The effect of the Credit Agency Reform Act of 2006 was null on the de facto rating monopoly of S&P, Moody’s and Fitch.Made me think of the following comment (from a different article):The European Union, also reacting to Enron and to the similar fraud of the Italian company Parmalat, called for an investigation of whether the US rating agencies rating Parmalat has conflicts of interest, how transparent their methodologies were (not at all) and the lack of competition.
....The raters under US law were not liable for their ratings despite the fact that investors worldwide depend often exclusively on the AAA or other rating by Moody’s or S&P as validation of creditworthiness, most especially in securitized assets. The Credit Agency Reform Act of 2006 in no way dealt with liability of the rating agencies. It was in this regard a worthless paper. It was the only law dealing with the raters at all.
As von Schweinitz pointed out, “Rule 10b-5 of the Securities and Exchange Act of 1934 is probably the most important basis for suing on the grounds of capital market fraud.”
Of course, there's a potentially dangerous side to dark pools, which have become controversial because there's no transparency and orders are hidden....There are other potential drawbacks to dark pools. Few things anger a trader more than seeing inaccessible market prints while actively trading in a particular security. Buy-side traders for mutual fund empires, pension funds and banks see dark pools as the most likely place for information leakage.
The Securities and Exchange Commission has officially encouraged the creation of dark pools to compete with the dominant NYSE and Nasdaq exchanges to offer the best price competition. Indeed, dark pools are the direct result of an SEC rule allowing the private National Market System to be formed.
I knew that the stock market boom did help a lot of people....but now we know WHY the market boomed....and now we know why its going in the toliet...