Obama's "Reform" Would Shift Wall Street Wealth To Chicago

What do New Yorkers call the so-called Obama Financial Services Reform? "The Great Chicago Bank Heist of the 21st Century!" Under the guise of protecting Main Street and the middle-class, President Obama and his Chicago political machine (Emanuel, Axelrod, Durbin, Jarrett) are secretly preparing to shift thousands of jobs from New York City to Chicago - along with billions of dollars of tax revenue. The Chicago political gang's first step in trying to move the financial center of our country and the financial capital of the world from the Big Apple to the Windy City will begin with this so-called "reform." And worse yet, our New York Democratic Congressional delegation led by Senators Chuck Schumer and Kirsten Gillibrand, are standing by letting it happen even while welcoming President Obama to New York City today.

In a nutshell, if the current "reform" legislation passes as is, the Chicago Mercantile Exchange, run by President Obama's buddies, would immediately establish an almost complete monopoly on the exchanges needed to comply with the legislation dealing with the trillions of dollars of derivatives transactions each year. . .(more)

Here’s a very interesting read: The Great Chicago Bank Heist of the 21st Century by Michael R. Long, Chairman of the NYS Conservative Party

What do New Yorkers call the so-called Obama Financial Services Reform? “The Great Chicago Bank Heist of the 21st Century!” Under the guise of protecting Main Street and the middle-class, President Obama and his Chicago political machine (Emanuel, Axelrod, Durbin, Jarrett) are secretly preparing to shift thousands of jobs from New York City to Chicago - along with billions of dollars of tax revenue. The Chicago political gang’s first step in trying to move the financial center of our country and the financial capital of the world from the Big Apple to the Windy City will begin with this so-called “reform.” And worse yet, our New York Democratic Congressional delegation led by Senators Chuck Schumer and Kirsten Gillibrand, are standing by letting it happen even while welcoming President Obama to New York City today.

In a nutshell, if the current “reform” legislation passes as is, the Chicago Mercantile Exchange, run by President Obama’s buddies, would immediately establish an almost complete monopoly on the exchanges needed to comply with the legislation dealing with the trillions of dollars of derivatives transactions each year. It is estimated that the Chicago Mercantile Exchange would benefit immediately with over $1 billion in additional revenue due to this heist in the name of “reform” (perhaps the Obama SEC should investigate this deal.)

Currently, most of these derivative transactions are processed through New York-based banks or financial firms with significant trading operations in New York City. These transactions generate approximately $28 billion in annual profits of which billions of taxes are paid to New York City and New York State. They employ thousands of persons and donate to our local charities and little leagues. This also generates hundreds of millions of dollars of additional revenue for smaller banks, brokerages and other businesses that feed off the financial sector. If Obama’s bank heist legislation is passed, the New York-based exchanges would not have enough time to set up the operations necessary to accommodate the new rules and hence the Chicago Mercantile Exchange would establish itself as the center of most of these transactions. The way this business works, once you have an “open interest” in one exchange, you keep most of your business with that exchange (to offset margin requirements); so once that is established it is virtually impossible for it to ever be moved.

This business will be forever moved from New York City to Chicago and with it many financial institutions would move more of their operations to Chicago as well. It is conceivable that one day even the stock markets could move to Chicago.

This bill is a job stimulus bill for Chicago and a job killer for New York City. Why can’t Senators Schumer and Gillibrand create a level-playing field for New Yorkers? Senators Schumer and Gillibrand, along with the rest of the Democratic Congressional delegation, continue to kowtow to President Obama and his Chicago political gang instead of standing up and fighting on behalf of New Yorkers! That’s their job and if they continue to prove they aren’t prepared to do their job, then New Yorkers are going to shift their jobs to someone who will stand up and fight for them in November.

This will be the largest transfer of wealth from one city to another in world history. Imagine what would happen to New York City and New York State if Chicago became the financial center of the United States and the financial capital of the world. If President Obama and his buddies at the Chicago Mercantile Exchange have their way, you won’t have to imagine too hard - this will become the Obama legacy on New York, otherwise known as the Great Chicago Bank Heist of the 21st Century.

The idea of shifting OTC credit derivatives to a central exchange is, in my opinion, misguided.

One of the major problems with OTC credit derivatives is that without some way of telling what bets a company has accepted, there's no way of knowing whether it will have sufficient funds to pay them.

Suppose I tell someone I'll pay him $1,000,000 if the April 23 2010 Illinois Pick-4 evening drawing comes up 3-7-7-7 if he buys a $75 ticket. I have assets of $10,000,000. Should the person regard that offer as a good deal? What if I'd already had the same offer, with the same number, accepted by 999 people?

The fact that the risk posed by all of my customers is strongly correlated (they'll either all win or all lose) might seem to make things dangerous for me, but provided I have a good exit strategy it actually works hugely to my advantage since it means there's a 99.99% chance I won't have to pay anything, and a 0.01% chance I'll end up paying a fraction of what I really owe.

As someone who has been involved in trading OTC derivatives (though not credit derivatives), I can say that usually the firms who trade them have to post margin with the broker. And the brokers are, in theory, highly capitalized and are expected to hedge the position until they lay it off in an opposite transaction with another party.

So in your case, they might have the same deal with 999 people, but then they have the opposite deal with another 999 people, but with a few dollars difference in payouts that constitutes their spread for making a market. They should only be market-makers. In that case, the individual broker-dealer works in the same way as an organized exchange.

AIG was neither hedging nor truly engaging in market-making. They had some truly stupid people running the financial products division who had no idea what they were trading, nor the risks and probabilities involved. The idiots ignored all the warnings from their risk managers and mathematicians. They were the only big player to fall apart from CDS trading, and only then because Lehman went bankrupt.

I think one solution is to set capitalization requirements, and to fashion them in such a way that encourages the broker-dealers to act as market-makers, buying and selling to facilitate trade, and hedging whatever risk remains, thus acting as intermediaries rather than taking huge positions.

A better, libertarian solution is simply to break up the huge banks into about 30 or more smaller banks and let them run themselves the way they see fit. Some will run well. Some will act stupidly If that happens, no one cares if one of them is behaving stupidly, because the market could survive a handful of bankruptcies. Moreover, these bankruptcies would be more likely to happen at different times, instead of all at once.

And the brokers are, in theory, highly capitalized and are expected to hedge the position until they lay it off in an opposite transaction with another party.

Without knowing the value of the bets the broker might have to pay off, it's impossible to know whether capitalization is adequate.

The profits from that sort of arrangement are pretty limited. Much bigger profits can be had if one lays long-shot bets without bothering to balance them. Once the bets have gone beyond one's ability to pay, any further bets one lays on the same outcome are pure profit.

Are you sure? From what I know of their behavior, it's consistent with a perfectly rational (though thoroughly unethical) strategy if they expected to be able to welsh on their bets without personal consequence.

I think one solution is to set capitalization requirements...

How does one do that without a means of ensuring that the assets that are backing the $1,000,000 I'm supposed to receive if I win aren't also promised to 999 other people?

Moreover, these bankruptcies would be more likely to happen at different times, instead of all at once.

The fact that many things collapsed simultaneously wasn't a bug--it was a feature to maximize the likelihood that the amount of stuff collapsing would either be very small (so those laying bets wouldn't have to pay much) or very big (so those laying bets would only have to pay a small fraction of what they owed).

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