11 March 2010

Humanitarian Resource Institute
Phone: (203) 668-0282
Url: www.humanitarian.net

United Nations Arts Initiative
Arts Integration Into Education
Url: www.unarts.org
Twitter: unarts
NGO Notes

Compensation and recovery proportional to the damage facilitated represents an excellent starting point for legal action by Connecticut Attorney General Dick Blumenthal against the credit rating agencies S&P And Moody's. [1,2]   Financial crimes associated with residential mortgage-backed securities, including subprime securities are critical variables associated with legal examination (1999-2010) of all unregulated OTC derivatives instruments, or as Warren Buffet called them "Weapons of Mass Destruction," that facilitated the collapse of the global financial system in 2008:

As the financial system digests the losses related to the current financial crisis, credit-rating agencies, once a relatively anonymous group, have come under increasing scrutiny for their role in the crisis. This scrutiny has led to additional litigation and both congressional and regulatory oversight....Major banks and other investors have lost hundreds of billions of dollars because of their misplaced belief in the value of residential mortgage-backed securities, including subprime securities. These losses have set off a ripple of related securities lawsuits. The initial wave of such lawsuits was mainly run-of-the-mill securities fraud cases alleging that the mortgage lenders, investment banks, and companies purchasing subprime securities failed to disclose material information about their portfolio of subprime securities. -- American Bar Association 2008 [3]

Under common law, three elements are required to prove fraud: a material false statement made with an intent to deceive (scienter), a victim’s reliance on the statement and damages. [4]

The Commodity Futures Modernization Act of 2000 Ends Regulatory Oversight of OTC Derivatives: On December 20, 2000, the Commodity Futures Modernization Act (“CFMA”) was passed. That legislation was rushed through Congress and enacted by both Houses of Congress on the last day of a lame duck session as a rider to an 11,000 page omnibus appropriation bill.2 The 262 page bill was presented to the Senate for the first time on the day that it passed. The CFMA removed OTC derivative transactions, including energy futures transactions, from all requirements of exchange trading and clearing under the CEA. Thus, in one fell swoop, the OTC market was exempt from capital adequacy requirements; reporting and disclosure; regulation of intermediaries; self regulation; any bars on fraud, manipulation and excessive speculation; and requirements for clearing. Thus, a market that now has a notional value of many times the world’s GDP is a completely private bi-lateral financial market wholly opaque to the world’s market regulators, including the U.S. financial safety and soundness overseers.  [5]

The Year 2000 conversion [6] set the stage for a global liquidity infusion by central banks, the repeal of Glass-Steagall facilitated exploitation via mergers of commercial banks, investment banks and insurance conglomerates.  The Commodity Futures Modernization Act of 2000 provided the international community with a new norm for the global financial system and facilitated the new speculative trading liquidity base.

As a result, we have become the largest post-trade infrastructure organization in the world with our three major subsidiaries receiving Standard & Poors’ highest credit rating, AAA/A-1+. Last year, just to give you some idea of the scale of our operations, the value of securities settled through DTCC was over $1.4 quadrillion, 26% growth from the prior year. In the American counting scheme, a quadrillion is a one followed by 15 zeros. To grasp how many parts there are to a quadrillion, take a shovel with you the next time you’re on the beach in Bermuda – they have nice fine sand. Dig yourself a trench in the sand one foot (or a third of a meter) wide, one foot deep and one mile (or 1,600 meters) long. Then stop and have yourself a big, cold drink, because you’ll have to dig 99 more just like that before you shovel a quadrillion grains of sand. (161 km x ⅓m x ⅓m) of sand = 1 quadrillion grains. -- Remarks by Jill Considine: At the joint European Central Bank/Federal Reserve Bank of Chicago Conference on “Issues Related to Central Counterparty Clearing,” April 4, 2006. [7]

Two years following the market crash in 2008, algorithmic systemic market distortions still exist in the unregulated shadow banking system.  Legal mechanisms to facilitate restructure, including debt relief [8] for victims of financial crimes is considered by some as the only way to address a challenge that is $100's of Trillions in scope.  Emergency assistance for victims on the household, small business, nonprofit and corporate level are critical for of emergency economic stabilization and recovery in every UN member country. [9]

"Voters rejected the bill because ordinary people, farmers and fishermen, taxpayers, doctors, nurses, teachers, are being asked to shoulder through their taxes a burden that was created by irresponsible greedy bankers".....  "Is there any reason why the American people should be taxed to guarantee the debts of banks, any more than they should be taxed to guarantee the debts of other institutions, including merchants, the industries, and the mills of the country?" Senator Carter Glass (D-Va), author of the Banking Act of 1933 and of Glass-Steagall. [10]

References:

1. Blumenthal Sues Credit Rating Agencies - Courant.com: Hartford Courant. 10 March 2010. Url: http://www.courant.com/business/hc-richard-blumenthal-credit-rating-agencies-0310,0,5011962.story
2. 2nd UPDATE: Connecticut Sues Moody's,S&P Over 'Tainted Ratings': Wall Street Journal, 10 March 2010. Url:  http://online.wsj.com/article/BT-CO-20100310-712447.html
3. Credit Rating Agencies in the Spotlight, Business Law Today, American Bar Association,  Volume 18, Number 4 March/April 2009. Url: http://www.abanet.org/buslaw/blt/2009-03-04/ellsworth.shtml
4. Basic Legal Concepts: Journal of Accountancy, October 2004. Url: http://www.journalofaccountancy.com/Issues/2004/Oct/BasicLegalConcepts.htm
5. Regulatory Reform of the OTC Derivatives Market: Credit Risk Chronicles. 3 March 2010.  Url: http://creditriskchronicles.blogspot.com/2010/03/regulatory-reform-of-otc-derivatives.html
6. Year 2000 Conversion: Contingency Planning, Global Infrastructure Analysis, Humanitarian Resource Institute. Url: http://www.humanitarian.net/contingency.html
7. Remarks by Jill Considine: At the joint European Central Bank/Federal Reserve Bank of Chicago Conference on “Issues Related to Central Counterparty      Clearing” Frankfurt, Germany, April 4, 2006. Url: https://www.ecb.int/events/pdf/conferences/ccp/Considine.pdf
8. IBAHRI: Government Debt: Default Projections: Humanitarian Resource Institute, 18 February 2010. Includes IBAHRI: G-192: Scope of Global Debt Crisis in Focus: Humanitarian Resource Institute, 10 February 2010. Url: http://www.unarts.org/news/ibahri_2102010.html
9. U.S. Needs Analysis Critical for Strategic Planning and Relief: Humanitarian Resource Institute: United Nations Arts Initiative. Url: www.unarts.org/news/aunappeal_182010.html
10. Iceland Voters Reject Bank Bailouts in Crushing Electoral Defeat; Neo-Liberalism In Context: Phil's Stock World, 8 March 2010.  Url:  http://beforeitsnews.com/news/23137/Iceland_Voters_Reject_Bank_Bailouts_in_Crushing_Electoral_Defeat;_Neo-Liberalism_In_Context.html


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9 March 2010

Humanitarian Resource Institute
Phone: (203) 668-0282
Url: www.humanitarian.net

United Nations Arts Initiative
Arts Integration Into Education
Url: www.unarts.org
Twitter: unarts

NGO Notes

JDSupra has released the report "Treasury Provides More Details on the Volcker Rule."  In the section entitled "Prognosis," it is noted that:

• One view is that the Volcker Rule is already incorporated into the Wall Street Reform and Consumer Protection Act (“H.R. 4173” or the “House Bill”), which passed in the U.S. House of Representatives on December 11, 2009. Section 1117 of H.R. 4173 gives the Federal Reserve the authority to prohibit systemically important companies from engaging in proprietary trading.
• In addition, Section 1105 of H.R. 4173 gives the proposed Financial Services Oversight Council (“Council”) the authority to require a financial company that could pose a threat to financial stability or the economy to terminate activities, limit affiliates or divest businesses if the Council finds that the size of the financial company poses a grave threat to the economy.
• The Senate could incorporate similar provisions into its version of regulatory reform legislation and take the view that it has addressed the issues raised by the Volcker Rule, thereby leaving the details to regulators rather than trying to incorporate the details into legislation and potentially delay enactment.

Looking forward to feedback regarding immediate implementation of the regulatory controls outlined in this emergency economic stabilization discussion.  It is clear that this must be a global coordinated action.

Related:

• Bogle/Stiglitz: Economic Crisis Dialogue: Humanitarian Resource Institute, 5 March 2010. AIIE: "The Eagle Will Rise," Harvard Law Record. Url: http://www.unarts.org/news/aiie_ecd352010.html
• HRI:UNArts: Biodefense: Atlantic Storm in Focus - Geoeconomics: Humanitarian Resource Institute, 25 February 2010. Url: http://www.unarts.org/news/atlanticstorm_2252010.html
• IBAHRI: Government Debt: Default Projections: Humanitarian Resource Institute, 18 February 2010. Includes IBAHRI: G-192: Scope of Global Debt Crisis in Focus: Humanitarian Resource Institute, 10 February 2010. Url: http://www.unarts.org/news/ibahri_2102010.html
  
• Davos: World Leaders Called to Emergency Action: Humanitarian Resource Institute, 20 January 2010. Includes Nobel Laureates asked to request financial market intervention by leaders in UN countries: Humanitarian Resource Institute, 13 January 2010. Financial Market Legitimacy Critical for Sustainable Global Recovery: Humanitarian Resource Institute, 5 January 2010. Url: http://www.unarts.org/news/gsteagall_152010.html

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