I'll Bet You'll Pay Their Losses.

       In your opinion, what will be the ramifications of the relaxing of the Dodd Frank bill on the derivatives market and how will the FED's decision to allow two more years for Wall Street banks to divest themselves of their investments in private equity and hedge funds? Uh huh! Me too. I have to admit, I don't really know what the hell they're talking about.
       Well, an article in the N.Y. Times this morning awakened my brain just a bit. The article pointed out two examples where these derivatives, actually wagers, were scary. In the one case the debt of a particular company was 1.4 billion, but the bets that the company would default amounted to 23.5 billion. In another example a company wanted to borrow several billion. They were told they could have the loan only if they were late in the next payment on existing debt because the lender held a bet they would default. The company was late on that next payment and got the loan, and the lender made a killing on it's bets.
       All of this is worrisome, but not nearly as worrisome as it will now be if that lender makes a bet in the future and loses the bet. That's because you and I and every taxpayer is gonna have to pay off on the bet. And that's because they can make these bets without using any of the banks own money. The bank will get away with the slickest deal you could ask for. Heads they win, tails we lose. Why? Because the Dodd Frank law that said they couldn't lay such debts on the taxpayers, got rescinded by the new 1.1 trillion spending law that passed congress and was signed by the president.
       Now I admit I still don't understand the derivatives markets enough, nor am I rich enough, to take advantage of these deals, but then the change in the law wasn't designed to enhance my portfolio. It was the Wall Street Banks for whom the changes were made. And it was for them that this fixed betting was arranged. That's right, the fix is in. The banks can't lose. But you surely will.