Larry Summers and Tim Geithner, and their boss, the President, are perfectly willing to let Jamie Dimon and Vikram Pandit and Ken Lewis rob the American people blind as a condition to taking part in cleaning up the mess they have made of our vaunted financial system. Not so in South Korea. Courts there are protecting companies defrauded by the banksters into complex derivative contracts. And when I say complex, even Floyd Norris of the New York Times has trouble explaining the Knock-In/Knock-Out (KIKO) contracts clearly:
That product combined a “knock-in” option that would take effect only if there were a big move in currency prices, and a “knock-out” option that would vanish if that big move took place. The companies bought call options, allowing them to buy the won cheaply, but gave up the right to buy won if the won fell too far [against the dollar]. They sold put options, which would force them to buy won, but only if the currency took a big fall.
What this means is that if the Korean currency, the Won, rose or stayed steady against the dollar, the purchaser would be protected to a fair extent. If the Won collapsed, the purchaser would lose a lot of money. The Won held steady for the first couple of years, then fell like a rock. So, the purchasers sued, and a Korean court has ruled for them in several of these cases, and against them in a couple of others.
The winning legal theory is that the purchasers were not sophisticated investors, but rather ordinary people relying on the banksters to provide solid business advice. The court says that the KIKOs were not suitable investments, and were sold without disclosure of the risks. Even in the cases where the banks won, the court applied that analysis, concluding that the losing purchasers were sophisticated investors. The court also looked to “changed circumstances” as a defense to the KIKOs, saying that no one contemplated the large losses that could bankrupt purchasers.
You know you have struck a nerve when the International Swaps and Derivatives Association is reduced to concern trolling:
“ISDA is deeply concerned with the rulings in these lawsuits,” said Keith Noyes, ISDA Regional Director, Asia Pacific. “The Seoul Central District Court rulings could severely inhibit derivatives activity in Korea and in turn risk upsetting financial stability if these decisions are upheld and banks made wary of entering into financial contracts.”
Norris calls this home cooking, but he then notes a similar US case from the 90’s. This would be a good thing. Wall Street has caused billions in losses to cities, states, colleges and universities and their endowment funds, and charities.
Today, there are class action suits over the huge losses in the auction rate securities debacle, which affected municipalities, universities and their endowments, and thousands of individual investors. There are all kinds of private suits alleging that the sellers were lying about securitized assets, about their investment portfolios, about their business models, and about the risk of their investment strategies. There are even suits to get money out of Bernie Madoff feeder funds. Our courts will protect the rich by giving them every opportunity to obfuscate and delay and delay, and maybe the victims will get money in 2015.
And then there is Birmingham, Jefferson County, Alabama, the city that was going to show other municipalities the way to invest in swaps and derivatives. From Bloomberg:
Derivatives led to the near bankruptcy of Jefferson County last year and JPMorgan Chase & Co. canceled swap contracts with the municipality on March 2 at a cost to the county of $657 million.
California is investigating if banks and financial advisers conspired to overcharge local governments for derivatives. Detroit is trying to reduce a $400 million payment required to end a swap after its credit rating was cut to below investment grade. The amount equals almost one-third of the city’s $1.5 billion annual budget.
The former chief executive officer of the Municipal Securities Rule-Making Board said recently that he wasn’t allowed to regulate swaps and derivatives, and that bankers spent years fighting the minimal steps taken.
Even when there is an investigation, the banks get off. The Justice Department waived criminal charges against the Bank of America over allegations of price-fixing and bid-rigging in the municipal derivatives markets. Bank of America is cooperating and providing information in exchange.
Wall Street screwed taxpayers. Again. The cheated government doesn’t sue. Again. No one gets indicted. Again.
The Eight Million Dollar man, Larry Summers, and his poodle, Tim Geithner, are supposed to be on our side, but there isn’t any sign of it. Isn’t it a shame the $300 million we gave Obama wasn’t enough money to put a pit bull on these cheats and liars instead of a couple lap dogs of the financial elites?