American tax payers, who, in significant numbers, think their problems are caused by Mexican immigrants and homosexuals.

And big gummint.

In my view, Mr. Dimon and his ilk have managed risk brilliantly. They have profitted enormously by transferring risk to American tax payers, who, in significant numbers, think their problems are caused by Mexican immigrants and homosexuals.

But in a larger sense, it is that government, the Fed and Treasury, aren’t trying very hard to understand derivatives. As for Dodd and Frank, they sound positively clownish when they discuss anything financial. And the “expertise” level, with a few exceptions, descends rapidly from there.

Nomi Prins made the same point in her recent FDL Book Salon visit (for “It Takes A Pillage”) about three weeks ago.

The more that I’ve come to understand this issue, the more convinced I am that this is a key problem. And if the government examiners can’t understand these things, then Congress is going to be completely bamboozled, as we’re seeing…

say I’m your mailman (woman) and I see you have lots of late payment notices in the post. I go to the re-insurer and purchase a credit default swap to make $ from your troubles, when I personally have no exposure to your troubles.

Making money from others’ financial troubles? Where can I sign up?

/snark

That is just bullshit.

As well as being predatory and amoral.

George Soros said it most clearly, and most eloquently: traditionally (since the 1930s) the Fed has monitored money. Now, it must also monitor c-r-e-d-i-t creation and the amount of outstanding credit.

If the Fed and international agencies closely monitored the creation of credit, as well as ‘monetary supply’, then the continued use of CDOs might make sense.

But the Fed claims to monitor ‘the monetary supply’ (i.e. the amount of money in the system). Yet at the same time, it’s basically allowing Goldman Sachs, the mega-banks, and AIG to print money — only the ‘money’ that they print is called ‘credit default swaps’.

And D.C. and the Fed are too flipping gutless to call those derivatives what they are: a form of m-o-n-e-y.

It’s as if the Fed refuses to acknowledge the obvious: they enabled banksters and insurance companies to print money. Traditionally, that was the realm of the Fed, and only the Fed.

Now, it’s the realm of any Wall Street firm or megabank that has the legal authority to write and create CDOs.

The Fed doesn’t admit, acknowledge, nor articulate that it’s lost control of the money supply, and therefore any ‘monetary policy’ that it creates is doomed to inadequacy. The degree of inaccuracy and futility is roughly approximate to the ratio between ‘real’ money created by the Fed, and ‘pseudo dollars’ created by means of CDOs and CDSs.

If we can’t even have that conversation in public in America, we don’t have a prayer in hell of getting a grip on this disaster.