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Two articles from Ellen Brown tackle the derivatives ticking time bomb and how to defuse it

In two recent articles, PBI Co-Chair Ellen Brown examines the current derivatives threat in the wake of a conjectured “black swan event” and proposes some solutions:

Part 1: Casino Capitalism and the Derivatives Market: Time for Another ‘Lehman Moment’?

“In the event of a cyberattack that destroys the records of banks and brokers, there could be no way for purchasers to prove title to their assets; and in the event of a second Great Depression, with a wave of 1930s-style bank bankruptcies, derivative claimants with super-priority can take the banks’ assets without going through bankruptcy proceedings. In today’s fragile economy, these are not remote hypotheticals but are real possibilities, which can wipe out not just the savings of middle class families but the fortunes of billionaires.”

[Read full article]

Part 2: Defusing the Derivatives Time Bomb: Some Proposed Solutions

“Yet all this [regulator effort to shore up an inherently risky derivatives system] … is to allow the big international banks to run the largest derivatives casino that the world has ever seen. Why not just shut down the casino? Prof. Stout’s suggested solution is for Congress to return to the pre-2000 rule under which speculative derivative bets were not enforceable in court. That would include reversing the ‘superpriority’ privileges in the Bankruptcy Act of 2005 and the Dodd-Frank Act. But it won’t be a quick fix, as Wall Street and our divided Congress can be expected to put up a protracted fight.”

[Read full article]

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