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June 19, 2014

The "De-guaranteeing" Fraud: Wall Street’s Latest Cross Border Gamble

Wall Street’s latest gambit to avoid sensible and modest financial reform rules is to pretend that they are not guaranteeing their overseas affiliates.  This is great for Wall Street, which gets around the rules, but bad for everyone else who will have to pay the bill when their gambling blows up and causes another crash.  Remember the 2008 AIG blow up?  AIG was based in New York, but did it’s CDS gambling in the years before the 2008 crash in London.  But, when it’s London CDS operations blew up, it was the US taxpayer and government that provided it with $185 billion in bailouts.

Wall Street is up to its old tricks again.  This time, the biggest Wall Street banks are removing the word “guarantee” from their overseas affiliates, shipping their derivatives business overseas to their “un-guaranteed” affiliates, and avoiding the rules US-based banks have to comply with.  As a result, the US based banks are also shipping US jobs and tax revenue overseas, but the US-based bankers still get to pocket big bonuses from the overseas business.  US taxpayers therefore take a double hit:  first, they lose the jobs and revenue, but then they have to bail out the US-based bank when their overseas affiliates (guaranteed or not) blow up.

We have detailed all this in the attached fact sheet, including a sensible solution that regulators must require banks to comply with.



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