Amit Chokshi's Instablog Amit Chokshi http://seekingalpha.com/author/amit-chokshi/instablog Ben Nelson: Save Buffett and Nelson, Screw Everyone Else http://seekingalpha.com/instablog/1314-amit-chokshi/65874-ben-nelson-save-buffett-and-nelson-screw-everyone-else?source=feed 65874

The world is mired in a nasty financially induced economic crisis mainly because a number of highly educated, wealthy individuals that are responsible for policy decisions could not see, or ignored, a multi trillion dollar real estate bubble.  A key contributor of the fallout of this financial crisis was lack of derivatives legislation and more importantly a lack of appreciation of the risks associated with those derivatives.  Without any significant regulation and real monitoring of these derivatives, problems such as the current sovereign debt crisis facing Europe could yield results similar to the financial crisis of 2008.  As Yves Smith points out in her blog Naked Capitalism, "In the subprime crisis, many pundits and the Fed itself thought the losses would be contained, unaware that for every $1 in BBB subprime bonds, another $10 in CDS had been written, and that many of these exposures sat with highly levered firms, namely insurers and dealers, who were not able to take much in the way of losses."

Now enter Ben Nelson.  While a number of legislators believe that derivatives legislation, and at the very least the opportunity to have an open, exploratory debate is important, Nelson is once again voting based solely on his own financial interests and the behest of one of his key campaign contributors.  According to OpenSecrets.org, Warren Buffett's BRK was Nelson's second largest campaign contributor.  As an insurance conglomerate, BRK has roughly $63B in derivatives contracts.  The proposed legislation would require that those that engage in derivatives set aside more capital to protect themselves from losses to avoid issues similar to those mentioned by Yves Smith above.  Based on current proposals, BRK would need to set aside roughly $8B in additional capital.

Buffett apparently was not happy with this and lobbied Nelson for an exemption for existing derivatives contracts which Nelson had no problem complying with.  This is because aside from the campaign contributions from BRK, Nelson and his wife own up to $6MM in BRK stock.  The fact that Nelson is perpetually prostituting himself for his corporate constituents at the expense of the general population is beyond shameful given the track record a laissez-faire approach with derivatives has yielded.  The exemption that BRK has lobbied for is an awful idea as derivatives contracts exploded in terms of issuance in recent years.  As a result it's much more likely that the derivatives contracts that would exacerbate the next crisis have already been underwritten.  Yet somehow, Nelson can find himself pushing for this exemption that would leave essentially the entire world at risk for another crisis exacerbated by derivatives.  And if that crisis occurs and financial institutions are undercapitalized relative to the losses sustained from those derivatives, the general populace will wonder why their tax dollars are used once again to engineer a bailout of these institutions and protect the multimillion dollar interests held in these institutions by people such as Ben Nelson.

Disclosure: None]]> Thu, 29 Apr 2010 10:12:50 -0400

The world is mired in a nasty financially induced economic crisis mainly because a number of highly educated, wealthy individuals that are responsible for policy decisions could not see, or ignored, a multi trillion dollar real estate bubble.  A key contributor of the fallout of this financial crisis was lack of derivatives legislation and more importantly a lack of appreciation of the risks associated with those derivatives.  Without any significant regulation and real monitoring of these derivatives, problems such as the current sovereign debt crisis facing Europe could yield results similar to the financial crisis of 2008.  As Yves Smith points out in her blog Naked Capitalism, "In the subprime crisis, many pundits and the Fed itself thought the losses would be contained, unaware that for every $1 in BBB subprime bonds, another $10 in CDS had been written, and that many of these exposures sat with highly levered firms, namely insurers and dealers, who were not able to take much in the way of losses."

Now enter Ben Nelson.  While a number of legislators believe that derivatives legislation, and at the very least the opportunity to have an open, exploratory debate is important, Nelson is once again voting based solely on his own financial interests and the behest of one of his key campaign contributors.  According to OpenSecrets.org, Warren Buffett's BRK was Nelson's second largest campaign contributor.  As an insurance conglomerate, BRK has roughly $63B in derivatives contracts.  The proposed legislation would require that those that engage in derivatives set aside more capital to protect themselves from losses to avoid issues similar to those mentioned by Yves Smith above.  Based on current proposals, BRK would need to set aside roughly $8B in additional capital.

Buffett apparently was not happy with this and lobbied Nelson for an exemption for existing derivatives contracts which Nelson had no problem complying with.  This is because aside from the campaign contributions from BRK, Nelson and his wife own up to $6MM in BRK stock.  The fact that Nelson is perpetually prostituting himself for his corporate constituents at the expense of the general population is beyond shameful given the track record a laissez-faire approach with derivatives has yielded.  The exemption that BRK has lobbied for is an awful idea as derivatives contracts exploded in terms of issuance in recent years.  As a result it's much more likely that the derivatives contracts that would exacerbate the next crisis have already been underwritten.  Yet somehow, Nelson can find himself pushing for this exemption that would leave essentially the entire world at risk for another crisis exacerbated by derivatives.  And if that crisis occurs and financial institutions are undercapitalized relative to the losses sustained from those derivatives, the general populace will wonder why their tax dollars are used once again to engineer a bailout of these institutions and protect the multimillion dollar interests held in these institutions by people such as Ben Nelson.

Disclosure: None]]> brk.a brk.b