The "International Swaps & Derivatives Association." Geez, talk about branding problems. I'm sure it seemed all very innocuous when the started, but now it's like "The Toxic Waste Dumpers Association" or "The Transfat Council" or "Baby Seal Clubber Alliance." I'll bet everyone who's up for reelection in 2010 is lining up to be seen with them.

Who are the Dems? Anyone interesting?

OK, I'm among the great unwashed. Part of the problem associated with swaps and derivatives is the obscurity of the language and possibly even the processes. Could someone explain simply what multilateral close-out netting is and why it is so critically important? EOC? Also the link to Herstatt risk (whatever that is) isn't yet up to help enlightenment. Ontologically Impaired? Also, has the provision been useful in eliminating systemic risk during the present situation? An example, please.

Although the bankruptcy bill may not have been a cynical carveout for treatment of swaps and derivatives ahead of other creditors, the bill certainly had the main effect of a cynical effort to screw Main Street to benefit the credit card companies who have been complicit in encouraging the nation to live beyond their means. It's another one of the bills which contributed to the meltdown we are experiencing. It was the direct result of the effectiveness of lobbying organizations like ISDA in achieving results which are only support special interests.

Perhaps if we redefined usery as interest rates and fees in excess of 15 or 18 percent, the credit card people would have been more careful in their lending. I think they've just made the fees and interest exorbitant enough that they could survive any foreseeable level of default. We may now be beyond that level of default.

The first I ever heard of the ISDA was last week when Robert Pickel appeared on the Diane Rehm Show. Of the three guests she had on, he was the one who was most inclined to get into the Orwellian banker-talk to "explain" his position. And his primary concern seemed to be that the gov't should not react to our present problem by considering increased regulation of CDS's nor other derivatives nor hedge funds.

I can become overwhelmed in the jargon pretty quickly when trying to understand this mess on Wall Street, and I am told that many of the wizards themselves who bought these instruments didn't quite understand what they were purchasing.

But all I really needed to know was that a CDS is little more than purchase of insurance for something for which you, yourself, have no personal fiscal interest. Kinda' like buying a $350,000 life insurance policy on your neighbor. Just how much mischief might that introduce to a relationship, eh? "Hey, Mac! Wanna' help me clean my gutters?"

Look at the relationships on Wall Street where credit has dried up because no one trusts the system anymore. What more do you need to know about the "benefits" offered by the ISDA Trade Group/Lobbying Assn, despite their efforts to whitewash this casino gambling with no rules in which they have participated for far to long.

All anyone really needs to know is that a woman named Brooksley Born wanted to regulate these derivatives under the CFTC, and Robert Rubin vetoed it. That decision is what brought all this on.

If they change their name, their new name should be followed with, "formerly known as the International Swaps and Derivitives Association." Just like, "formerly known as Prince." What ever it is called, it is still representing toxic products.

Much of the mangled language involved in this discussion was developed to get around the fact that was was involved was pure gambling, as opposed to investing. The rest was intended to obfuscate so as to prevent anyone from noticing that laws were being ignored, if not outright broken. Imagine what would have happened if, instead of "credit default swaps", the word "insurance" had been used. My guess is that those involved with AIG, who didn't bail out early, dearly wish now that they had called it "insurance".

Even people motivated to insure stability in the Financial System were not necessarily, and almost certainly NOT, doing anything admirable.

If the whole system was false and meant to grossly benefit big players and institutional actors, and almost always worked against the avg. american.....then even doing great good for the financial systems was not a GOOD thing.

There is no such thing as a Wall St maven, lobbyist, or trade group that was looking out for anything other than it's big players. Even a good Centurion who looks after his soldiers well and does them good service, is doing ill if his legion is employed doing an Evil Emperor's will. Or a good Panzer mechanic who loves his family, but keeps the tanks rolling into Poland.

If that is unfair, then it is the Wall Street Mavens and Lobbyists and Trade Groups fault. You can't do 95% bad shit, then try to stand on the 5% good you claim to have done.

Ontologically Impaired's explanation of the importance of close-out netting is better than any explanation I ever could have provided, so I won't attempt to add anything to it.

On a more general level, it's worth noting that special treatment for derivatives in bank resolutions is nothing new: in old-fashioned FDIC receiverships (which everyone seems to love right now), "qualified financial contracts" (QFCs) -- e.g., securities contracts and derivatives -- are also given special treatment. The carve-out for derivatives in the 2005 bankruptcy bill was, in part, just a way to extend the FDIC model to the major bank holding companies (JPM, Lehman, etc.) that aren't covered by the FDIC resolution process.

Once again, EOC's elucidation is spot on and informed. I personally think a lot of you others are still missing a key, and actually very simple, point . . . as is Josh. It's just my opinion but I think a lot of you are getting lost in the weeds -- the more you bushwhack away the more lost you'll get.

The idea was not to favor big evil banks over everyone else. What good does it do any of us if one bank takes down other major players in the financial system if they are their counterparties? The idea was to protect us all by minimizing impact to liquidity and the balance sheets of counterparties.

I think it's ironic that even Josh has strongly made a very similar argument in a different context: the automobile companies. They, too, made very stupid mistakes in terms of strategy and management - but Josh thinks it's insanity not to bail them out. Why? Not to protect or reward management of the auto companies, but to save jobs and a key U.S. strategic industry.

With the banks, and ISDA's efforts, the purpose was essentially the same. It profits none of us to expose the financial system to contagion effect of one counterparty going down if that can be avoided through simple mechanisms like netting arrangements, which, by the way, as EOC points out, have been in place for federally regulated banks per the FDIC a long time.

Here is a great explanation from the FDIC's website of what the Bankruptcy reform Act was supposed to accomplish if you want to continue to wade deep into the bush . . . (the FDIC has fantastic resources on financial law and regulation by the way):

http://www.fdic.gov/bank/analytical/fyi/2005/101105fyi.html

I should point out that some of you are stumbling into territory that will prove more enlightening - particularly jimbonita. He may now progress to the next level of training: the Basle accord. If you really want to understand what went wrong, this is where you need to expend your energy. I'm afraid Josh has led people down a blind alley of populist rage that will get them nowhere - the Bankruptcy Reform Act of 2005 is not the problem. The problem was no one taking capital regulation seriously and - yes (as jimbonita is starting to figure out) - this holds true with respect to CDSs and other forms of OTC instruments.

Some of you sound deeply 'invested' in ISDA or at least with sympathetic adjuncts in the Finance World.

Calling Josh a Rage Populist is much worse than anything he called you.

Seems to me anybody criticizing the utter corrupt collapse of what used to be America qualifies as a populist to you. And you seem to attach Faux, Fake, and Rage whenever POPULIST get's typed. The only fake populism is somebody who played for the big boys, but acts all outraged after the fact.

If you are for the mass of people, you are populist. If you never played for the big boys, and are just an average Joe in Capitalist America...then there is no such thing as Faux Populism.

Why don't you answer Josh's main assertion....that Finance became the Big Playa instead of just the Servicing Branch of American Capitalism? How 'bout you answer my similar assertion that all the Big Players sitting on all our money, trading it overnight with the asian markets on the sly, turning decent mortgages into crap swaps, emptying pension funds, lobbying against unions and fair wage laws, lobbying for CDS and every other shady practice....were playing games with OUR MONEY? How is it that I can mess with YOUR cash? I am not sitting on a huge electronic pile of YOUR MONEY. I can't move it here, swap it there, stuff my pockets, lose what is left, then come crying for bailouts.
The Populi have a point.

OK, Ontologically Impaired. I do not understand ISDA, or close-out netting. Please forgive me this long ramble. On The finer points of ISDA and other financial manoevers ....you may be perfectly correct. In no way do I mean to dismiss your knowledge of these areas. I appreciate your acknowledgement of the wrongdoing we have been subjected to.

I have very little patience for the details of a failed and corrupt system. The quicker we scrap the whole thing and get on with a simpler, more regulated system - the better.

I do know that we are throwing money down a hole, trying to prop up and "save" a system which is going down anyways. Why not spend that money and energy NOW to build a new system and kill-off the old system AND IT'S CHIEFS....rather than empty our treasury and future treasury trying to save an old paradigm that will have to be replaced anyways?

Regardless if there are relative innocents in the ISDA and current system, that system is dead. I guess it just doesn't know it yet and neither does Geithner, Obama, et al.
It robbed 100's of millions of people of 100's of billions of dollars. The people who ran it are bankrupt...morally and leadership-wise. They pocketed the massive profits. They saddle us with the massive debts. They ride off barely chastened...let alone prosecuted.

Why should we "save" the system? What good would stability do US for a massively corrupt and ruinous system? Repeat the whole last 30 years?

There is no stability. There is no "return" to stability, except to rewind the current monster and let it toddle off a cliff again. There is already tremendous damage and loss.

It is not populism to recognize this, or to want accountability. Is "rabid" or "mindless" populism any more dangerous than our already incredibly unfair, focused, larcenous, unaccountable, nation-destroying system? Nobody expects banks and lending and insurance to be run, in the future, by mob rule. What the people want, even if they can't verbalize it properly, is the current structure torn down, the guilty prosecuted, and a new regulated and govt. overseen structure to replace it.

I don't want chaos or mob rule. OK, maybe I do. But I knew back in 1980 when HMOs got their start in Minnesota, and again when 401ks (both tied to corporate employment) and when Privatizing Social Security, and again when Buusch and tort reform and bankruptcy laws and rampant credit card predation and no-down home loans that we were on the road to hell.

We have 30 years of absolute carnivorous, orchestrated, destruction visited on us by the 3-Piece-Suit gang. Prob. more than 30 years. There is no end with these guys. It never ends. They dream up better and grander schemes to get larger pools of our money together, then steal it all. The only thing that stops them is utter insolvency. Once we gain a little solvency, the whole cycle repeats.

Arguing over the smaller points of ISDA and close-out netting is hardly helpful, I fear, although I recognize that was what started this thread and I am going beyond the scope of the thread. But small steps and half-measures and trying to stabilize the inexorable downward spiral here is not what is called for. An absolute clearing of the decks, with all it's attendant loss, is necessary. In the end, it will be less painful. If we do not, we may find we have NOTHING LEFT with which to start again. We may have NOTHING in the tank when the realization finally sets in that a new paradigm is required. And I guess that is what the powers-that-be on Wall St. recognize....but true to form they are sucking our tanks dry while we go down. They know nothing else.

To return to your points....recognizing that amputation is necessary is not populism. Naming the disease is not populism. Not having all the answers and not being an insider is not populism. Being angry at the fairly small subset of Americans who guided us into this swirling, sucking whirlpool of destruction is not populism. Being astounded by the greed and magnitude of loss is not populism. Wanting accountability, even if it is applied unevenly, is not populism. And those folks who are voicing these feelings are just voicing their opinions (not setting failed policies)...and are not necessarily GUILTY of anything even if they are not perfectly correct on every point.

I think the alternative to Populist Outrage is jaded fatalism, or worse - siding with the status quo. I guess jaded fatalism is the camp I am in because I don't think we will make the right choices no matter what. We have at least 60 years of making the wrong choice, everytime, on our National Resume. Our whole idea of ourselves, our place on earth, our mission as a country and even individuals seems sorely misguided. We have managed to greatly damage the only place in the known galaxy that can sustain us. Returning to the Stone Age seems probably the most humane thing we could do for ourselves and Mother Earth.