Sunday, May 29, 2011

Needled

By Prof. Claudia Ricci
 
Editor's Note:  Professor Ricci is a noted novelist, journalist and educator. She has taught and created programs at Georgetown University and the State University of New York. Dr Ricci is a founding collaborator in the Wordsmith Wars blog.

At the worst moments of the chemo, after she throws up into the basin, and forces herself to eat some cherry jello and maybe a few bites of banana, Anna plays the flamenco, drifting perhaps into a soleares, a sweet lament that starts slow and then pulls up tempo.  And when the soleares stops working, and no longer transports her, she shifts to a tango or even, a fandango.
And then comes the day that she steps inside the doctor’s office in the black and red satin dress.  It rustles as she walks, and the luscious tail of the bata de cola trails behind her.  Anna picks up a fistful of ruffles in the train, and enters the examining room.  Her nailed shoes, tied at the ankles in ribbons, clatter on the waxed floor.  Her black hair is sleek, almost wet looking, pulled tight to her head and knotted at back in a donut.  She hugs a black lacy shawl to her shoulders and in her free hand, she is pumping a red flowered fan. 
The nurse enters behind her.  Oblivious.  She opens Anna’s medical file –three inches thick—and asks Anna to step on a scale against the wall. 
“Must I?” Anna sneers.  The nurse hesitates.
“Must I get the doctor?” the nurse asks.
Anna’s eyes narrow.  Still holding the ruffles, she steps on the scale, and the nurse records Anna’s weight. 
“Remember to subtract for the dress,” Anna says.
The nurse starts to say something.  Stops.  She asks Anna to turn around and stand against the wall.  Anna sighs, then swivels.  As she steps against the wall, she lifts her head with all the dignity of a Castilian queen. 
“Five feet ten and one half with those heels,” the nurse says, wrinkling her nose ever so slightly as she eyes the shoes.  Then she turns to Anna’s right arm.  “Now, how about the veins today?  How are they?”
          “My veins.”  Anna pauses.  Sneers.  “Are the same as always.”
Thrusting one arm overhead in the manner of the great bailoras, Anna locks herself in the dancer’s stance.  She looks as if she could be plucking a ripe Seville orange off a tree.  Twisting one wrist, she pulls the imaginary lush globe of fruit tightly to her bosom. 
          “I am glad you are so limber, Anna.”  The nurse crosses her arms.  “But would you mind sitting down?  This will go a lot faster if you do.”
          Anna glares, sits down and arranges the dress around her.  Then she thrusts one arm forward, exposing a pale blue vein.
“That one looks like it will work,” the nurse muses, reaching up and snapping one finger against the inside of Anna’s arm.
“Please,” Anna snarls, pulling her arm back.  “Please be gentle.”
“I’m sorry,” the nurse says.  Her voice softens.  “I really am sorry.”
Anna turns away, as if the nurse’s sudden kindness has made it so much worse.  “Do you know how many times that my arm has been needled?  Do you realize what you do to me every week?  And do you realize how important these arms are to my dance?”
The nurse bites her lip.  “I’m sorry.  I forget sometimes.  I know there are days when…when they, when we…have…considerable trouble getting in.”
Anna draws her shawl closer around her shoulders.  A single tear dribbles out of one eye.  She ignores it and sitting up straighter, she lifts her chin in the manner of the Iberian royals, casting a decidedly unfriendly glance at the nurse.  Then she thrusts her arm forward again. 
The nurse anchors Anna’s arm on the armrest and prepares the needle.  “Here we go,” she whispers.  Anna flinches as the needle passes into the crotch of her arm, but the nurse has tight hold of her hand. 
At first Anna and her pert red lips turn away, but soon she can’t help herself: she is tipping backward to look, drawn to staring at the syringe, particularly the small butterfly spread of sky blue plastic attached to the needle.  Anna brightens.  “Ah, you see, my fan has blue butterflies too.”  She flicks open her red fan again with her right hand, showing off the intricate design: a red background, swatches of yellow and orange flowers and blue and black butterflies dancing here and there. 
The nurse glances at the fan, but is more preoccupied with the needle.  She jiggles it.  “I think this vein may be blocked.”
Anna blinks.  Looks away.   As the nurse pokes the needle in further, Anna’s eyes open wider and begin to water.  Then she rapidly fans her face.  The fan is a hot blooded color, and the blue of the fan’s butterflies is exactly the same blue as the butterfly of the needle, the needle which the nurse is now pushing even deeper into Anna’s skin.
“Oh Dios mio, PLEASE NO!” Anna yelps.  Her face is chalky and as sweaty as it is when she dances the farruca.
“I am sorry I am hurting you, Anna, I really am.”
          Anna sighs.  Keeps fanning.  “Yes, I should say so.”  Her voice breaks.  She fans faster. “How much longer must this go on?”  She chews into her lower lip, and her teeth pick up some of the berry-colored lipstick glazing her mouth.
          The nurse wiggles the needle ever so slightly.  She sighs.  Exhales.  “It’s just that I have to get a blood return on this one, and I’m not getting it.”
          Anna closes her eyes and stops fanning.  At moments like these, when it gets particularly difficult, she always resorts to intense mental rehearsal: she goes through the newest alegria in her head.  She can count it better than the seguiryas, or even the sevillanas or the malaguena.

She starts counting, but a moment later, is interrupted.  The nurse sighs, slides the needle out.  “I guess this 

one won’t work,” she says.  “Sorry.”  She applies a tiny circle of a bandaid over the hole left behind in Anna’s

arm.
“I’m going to have to get some back up.  See if someone else can help.” 
Anna blinks.  “Yes, well, and I think I am going to need my prescription now,” she mumbles, her fingers trembling slightly as she reaches into the ruffled bosom of her dress.  Inside is a tiny vial of pills.  Before the nurse can say anything, Anna has two tiny white pills in her hand and she is popping them under her tongue.  “This will help.”
The nurse looks embarrassed.  “Look, I am really sorry to put you through this.  But I …”
“…But I don’t want to hear it,” Anna says curtly.  “I really don’t want to hear it.”  She smiles her thinnest, tightest grin.  “Just go ahead, please, find someone.  Someone who won’t hurt me.  And get it over with.” Anna inhales, saying a small prayer that the pills will work their miracles once again.
The nurse leaves and returns almost immediately with another nurse.  A young man.  Slim and very tall and dark-skinned.  He smiles and Anna  looks into his eyes and her first thoughts are, he is not at all handsome, but he is very kind.  And he would make a suitable partner. 
He takes Anna’s hand and for a moment she expects him to kiss it.  But he simply rubs his long brown fingers over the surface of her skin.  “I hear we are turning you into a pin cushion today,” he says very quietly.  The way he says pin: peen.  And cushion: cooshun.  His accent is…what?  Latin?  Indian?  Iranian?  She cannot tell, and well, what does it matter?  He grows more handsome by the moment.
He keeps sliding his fingers over the back of her hand.  “So how are the veins here?”
          Anna closes her eyes, smiles, and gracefully pulls up her hand.  Her blood red nails glitter.  “My hands…are magnificent,” she whispers, opening her eyes again.
He smiles, bashfully.  Anna notices the intense silkiness of his black hair.  The giant oily pearls that are his eyes.  She sighs.  The other nurse, who is standing in the corner of the examining room, arches one eyebrow, then turns and leaves the room, making the door smack shut as she goes.
The young man looks up.  Meets Anna’s eyes.  Clearing his throat, he takes Anna’s outstretched hand and pulls close to examine it again.  “Well, these don’t look as ravaged as the ones in your arm.  I see what these treatments have done to torture your poor arm.”
“Ah, and not just my arm,” Anna shoots back.  Her voice croaks.  The man lifts his eyes and Anna returns the look.  In it is an odd combination of fire and ice.  Sorrow and fatigue.  Fortitude and resignation.  Pride and shame and mostly, relief.  She watches in silence while he proceeds to wrap a rubber tourniquet around her wrist, making the veins in her hand bulge slightly.
          “So, would you mind if I played my CD?” Anna asks, her eyelashes fluttering.  Her vision is beginning to swerve.  Hard shapes and straight lines are turning to butter.
          “Oh, no problem,” the nurse says.  “Do you need help?”
          “Not a bit,” Anna says.  “I have done this all before.”  She uses her free hand to reach into a satin bag for a pair of headphones.  One-handed, she slips the headphones over her sleek hairdo.  By now there are several stray black hairs at her moist brow.  Anna switches on the CD player and so, when the needle vanishes into a vein in the back of Anna’s left hand this time, she is listening to a cantaor singing a woeful tale of his lost gypsy. 
Anna closes her eyes as a bailora joins in, dancing in the background; there, now, she can hear her feet clacking rapidly on wood.  Besides that, there is a set of castanets rattling and a clang of the martinetes, the ironsmiths’ metal hammering against metal.  The cantaor’s voice rings up to a prolonged trill just as the young man gets his blood return.
          “That will do it,” the young man says, filling a small clear tube with Anna’s ruby blood.  “Now we just need to put the radioactive tracer into the vein and we’ll be all set to do your scan.”
          Anna looks up from her CD, a docile smile on her lips.  Her head feels loose, as if it coming unattached from her shoulders, which are now bare of the shawl.  The fan sits closed up in her lap.  She blinks, sinking ever deeper into the music. 
          “Did you know, young man, that duende eases all of our pain?”  She whispers this, and her words are slightly slurred.  He nods. 
“Please,” she says.  “Please state your name?”  He hesitates.
“Arturo.”  He pats her hand once more and starts to pull away.  Anna wants to hold his hand there, but her grip comes too slow.  He leaves the room, and she goes limp, sinking listlessly into her chair.  The pills have taken hold, no doubt, because now she is yawning, and smiling broadly, and dancing on a brightly lit stage that is rising into the air.  She laughs.  After all this is over she will call her sister, Margarita, and tell her this: that it isn’t hard to dance when you are rising toward heaven, because there you can freely pluck oranges and apples from the Garden of Eden.  And because you are on chemo, and because everyone feels sorry for you--even God—He doesn’t care one bit that you are there stealing His fruit.  And eating it right there in the Garden.
Anna laughs.  When the tall young man returns with a small lead box, the one that contains the radioactive isotope, she reaches out to take his hand.  He puts the box down and staring hard into her eyes, he readily accepts her hand – and his role in the dance.
Anna watches him, a placid smile on her lips.  And then the music turns fiery, and the moment comes.  The stage clears and he steps into the white circle of light.  His elbows lifted to each side, and his narrow hips immobile, he tips his head back proudly and begins pounding his heels in perfect unison with the compas, the rhythm of the music.  Ah but what a pair of legs Arturo has, thundering now against the floor. Yes, she thinks: he is more talented than any partner I have had before.
Now it is her turn to spin: the young man reaches out one hand to her.  Mustering all of her grace and dignity, she lifts herself off the chair and thrusts her torso forward.  Her bosom swells fully into the satin fluff and ruffles.  Moving slowly at first, she begins swiveling and tapping, all the while holding one armful of ruffles at her hips.  The other arm stands overhead.  Her movements quicken, and soon her hips are twisting, and her feet hammering like a sewing machine.  And there, there are her wrists and fingers, all bent at odd angles, giving her hands the look of branches, branches on an orange tree, a tree from which she always plucks her imaginary fruit. 
She pauses, out of breath.  The two of them –she and her amazing Arturo.  They are holding hands, and now, suddenly, they are bowing.  Surely it cannot be over already?  Together they occupy the stage light.  Staring blissfully into the darkness behind her eyes, she feels her heart pump as quickly as her fan, as the young man whispers “Anna, you were just wonderful.”
“Thank you,” she whispers back.  And then she waits, patiently, for all the clapping to stop.  And for the needle to be withdrawn and for the curtain, finally, to fall on all of this. 
Dancing.
The End

Tuesday, May 24, 2011

A New Dawn for the University? Part 1



Editor's Note : When the Egyptians created the first university over 1000 years ago--Al-Azhar in Cairo--it was envisioned as a place for advanced academic instruction, disciplined thought, debate and meditation on the student's relationship to society and the world around him.


Then something went wrong.  Everything shifted towards corporate internships and a straight line between a 4-year degree and a 5-6 figure salary.  Effectively, your entrance exams became your first job interview.


Today, the increasingly desperate marketing of colleges notwithstanding, we all know the truth.  That straight line has been broken. The commercial value of a degree is now dubious. But that may be a good thing. 


It may mean that serious Universities can resume a traditional non-career-based role as institutions where we learn about ourselves, our society and how to think more clearly about issues more profound than resumes. This could be a silver lining in a world where there will never again be enough jobs.  


The University, at least, may be allowed to get back to its earnest, erudite, creative roots.  Back to Cairo in the 10th century.


Case in point:  Professor of Journalism Claudia Ricci is a noted educator, novelist and journalist. She is also a founding partner in the Wordsmith Wars  blog. In the past year she has put together a custom academic curriculum at the State University of New York. It addresses a subject very much needed by students and society as we grind through the current Depression. The subject: Happiness.


Here's the course prospectus:

ERDG 491Z -- University at Albany, SUNY
Professor Claudia Ricci, Ph.D.

READING & WRITING THE HAPPIER SELF: Spring 2011
Reading and writing transform the way we think, and how we see ourselves in the world. Neurological research now shows that changing the way we think can produce positive physiological changes in the brain. At a time when an epidemic of mental health issues plagues our nation, and threatens to paralyze students in the academy, this class presents a set of cognitive tools and practical skills that will help students refine and enhance their educational goals while examining a broad range of life issues. Beginning with philosophical ideas set forth by Aristotle, the class will rely on texts from psychology, neuroscience, literature and narrative theory, to open up discussions about the patterns of human behavior and thinking that tend to produce lasting fulfillment and deep reward. In keeping with research by psychologist James Pennebaker and others who have demonstrated the value of expressive writing, students will engage in extensive journaling and other self-reflective writing assignments as they seek to define what it means, and what it takes, to find happiness. Part of the work in the classroom will be to help students identify their individual “signature strengths” that can produce what positive psychologist Martin Seligman defines as “authentic happiness and abundant gratification.” In addition to classroom work, a special two-hour laboratory session, with attendant readings and writing exercises, will be required each week; students will work with experts in mindfulness, meditation, yoga, spirituality and stress reduction, and will document how these techniques can help the student better cope with the inherently stressful nature of University life.

 In the coming days, Professor will be posting blogs that draw on the techniques and outcomes of her first Happiness curriculum.



Monday, May 9, 2011

Competition: Guess the State!


By Sandy Prisant
I live in a state that is certainly not timid in its approach to this Depression--and its future. Within the past year alone here are some of the things my fellow citizens have done. From these clues, can you...
"Guess the State!"
  • As our new Governor, we elected the primary unindicted co-conspirator in the largest Medicare fraud in US history.
  •  We entirely neutered the Democratic party, throwing them out of every single statewide office.

  • We elected overwhelming GOP majorities to both houses of our legislature, leaving no checks and balances.

  • Still hewing to 19th century policies that limited most state legislators to very short sessions--on the premise that any politician can only be trusted for so many days a year--our legislature is only allowed to meet for 60 days/annum.

  • But that did not hinder our representatives and unindicted governor from a breathtaking set of legislation in the term just completed, to help our citizens through this Depression.  Among the most notable new state laws:
    • Reduce unemployment benefits to under 6 months, even though we have one of the worst unemployment rates in the country-- a third higher than the national average. 
    • Total new job creation programs proposed or passed by lawmakers all running on a job -creation platform: Zero.
    • Specifically use the benefits taken from the unemployed to deliver significant tax cuts to 30,000 corporations. 
    • Proposed elimination of the State Development Agency. 
    • Cut funding to education across the board in a state that tests near the bottom.
    • Dismantle Medicaid, ignoring the Federal mandate requiring 90% of funds go to patient services, choosing instead to share $1.1 billion in
      patient funds as profits with managed care companies. (According to the New York Times.)
    • Total new jobs created by lawmakers all running on a job-creation platform: Zero.
    • Reversed thirty (30) years of state environmental legislation
    • Defied the state constitution by making the state Supreme Court a servant of the legislature--permanently ending checks and balances.
    • Passed all three priorities of the National Rifle Association.
    • Assaulted democracy through new restrictions to actually reduce voting days and hours in all elections.
 
What is this enlightened state, beholdened only to corporations, party pros and gun owners?  Send your answer to Wordsmith Wars. And pray for the 95% of my state's citizens whom are not rich.


Competition: Guess the State!


By Sandy Prisant



I live in a state that is far from timid in its approach to this Depression, the fate of it's citizens, or its future. Within the past year, here are some of the things my neighbors up and down the state have done.  From these clues, can you...
"Guess the State!
 
  • As our new Governor, we elected the unindicted chief executive in the largest Medicare fraud in US history.
  •  We entirely neutered the Democratic party, throwing them out of every single statewide office.

  • We elected overwhelming GOP majorities to both houses of our legislature, leaving no checks and balances.

  • Still hewing to 19th century policies that limited most state legislators to very short sessions--on the premise that any politician can only be trusted for so many days a year--our legislature is only allowed to meet for 60 days/annum.

  • But that did not hinder our representatives and unindicted governor from a breathtaking set of legislation in the term just completed, to help our citizens through this Depression.  Among the most notable new state laws:
    • Reduce unemployment benefits to under 6 months, even though we have one of the worst unemployment rates in the country-- a third higher than the national average. 
    • Total new job creation programs proposed or passed by lawmakers all running on a job -creation platform: Zero.
    • Specifically use the benefits taken from the unemployed to deliver significant tax cuts to 30,000 corporations. 
    • Proposed elimination of the State Development Agency. 
    • Cut funding to education across the board in a state that tests near the bottom.
    • Cut 5,000 jobs in the public sector
    • Dismantle Medicaid, ignoring the Federal mandate requiring 90% of funds go to patient services, choosing instead to share $1.1 billion in
      patient funds as profits with managed care companies. (According to the New York Times.)
    • Total new jobs created by lawmakers all running on a job-creation platform: Zero.
    • Reversed thirty (30) years of state environmental legislation
    • Defied the state constitution by making the state Supreme Court a servant of the legislature--permanently ending checks and balances.
    • Passed all three priorities of the National Rifle Association.
    • Assaulted democracy through new restrictions to actually reduce voting days and hours in all elections.
 
What is this enlightened state, beholden only to corporations, party pros and gun owners?  Send your answer to Wordsmith Wars. And pray for the 95% of my state's citizens whom are not rich.



Wednesday, May 4, 2011

US Shock: Treasury to Exempt Regulation of Forex Derivatives That Caused 2008 Freeze

By Sandy Prisant

Editor's Note:  Over 60% of Americans believe the US is headed in the wrong direction, but they have no sensible idea why. Please read the piece below by Avery Goodman in Seeking Alpha and understand why the end of Osama Bin Laden is not the end of our problems:

Under the requirements of the Dodd-Frank legislation, all FX swaps and forwards are supposed to be reported to a swap data repository or, if there wasn't one, to a regulator like the U.S. Commodities Futures Trading Commission (CFTC). The regulator is supposed to investigate irregular activity. Foreign exchange forwards and swaps represent about $50 trillion in nominal value of a total derivatives market of almost $600 trillion. Unfortunately, Congress gave some leyway to the U.S. Treasury to exempt some derivatives from regulation. If the U.S. Treasury has its way, FX swaps and forwards will not be regulated, and trillions of dollars of interest rate swaps and OTC forward contracts are almost certainly going to be restructured into the form of FX swaps and forward contracts, defeating the purpose of Congress.
Regardless of what the U.S. Treasury claims, FX swaps and forwards are high risk derivatives and were one of the primary reasons currency markets froze after the demise of Lehman Brothers. That freezing, in turn, was part of the cause of the 2008 Financial Crisis. The Federal Reserve established emergency currency exchange swaps with many foreign central banks in the hope of stabilizing the world financial system because of an alleged "shortage" of dollars. We thought that doing it was a mistake. We still feel that way. However, there are other people whose opinions we respect, who think otherwise. They think it was the correct decision.

Correct or not, those emergency lines of "credit" were established because European banks could not find enough dollars to make their payments under these type of derivatives because most of them bet on a declining dollar. The U.S. claims that there is no need to post performance bonds at a clearing house like the CME and Ice exchanges. While the exchanges are certainly not perfect places, and we have critiqued them heavily in the past, they are better than the extreme instability that follows the OTC market for derivatives.
Yet, according to the Treasury, it is too problematic to post performance bonds. Indeed, the Treasury says that no bond is needed to insure performance. But, if no bond is needed, why would a clearing exchange force banks to put up anything more than the most nominal bond, if any at all? After all, isn't it a no-risk FX swap or forwards contract? However, that isn't going to happen, because it isn't true. The exchanges would require substantial performance bonds on these type of derivatives. They are highly risky, and other clearing members prefer not to be bankrupted, or at least "lose their shirts" because of the capricious gambles of other banks.

Performance bonds are just a small part of the story. Even more important is the fact that by exempting FX swaps and forwards, the Treasury defeats the so-called "Lincoln" provision of the Dodd-Frank legislation. Swap dealers are supposed to get " No Federal assistance" including "loans" from Federal Reserve credit facilities, discount windows, emergency lending facilities etc. can be provided to any "swaps entity." If FX swaps and forwards are exempted, financial institutions that write them will have full access to the Federal Reserve (a/k/a big bank slush fund) at the ultimate expense and risk of the taxpayers of America. That is probably what this exemption is all about.
Being able to access Federal Reserve funding will allow swap dealers, such as the biggest banks with the most systemic risk, to engage in high leverage derivative writing. When backstopped by the Federal Reserve, such derivatives allow sophisticated entities to control cash markets that trade the underlying product. Levels of leverage that are typical in OTC and even exchange traded derivatives have been illegal in the cash stock markets since the Crash of 1929. Not in the derivatives markets. A tiny amount of collateral can buy control over a huge swath of the market, especially when the leverage is infinite, as it is when you aren't required to post any bond at all. If you are backed up by the ability to access the Federal Reserve lending windows, then its bombs away! You can do whatever you want, makes tons of money temporarily and, when the gamesmanship finally blows up in your face, you can shift the loss to the American taxpayer, while you retire to a nice island in the Carribean.

Changes to prices created in derivatives enter the cash market by way of arbitrage. Consequently, dealers in derivatives who have access to a large source of backstop money have the power to manipulate the value of all assets, including stocks, bonds, commodities, precious metals and currencies, at least in the short run. The changes in psychology that repeated short term manipulations can induce, will also profoundly affect the long term perception of various assets, unless most market participants become aware of the manipulated nature of the pricing structure.

Most market participants do not understand the interaction of derivatives and cash markets. Most believe, for example, that they can predict future market behavior by carefully crafting elaborate technical charts and graphs using historical pricing data. This could work, in theory. However, in practice, blind adherence to charts results in deep losses because technical analysis in cash markets cannot fully account for the interference from small numbers of market participants, playing in derivatives, who use a very small amount of assets to create large marking-moving price fluctuations in the cash markets. If they can be backstopped by the Federal Reserve, as they will be, with respect to FX swaps and forwards, if they are exempted from Dodd-Frank, there is no end to the mischief they can create with no long term adverse effect on themselves if they screw up.

A case in point is the so-called "Flash Crash." According to the U.S. Securities & Exchange Commission (SEC) report, it was precipitated by heavy buying of short positions at the CME Group's mini-S&P 500 futures on May 6, 2010. In response, the Dow industrial average plunged by 900 points, and a similar plunge in the market as a whole. Just one investment fund wanted to hedge stock positions, and its brokers sold too many Mini-S&P 500 short contracts at one time. The cash market was not aware of what was happening, and responded with panic. Many market participants erroneously concluded that massive selling was happening in the real cash market by persons holding real stock positions, a lot of market makers withdrew in fear of big losses, and everyone began dumping equities. Not mentioned in the official report is the fact that stock prices collapsed until a mysterious "force" began to buy huge numbers of long mini-S&P contracts in sudden and concentrated pulses, without regard to the losses that such buying habits would give to a profit-oriented entity. Cash markets recovered almost immediately as this buying "force" rescued the mini-S&P 500 derivatives market.

There is yet another concern. Exclusion of FX swaps and forwards from transparency and clearing requirements, applied to other derivatives, will cause banks to restructure interest rate and credit swaps as foreign exchange swaps or forwards. A notional amount of about $450 trillion dollars worth of interest rate swaps are now floating around in the world, for one example. If even a fraction of those are converted to exempt FX swaps and forwards, tens or even a hundred trillions or so of non-transparent, inherently unstable derivatives will hit the Street, with no performance bonds to insure compliance. We have written, in the past, critiquing the game of strategically changing performance bonds levels to achieve desired prices in precious metals. However, requiring no performance bond at all, and having no ostensibly "third party" entity to hold them, is an even greater folly.

The potential for instability is enormous. If banks can issue FX swaps and forwards that are not subject to Dodd-Frank, they will be able to hide this activity from shareholders and regulators. Enormous and irresponsible risks are sure to follow. We've already seen this in the past. The legislation was meant to change the sitution. With this new Treasury initiative, change will be torpedoed. Large banks have not been broken up. They are even bigger than before. If they were perceived as "too big to fail" back then, they are certainly too big now. U.S. Treasury action seems guaranteed to insure that private profits will, yet again, be pocketed by bank executives, while private losses are socialized by being shifted to taxpayers and savers in the U.S. dollar denominated investments.

As we noted, earlier, the need for the opening of Federal Reserve swap lines in 2008/2009 was partly the result of FX swaps and forwards which drained U.S. dollars from banks in Europe. The next freeze could involve these same instruments draining foreign currencies from American banks. There is no guarantee that foreigners will be as kind to us as we were with them. The World Financial Crisis of 2008 was not caused by sub-prime mortgages, but by the triggering of derivatives. When the contingency of massive mortgage default occured, credit default swaps were triggered. The hoarding of dollars by banks who needed to pay off on these obligations sapped demand from other areas of the economy. A massive shock to the system that could not be slowly and laboriously healed occured. Non-reportable credit default swaps are a similar threat. 

The risk is simply too great to be allowing banks to engage in non-reportable, non-marginable activities, especially when they will be allowed to obtain sponsorship of the Federal Reserve in their speculations. Yet, Mary Miller, Assistant Treasury Secretary for Financial Markets, has tried to explain that this will not be a problem. She says that the CFTC has anti-evasion authority, and that will prevent financial institutions from using exemptions to evade derivatives regulations. That doesn't make sense. As long as the bank employees have decided that whatever they've structured is an exempted "FX swap" or forward, they won't need to report it. How, then, can the CFTC hope to spot evasion? Identifying restructured transactions will be impossible. The agency will never even know that a transaction took place.

Allowing banks to retain the ability to make mistakes that put the entire world financial system into jeopardy is a big mistake. Transparency and accountability that were supposed to enter the world of OTC derivatives, as a result of Dodd-Frank, will be replaced by opacity. Opaque transactions invariably are a recipe for corruption, and behind-the-scenes manipulations. Allowing the U.S. Treasury to exempt deliverable foreign currency swaps and forwards gives us more darkness, when the financial system is in desperate need of light.

From a practical standpoint, once this proposal becomes a regulation, as it probably will, currency market traders will need to deal with the consequences. We may see greater short term dollar stability and/or currency exchange value increases than would otherwise be expected after QE-2 ends if the Treasury encourages the banks and Federal Reserve to enter into the type of FX swap and forward transactions that help dictate that result. This desire to manipulate currency markets may well be why the Treasury support the exemption.

Without that, we will probably see a big increase in currency volatility right away. But, even if the banks do as the Treasury would like, and help stabilize the dollar from collapsing, with such swaps and forwards, the pay back will be heavier volatility in the long run, once the instruments mature. In any case, U.S. regulations tend to affect almost all banks, all over the world, since most are involved, in some way or another, with the American financial system, due to current U.S. economic dominance. Exempting these derivatives means foreign banks, which are not as influenced by U.S. government policy regarding the dollar, to restructure other types of derivatives.

The main result is that the shadow world of derivatives will get yet another "pass" from the need for transparency and regulation. Traders can expect to deal with much greater currency volatility than ever seen before, and regular citizens will need to deal with this too. With this exemption, instead of adding stability as it was intended to, the net effect of Dodd-Frank will be greater instability. Tens or even hundreds of trillions of notional derivatives are going to be restructured to become exempt FX swaps and forwards. These have the potential to profoundly destabilize the cash currency markets in ways that we cannot fully anticipate. A bigger crash than the one in 2008 is ahead and market participants should begin preparing for it. It is no longer a matter of "if" but only of "when."