The End of CDS?

Do you think the country would be better off if credit default swaps were banned?  Apparently so does someone in the House, who inserted language into the Waxman-Markey climate bill that would outlaw them.  The intent of the language, apparently, is to ban "naked swaps"; that is, to allow people to buy CDS insurance only on credit instruments that they themselves own.  But the actual language goes further.  Zach Carter reports:

Today, if a bank is worried that a debtor might default on a loan, it can still go to a CDS issuer like American International Group Inc. and buy insurance on that debt. But completely unrelated firms with no interest in the underlying loan can also go to AIG and bet that the debt will not be repaid. This kind of bet is known as a "naked swap" and, by 2007, the market for naked swaps was completely out of control. The notional value of the CDS market had exploded to over $62 trillion, according to the Depository Trust and Clearing Corporation, well in excess of the entire global economic output for a full year.

"Let's say there's $1 trillion worth of obligations in the economy. You can use CDS to create $5 trillion worth of additional obligations," said Joseph Pastore III, a managing partner with the Fox Rothschild LLP law firm who works with CDS. "When you melt it all down, and there's only $1 trillion worth of cash and $5 trillion worth of obligations, it causes absolute economic devastation."

Here's the key passage from Waxman-Markey, buried on page 1,070 of the 1,428-page bill introduced in the Senate on July 6:

[Blah blah blah....]

"Clearly, the intent was to limit the multiplier effect of CDS by requiring only those parties with a risk to be able to insure the risk," Pastore told SNL.

But the restrictions apply to "any person" who would "enter into" a CDS contract, not merely to any company that would purchase one. That means banks are allowed to hedge risks by purchasing CDS, but CDS issuers like AIG are actually forbidden from selling them. When AIG offers insurance protection, AIG is not hedging anything; it's just making a speculative bet that a certain debt will not be repaid. In practice, then, Waxman-Markey would ban any credit default swap whatsoever, hedge or bet.

"A literal reading of it would prevent anyone from entering into a CDS contract, because the party that owns the underlying instrument needs to find somebody else to enter into the swap agreement with," Pastore told SNL.

I assume this language will get cleaned up, and even if it doesn't the courts will likely rule that "enter into" merely means "buy."  But maybe not!  Maybe Waxman-Markey will obliterate the CDS market entirely.  Stay tuned.

Richard Viguerie, one of the founders of the modern conservative movement and a direct-mail king of the right, thinks the Senate GOPers are doing a pretty good job at the confirmation hearings of Justice-to-be Sonia Sotomayor. He put out this statement:

Led by Senator Jeff Sessions, Republicans on the Senate Judiciary Committee are starting to do what the McCain campaign and the Republican Party failed to do in the 2008 election: defining Barack Obama, his ideology, and his unconstitutional, authoritarian approach to governing.

By making the Sotomayor confirmation hearings about President Obama's governing philosophy—including his beliefs that judges should change constitutional principles and the law—Senate Republicans are showing that Obama's views are radical and dangerous. As Senator Sessions said at the hearings, those views are so inconsistent with the Constitution that they could be 'disqualifying' for Obama's judicial nominee.

Win, lose, or draw in this confirmation battle, that approach will pay huge dividends for Republicans. Exposing the President in these hearings will help Americans better understand that, constitutionally speaking, Obama cannot be trusted...

So hats off to Senator Sessions and the other Republicans who 'get it'.

Wow. He really is watching a different channel. How many Americans—of the small percentage of those who have watched the hearings for any extended length of time—are jumping off their couches and saying, "Gee, after seeing Senator John Kyl grill her, I now realize that Obaama is destroying the Constitution and cannot be trusted. Get me my pitchfork!"

I respect Viguerie for constantly putting ideology ahead of partisan loyalty. He blasts the Republicans whenever he thinks they're squishy. But if he believes the hearing so far has been a net win for the Rs, he's engaged in observational activism. A strict constructionist reading of the proceedings would score the GOPers as marginally significant at best. They have done nothing to bruise Sotomayor. They have done nothing to make the hearings a noticeable platform for advancing their retro views about the role of judges. I even wonder if the conservative base is following the hearings closely enough to be fired up by whatever Jeff Sessions and the others are doing, as Viguerie suggests. Let's see if GOP candidates next year run on these hearings. If that's what Viguerie is hoping for, I'll bet he's disappointed.

You can follow David Corn's postings and media appearances via Twitter.
 

A member of the Afghan national army calls for help as a member of the Afghan border police fires at anti-Afghanistan forces in the mountains surrounding Barge Matal in Afghanistan's eastern Nuristan province, during Operation Mountain Fire, July 12. Afghan national security forces and International Security Assistance Force's fought side-by- side during the gun battle, which started in late afternoon and lasted until coalition and ANSF forces forced the insurgents to flee in the early evening. Photo by U.S. Army Sgt. Matthew C. Moeller, 5th Mobile Public Affairs Detachment.

This week's cute endangered animal is the kangaroo rat. Now you might not think that any animal with "rat" in its name would be cute, or in danger of disappearing, but both are true for several species of kangaroo rats here in the U.S. Despite its name, the kangaroo rat is not actually a rat, but rather a relation the gopher family. Currently, six species of kangaroo rats (genus Dipodomys) are facing extinction. They all live in the Western half of the US, starting in the Dakotas and extending West to California and Nevada, preferring desert habitats. The tiny animals measure just 2" at the shoulder, and like to get around by hopping like kangaroos (as much as 6" a leap!). Kangaroo rats are known for their love of dust baths, for cramming an incredible amount of food into their cheek pouches and, on occassion, for hiding under the crotches of hapless biologists.

The native kangaroo rat was thriving until the 1950s, when a two-tiered threat of agriculture and human development hit them: the farmers carried out pest-control campaigns against the rats (who found newly-tilled soil perfect for burrows), and new roads made it hard for rats to find new habitat. More recently, oil and natural gas exploration has been painted as a possible culprit in a number of rat deaths. Also, given that the rats relate their mating status and territory by thumping their long hind legs on the ground, one can only imagine that development also hinders intra-species communication.

The kangaroo rats' survival is important to environmentalists because the animals are a "keystone species" in their environments. With kidneys four times as strong as humans', kangaroo rats get most of their daily moisture from their food: seeds and nuts. By eating plants with the largest seeds, they allow plants with smaller seeds to flourish, which in turn effects the surrounding insect and bird populations.

Despite their importance to the ecosystem, the federal government has not been pro-active in protecting the kangaroo rat. Just last year, US Fish & Wildlife proposed cutting a California kangaroo rat's protected habitat by about 2/3. Conservation groups said they were going to sue the department, and Fish & Wildlife relented by changing the planned habitat reduction. Scientists said last year that they will use an Israeli satellite to take pictures of the rats habitat which will help them get an accurate population count. Though just how accurate the satellites will be remains unknown. "It's fairly rare for something so small to be a keystone species," UC Berkeley's Tim Bean told USA Today. "It's easier to track, say, bison."

Curious what you might have missed yesterday? Here's a list of Blue Marblish stories from our other blogs.

Dept. of CYA: What does the new House committee healthcare report mean for you?

Dept. of IDK: When thinking about healthcare, should we factor in how it could be used for... evil? What if we get another Cheney in office? What then

Dept. of GITMO: DC Bureau Chief David Corn talks torture on NPR.

Dept. of TCB: Elvis wanted to work as a drug enforcement agent for Nixon.

 

Progressives

I've finally given up on progressives.

Lenses, that is.  I tried 'em for over a month and just couldn't adjust.  Distance vision was fuzzy everywhere except dead center, and the reading portion didn't work at all.  So I took them back and in a few days I'll have a pair of genuine old-man bifocals.  Just like my hero, Benjamin Franklin.

Very good news today from a place you might least expect it—the mouth of the Yangtze River: third longest river in the world, most economically important waterway in China, home to massive industrial development and the world’s largest hydroelectric dam.

Despite these obstacles, 15 critically endangered Chinese alligators—the most endangered of all crocodilians—hatched at the mouth of the Yangtze. They are the offspring of the first captive-born parents to successfully breed in the wild.

The hatchlings represent 10 years of work by the Wildlife Conservation Society and China's Department of Wildlife Conservation and Management of the State Forestry Administration, among others.

The efforts began after a 1999 survey of the only remaining wild home for Chinese alligators found fewer than 130 animals in a shrinking population.

Subsequently recommendations were made to reintroduce a group of captive-bred animals into the wild. Three alligators bred in China were released in 2003. A dozen more followed from North America, including some from the Bronx Zoo.

By 2008, three of the North American alligators released into the wild in China had successfully hibernated, paired up, and laid eggs... fueling hope the Chinese alligator might outswim extinction longer than the Three Gorges Dam—that killer (in part) of the near-extinct Yangtze river dolphin and destroyer of habitat of the critically endangered Siberian Crane. Short may this dam live.

But, hey, good job alligators and all those who are helping them.

 

Elvis Presley may have been the king, but he wasn't much of a letter writer. In a 1970 missive to Richard Nixon in which he asked to be made a special agent in the budding War on Drugs, his sentences run together with the reckless abandon of a semi-literate speed freak. Plus, he also appears to really like Nixon, a hazy choice at best.

A few choice quotes from Elvis's letter to Nixon:

"The drug culture, the hippie elements, the SDS, Black Panthers, etc. do not consider me as their enemy or as they call it the establishment. I call it American and I love it. Sir, I can and will be of any service that I can to help the country out. I have no concern or motives other than helping the country out..."
"Sir, I am staying at the Washington Hotel, Room 505-506-507...I am registered under the name Jon Burrow. I will be here for as long as long [sic] as it takes to get the credential of a Federal Agent. I have done an in-depth study of drug abuse and Communist brainwashing techniques and I am right in the middle of the whole thing where I can and will do the most good..."
"I was nominated this coming year one of America's Ten Most Outstanding Young Men...I am sending you the short autobiography about myself so you can better understand this..."
P.S. "I believe that Sir, were one of the Top Ten Outstanding Men of America also."

See the full Elvis letter here [pdf], or read a transcript here.

Sasha Abramsky, a frequent Mother Jones writer and the author of Breadline USA: The Hidden Scandal of American Hunger and How to Fix It, went on GRITtv with Laura Flanders Monday to talk about hunger and homelessness in the US. Joining him on a larger panel was Aubretia Edick, the Wal-Mart employee he wrote about here.

Watch the full video here, or a snippet below:

GRITtv broadcasts weekdays on satellite TV (Dish Network Ch. 9415 Free Speech TV), on cable, public television, and online at GRITtv.org and TheNation.com. Follow GRITtv or GritLaura on Twitter.com.

Who says the arcane job of rewriting the laws that govern hard-rock mining isn't of interest to Joe Sixpack? Certainly not Interior Secretary Ken Salazar, who in testifying before the Senate Committee on Energy and Natural Resources today, deftly linked the reform of the nation's mining laws to the production of better beer. "Relative to the water that was used for Coors beer," the former Colorado Senator said, "we know that Clear Creek comes off the headwaters. . .where we have thousands of abandoned mines."

Salazar was testifying in support of two senate bills that would end the giveaway of minerals on federal land--a federal law from 1872 still allows companies to extract gold and other minerals royalty-free--and use the money to finance the cleanup of mining sites.  An estimated 500,000 abandoned mines have contaminated the headwaters of 40 percent of the West's streams. Cleaning them up will cost at least $32 billion.

For Salazar, citing Coors' iconic Clear Creek was a tip of the cowboy hat to Republican brewery scion Pete Coors, whom Salazar narrowly defeated in a 2004 Senate race. For decades, the Coors family has been a major donor to conservative groups like the Heritage Foundation and John Birch Society and target of environmentalists. On several occasions, the Coors brewery in Golden, Colorado, dumped thousands of gallons of beer into Clear Creek, at one point killing up to 50,000 fish (perhaps they at least died happy). But starting in the early 1990s, Coors also began paying more attention to preserving its watershed. It joined forces with state agencies to clean up an abandoned mine along the creek and cap, grade, and replant the site.

The mining reform bill would bankroll those cleanups by requiring new mines to pay into a fund. But Salazar would like to see it go further by creating new incentives for companies such as Coors to clean up mines on their own. In 2006, he sponsored a "Good Samaritan" bill that would have allowed private interests to mop up contaminated sites without fear of being held liable for the pollutants found there. For example, in the 1990s, the State of Colorado and Coors had planned to stanch the flow from a mine tunnel that was leaching ten pounds of heavy metals into Clear Creek each day, but the state killed the project for fear of lawsuits.

Salazar's plea for better beer through mining reform was a big hit with freshman Senator Mark Udall (D-Colo.), who has replaced him on the committee. "Your comments about Coors are particularly relevant to me, since Colorado is the number one producer of beer on a state-to-state basis," he said. "It's an important industry in Colorado and it's important to all of us."

Then the microphone was passed to Senator James Risch (R-ID), who was none too impressed. "Colorado may brew it," he said, "but Idaho grows the barley and the hops."