Saturday, January 31, 2009

Bloomberg & Derivatives: Another Look At the Financial Crisis

The cover story of this week's Village Voice explains, in layman's terms, the damage done to our economy through credit derivatives (essentially insurance policies for large loans). The derivitives market became a big money operation by making money off of failed loans. 

An interesting twist to this is that the company who put together the hardware and software for pricing and clearing derivatives is Bloomberg, the company which is the cornerstone of Mayor Mike's vast wealth. The Voice takes a closer look:

"Did Bloomberg L.P. do anything illegal? Absolutely not. We prosecute hit-and-run drivers, not roads. But there are many questions—about the size of the derivatives market, the names of the counterparties, the amount of replication of derivatives, the role of securities ratings in Bloomberg calculations (in other words, could puffing up be detected and potentially stop a swap?), and how the OTC industry should be reported and regulated in order to prevent future catastrophes. Bloomberg is a privately held company—to the chagrin of would-be investors—and quite private about its business, so this information probably won't surface without subpoenas."

Lost City takes a less politic stance, comparing Bloomberg to Oppenheimer. "Bloomberg–he's the guy who's trying to convince us to elect him for a third term, because he's the only mayor who can handle things during a financial crisis like this one, right? Is that because, since he helped create the crisis, it's only right that he should clean it up?"

A recent NY1 poll shows that 57% of New Yorkers still disapprove of Bloomberg's move to extend his stay in Gracie Mansion. 46% said they think less of the Mayor because of how he's handled the term limits situation. I would suggest, in light of the Voice article, if Bloomberg wants to be our savior in the next election, he should encourage some transparency on the part of the company which bears his name.

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