My Note –
So, what happens when the over $600 Trillion dollar derivatives market is centered in Germany?
Whose law will apply?
What happens when the NYSE corporation changes its rules, its fees, or its “corporate business model” with its ownership by a German national company?
What courts, what regulations would apply?
If they decided to make a corporate decision that the NYSE wasn’t desirable and decided to close it? Or decided it wasn’t making them enough money to be worth keeping open? Then what?
But, what surprises me most, is that Americans are not trying to keep it. There is enough money among the wealthy business members of this country to make a bid to keep the NYSE but that isn’t happening.
I found this interesting –
But CME Chairman Terry Duffy was on Fox Business Network this afternoon with a message that his company wouldn’t be at any disadvantage if the NYSE-Deutsche Boerse deal is completed.
“We compete with them every day, now we are just going to compete with them as a joint entity,” he said.
“Going to compete with them as a joint entity” – what kind of statement is that?
I think he is glad that the Chicago Mercantile Exchange (CME) will inherently have a better catbird seat as a result of this deal. Once the NYSE is sold – what is left? The CME can just sit back and wait for the in-fighting to destroy the other two.
When the financial crisis cost Germany and German financial institutions so grossly, and particularly from the derivatives and toxic assets they were sold – their interests were profoundly affected. So, does this fix that? Will it prevent it from happening again?
Or, will it mean that from now on the controlling decisions concerning those products will simply sit in Germany and the EU?
Deutsche Börse warned in December that full-year earnings would be burdened by the ISE (International Securities Exchange) impairment charges. The ISE has lost market share since the end of 2007, when Deutsche Börse agreed to pay $2.7bn in cash for what was then the second-largest US options platform.
German exchange operator Deutsche Börse late on Tuesday reported a fourth-quarter loss of €61.2m in part because of previously announced charges at its US options business, the International Securities Exchange.(from)
Deutsche Börse reports Q4 loss
Dow Jones Newswires
16 Feb 2011
Also from them –
European golfers may have dominated the Ryder Cup this decade, with three wins to one over their US opponents, but the US is the clear leader in the options market. Last year, 2.9 billion stock options contracts were traded in the US and only 421 million in Europe, the Middle East and Africa, according to data from the International Options Market Association.
Many traders on the New York Stock Exchange were taken by surprise last week when the news ticker announced that Wall Street was planning to merge with the operator of the Frankfurt stock exchange, Deutsche Börse.
At first, many traders thought the New Yorkers would be buying up the Germans. When they found out it would be the other way around, more than a few turned a little pale.
Despite some reservations on the part of traders, and maybe a little wounded national pride, they know what’s at stake and what made the deal an attractive one: the lucrative business with derivatives. Those who trade derivatives work with complicated financial instruments that are linked to assets, but whose value is based upon the expected future price movements of that asset.
My Note –
I guess that there are no anti-trust laws in place anymore. Apparently.
The article above notes the difference in the way trades are handled in the German stock exchange which supposedly will come to the NYSE – maybe that is what they will do with quiet banks of computers handling all the trades – the NYSE is set up much that way now.
Who gets the tax money that is generated on the profits made by the exchange corporation once it is no longer in the US? At the point the takeover occurs, it will no longer be an American company.
But, Americans don’t want to be bothered. That trillions of dollars our government has borrowed is destined to increase as our nation’s assets that generate any revenue are taken elsewhere. From Anheuser-Busch to Genzyme to the New York Stock Exchange – everything is being sold that generates any revenues. But, then it isn’t generating any revenues for our nation despite our years and years of infrastructure support to them, our investments in them, our national investments in them and our citizens’ support of them. After we have built them – other nations will profit from them. How is that going to help?
And, we will end up competing with them if our nation intends to build anything else. The massive resources being sent out of our nation through the NYSE deal to Deutsche Börse defies explanation. Every patent held by the NYSE, every part of its foundation and business model, every part of its brand, every part of its technical expertise and experience, every part of its already connected resources from our government that supports it, every part of its specialized knowledge, every part of its competitiveness, and every part of our national heritage as a capitalist society is walking out the door.
It isn’t just a brand, a logo.
Here is why I think it happened – (and they went through hell trying to get that money back through the mess that occurred.)
Definitely a contributing factor. But, what I want to know is how they are buying the NYSE considering, the Deutsche Börse has had some losses through the last three years as they have. Is this one of those junk bond deals or what? Who is sponsoring it?
Oct 23, 2008 … State-owned bank KfW transferred €319m to Lehman brothers the day it went bankrupt.
My Note –
Yes, this was a mess and so was the derivatives that many, many banks were holding which the German people ended up having to cover that were bought from American and London exchanges. They were absolutely toxic.
This is also interesting in light of this sale of the NYSE to Germany –
The German government is now fully committed to escalating its ongoing counterattack against international financial speculation. These moves represent an historical watershed as Germany becomes the first major economic power to roll back the tide of financial globalization, under which crackdowns on hedge funds, derivatives, and the world gambling casino were branded as taboo for national governments.
German Finance Minister Wolfgang Schäuble has announced that the Merkel government is sending a draft bill to the German parliament (the Bundestag) targeting “turbulence” and “volatility” through further regulation of “certain transactions [which] amplify the crisis.”
The bill reaffirms the most fundamental German measure enacted so far, the May 18 blanket ban on all naked credit default swaps issued against the treasury bonds of the eurozone nations. This ban represents the most aggressive move anywhere in the OECD against these most toxic derivatives, which have figured prominently in the AIG bankruptcy and the recent Goldman Sachs Abacus scandal. They are also the derivatives being widely used by hedge fund hyenas and zombie banks to attack such nations as Greece , Spain , and the rest of the Southern tier of the euro.
By Webster G. Tarpley
And now they are going to buy the exchange to trade in them?
Note that this came from the LaRouche Political Action Committee – but it is nonetheless true –
Statistics just published by the Bank for International Settlements (BIS), and reported widely throughout the world’s financial media, reveal that European banks have an exposure of a whopping $2.1 trillion dollars in . . . (Portugal, Ireland, Greece and Spain). Of that, nominally German banks are out on a limb for about $540 billion (26% of the total), French banks for $370 billion (18%), and British banks for $350 billion (17%).
But that $2.1 trillion is actually chump change, compared to the derivatives bubble built on top of it, which is larger by at least an order of magnitude.
This from a finance blog –
Goldman Email Describes ‘Frankenstein’ Derivatives; Tourre Brags about Selling Abacus to “widows and orphans”; SEC Confident;German Bank Drops Goldman
A few months later, a June 13, 2007, e-mail shows Tourre claiming, “I’ve managed to sell a few Abacus bonds to widows and orphans that I ran into at the airport, apparently these Belgians adore synthetic ABS CDO2,” using short-hand for asset- backed collateralized debt obligations squared, or CDOs made up of tranches of CDOs containing asset-backed securities.
My Note –
But, they sold those to German banks also.
And there were massive bailouts required from the citizens of Germany to cover those losses.
Who can blame them for being angry about how that was all handled and the contempt shown to them and their banking / investment firms by the US players?
This comes from a yahoo finance article written by Daniel Gross –
During the boom years, Germany’s banking system was hardly a model of mittel-European probity. The country endured several expensive bank failures and bailouts , including West LB, IKB, Hypo Real Estate, and Sachsen LB. Now, Chancellor Merkel, Germany’s banking system, and the German citizens are among the most significant beneficiaries of the bailout of Ireland — and of the potential bailouts to come of Portugal and Spain.
The Bank of International Settlements is a great repository of data on who owes what to whom. This chart documents precisely how much exposure banks in different countries have to the public and private debt of other countries. With the biggest economy in the Eurozone, it’s not surprising that Germany’s banks are intricately involved with their neighbors’ economies. In fact, it’s clear that many of the biggest beneficiaries of the deals through which Greece and Ireland accessed international lines of credit to ensure that bondholders wouldn’t suffer unduly are. . .German. (Here’s historical data on German banks’ exposure to debt of other countries.)
And this is interesting from the same article –
Were Ireland (or Greece) to restructure its debt rather than seek international bailouts, the German banks that own a disproportionate share of those bonds would have to write down the value of their assets, raise new capital or, in a pinch, seek help from their own government.
This was from a very interesting speaking slide show – about Lehman Brothers and the German losses –
Dr. Martin Tonner, Regional Court of Hamburg, CLEF Meeting, September 21 – 22, 2009
It states –
that the defendant did not inform him he bears the risk of a Lehman Brothers bankruptcy.
that the defendant should have told him that there is no deposit protection for foreign bonds.
that the defendant should have disclosed its own profit margin.
and also – (more importantly, as stated in the background to this case – the ways that impacted Germany specifically) –
Bankruptcy of Lehman Brothers in Sept. 2008
Many investors in Germany lost their money
3,700 clients of the Hamburger Sparkasse are concerned
1,000 investors were granted compensation
Hundreds of pending cases
My Note –
So not only did they have to bail out Hypo and other banks holding derivatives sold to them, the vast legal systems of Germany and most of Europe were covered over in fraud cases, financial crimes cases, investment fraud cases and virtually every criminal investigations unit was swamped with work.
On top of that, the US regulators including the SEC were not very helpful. And, the real economic damages were felt by every business in Germany, every town, every city and every citizen. Well, what will it be once they own the New York Stock Exchange?
And once they are holding the keys to the massive majority of derivatives trading and responsibilities?
This from the World Socialist Website that are more than happy to point it out –
Bailout of Germany’s Hypo Real Estate: A bottomless pit
By Ludwig Weller
23 February 2009
Hypo Real Estate (HRE) is an international property lender and the second largest mortgage lender in Germany. The firm has repeatedly applied for and received state support and guaranties, which have now reached over 100 billion euros.
No one seems to be able to say exactly how high HRE’s mountain of debt actually is at the moment. While up to now speculation pegged the sum at about 400 billion euros, on Wednesday, the Hannoversche Allgemeine reported insiders and experts from the Federal Parliament’s Lower House as saying that the Munich-based concern in reality has credit and derivatives debt amounting to a trillion euros, of which a large part derives from businesses that do not appear in the official balance sheet.
From another post –
The long and short of reports is that Hypo Real Estate has assets valued at 1 and 1/2 times its entire balance sheet in off-balance sheet vehicles. This would bring total exposure to German taxpayers to a cool one trillion euros (1,000,000,000,000).
While there have been numerous reports of HRE’s imminent nationalization due to the recent law enacted in Germany allowing such, these reports raise the stakes considerably. If you recall, HRE almost brought German banking to its knees during the Panic in October after Lehman collapsed (See my post “Germany: banking system collapse possible due to Hypo Real Estate“)
(the above article includes a press release from 2009 by Hypo concerning their derivatives and hedging activities – maybe they didn’t know it would all be eventually discovered at that point.)
It is interesting though, especially in light of this forced acquisition of the NYSE EuroNext with their derivatives trading, securities trading and options trading forums.
Just a quick note about what is happening – (right now) –
Deutsche Boerse AG, operator of the Eurex futures platform and Frankfurt Stock Exchange, agreed to buy New York Stock Exchange parent NYSE Euronext in a deal that creates the world’s largest owner of equities and derivatives markets.
While the merged entity will list corporations with about $15 trillion in value, more than any other exchange, what may prove more lucrative is ownership of growing venues for trading futures and options, said Rich Repetto, an analyst at Sandler O’Neill & Partners LP. The union follows Singapore Exchange Ltd.’s October bid for ASX Ltd., which runs the Australian stock market, and London Stock Exchange Group Plc’s agreement last week to buy Canada’s TMX Group Inc.
(also)The merged company will also combine three of the nine U.S. options exchanges to surpass CBOE Holdings Inc. as the nation’s biggest operator. The International Securities Exchange is owned by Eurex, which is controlled equally by Deutsche Boerse and SIX Swiss Exchange Ltd., while NYSE Euronext operates NYSE Amex Options and NYSE Arca Options. The three markets handled 43 percent of U.S. options trades last year, compared with CBOE’s 29 percent, according to Options Clearing Corp. data.
Derivatives are so valuable that Deutsche Boerse may get a stock trading business for free. NYSE Euronext generates at least half its net income from trading options and futures contracts, according to Macquarie. That portion of earnings will reach $462 million by 2013, based on analyst estimates compiled by Bloomberg. Add Deutsche Boerse’s projected profit from its Eurex unit and the combined entity will earn $1.18 billion from derivatives in the U.S. and Europe within three years.
What is bizarre to me is that Americans are totally unconcerned that the New York Stock Exchange is being sold, that countless businesses are bankrupt and that most of the rest of the world owns us. That is bizarre to me, but if it doesn’t have to do with the Kardashians or Snooky getting into or out of jail, they just don’t care.
The US budget right now is being gutted – at this very minute – but only in programs that help American people and America’s families and communities, poor, elderly and disabled – the programs that support industries like the $20 million dollars going to the cotton industry to promote US cotton to India who grows more than we do, are not going to be cut at all. In fact, many of those corporate welfare programs and industry welfare programs are to be increased in funding. For $20 million dollars a year that our government is giving the cotton industry which could use the profit-based inputs of its own industry instead, I could damn sure do a better job.
But, nobody cares that our money is spent that way. They don’t care that the NYSE is being sold and the American flag will come down from its building. They don’t care that our second largest book seller, Borders is going out of business this week nor that a huge specialized drug company, Genzyme is being sold to somewhere else today.
I don’t get it. Why does it mean something to me and means nothing to so many people in America? Why don’t they understand what this means to them and to their lives in the future, (and for America)?
I just don’t get it.