Rob Kall: How would
it be better?
Ellen Brown: Well,
those things are just so incredibly risky!
The concern right now is that (I think) Bank of America is considered
the most risky, with their Merrill Lynch derivatives book which has been moved
into the depository arm. It was moved in
there specifically because it was risky, because Moody's had downgraded Bank of
America. Merrill Lynch derivatives
counter-parties had demanded more collateral, and everybody got all panicked;
so they moved their derivatives in with their deposits in order to make the
derivatives stronger, but what they've done is jeopardize a trillion dollars in
deposits!
So if that goes the way of MF Global, then the
depositors' money will wind up in the pool, and it will get sucked up when the
derivatives players close out their position, which they are allowed to
do. This gets a bit complicated; but, in
bankruptcy, derivatives have "Super Priority" - which means they get to go
first. The derivatives claimants go
first, which is outrageous. I mean, that
for sure should be repealed. They did
that to nurture this fledgling derivatives industry, because it needed a little
help (laughs). Well it certainly doesn't
need any help anymore!
Rob Kall: Who did
that? Who made that legislation that
derivatives are the first priority in bankruptcy?
Ellen Brown: That's in
the bankruptcy Act of 2005, and it was of course heavily pushed by the banks,
but I don't know specifically who did it.
That was also the act that said that students couldn't file for
bankruptcy, or they couldn't get relief from their student loans from
bankruptcy. It was heavily, heavily
weighted in favor of the banks.
Rob Kall: Wow. Sounds like they ought to just ban
derivatives and get rid of that bankruptcy act.
Are there any good things in that act?
Ellen Brown: Bankruptcy
itself is a good thing. When people talk
about that we should have a "Debt Jubilee," where you forgive all the
debts? But if you did that, of course a
lot of the creditors are ordinary people that hold bonds or whatever. So it wouldn't be fair to forgive all the
debts. But what bankruptcy is, it's
where you go into court and you prove your case. You prove that you specifically are entitled
to be forgiven because you can't afford to pay, and here is your fair work out,
you put your assets on the line, and they take what there is, and so
forth. So bankruptcy is a good thing,
the whole procedure of bankruptcy. But
the modifications that were for the benefit of the banks in the 2005 act
obviously - [unintelligible]
Rob Kall: There was
bankruptcy before the 2005 act?
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