BIRDS OF A FEATHER

Poo Bair and Paul Krugman spoke out today on the regulation of the banking system. As usual Poo hadn't a clue but oddly, Krugman got it right. Poo thinks that resolution authority will solve the TBTF problem because it will an orderly dissolution of an institution with expense to the taxpayer and not result in panic in the markets. According to her it was the bankruptcy of Lehman than caused all the problems.

In my mind, what causes panic is the thought that this dope would be allowed within 100 miles of the next mess. Size is what causes systemic risk; size which results in the involvement of the institution in multiple facets of the financial markets. She obviously has missed it so here's a head's up to Poo: there are A LOT of big banks out there that go to bed every night with a prayer of thanks that you are not one of their regulators. They are called French banks, British banks, German banks and a whole lot of other banks. Through no fault of their own one of our banks could wind up in deep do-do because of its involvement with one of those. Now what do you do. Resolution authority? By definition, we are in the sthook again and this time it's not our fault...not hat it was entirely our fault the last time. Not that she and her two-bit organization has a clue as to how to deal with the impending failure of a massive financial institution but she still misses the fact that when the balloon goes up what has to be done has to be done...right...now. And to think that this dumb-ass idea that $50 billion collected from the top 50 is going to anything to assuage the frenzied masses is beyond stupid. Think of it this way: Bank A in LA LA Land gets it all wrong and comes clean to the fact that they are a bit short of the ready. Big Bank B is their correspondent in the U.S. and clears for them. Everybody knows that Bank B has a big settlement risk with Bank A but nobody knows how much. If you are the rest of the bank alphabet he first thing you do is try to limit your exposure to both A & B; there goes B's liquidity and guess what? We are at the start of systemic risk. Now Poo what do you do? Announce that you are going to wind up Big Bank B like the 7th. National of Buttburn Alabama? No my love, because some adult somewhere will have said to the markets, "We have Big bank B covered." I bet the adult is in the Federal Reserve. Nobody likes it but that's the price of being in the regulatory business.

Now Krugman, for a change announced that the bill coming out of the Senate would actually CONFIRM the status of TBTF on the part of a number of banks. Could he have been reading the blog again? Whatever. He actually got it right. What he also got right was the concept that maybe TBTF is endemic in the business as it exists today. Of course his solution to this risk is more regulation as we will perhaps see from Barney's Boys in the Band...oops...House. Again, regulation governing U.S. financial institutions alone is about as useful as...well, let's not go to the barnyard. In fact it's about that useful in general. But like his hero, The Leader, Krugman is convinced of the power, intelligence and effectiveness of the government. Perhaps someone should ask Krugman how the GSEs got into such trouble under the direct oversight of Barney and Chris the Crook? I'm sure his answer would be they were just too lax. No, Paul. Politicize oversight and you have a recipe for failure, but he will never learn. What's the definition of mixed emotions? Watching a bus filled with economists going over a cliff and realizing their are three empty seats?

Anyway, Ky lost over the weekend and looked bad doing so. There is still justice in the world. Go Bulldogs. Woof! Woof!