Wednesday, July 16, 2014


That's what this time of year is called in the UK, probably because football is done for a full month and there is nothing on which they can concentrate.  Strange things happen and are said.  It kinda holds true Over Here as well especially if you have congressional testimony from the Chairman of the Fed and Crazy Lizzy Warren is around.

Janet Yellen gave folks a whole lot to chew on not the least of which was her advisory warning that certain segments of the market had perhaps gotten ahead of themselves and some decent discussion of where the Fed was and where it was going, not to mention that in her view the jobs picture was not quite as good as some had made it out to be.  Good, solid Central Bank testimony, called for by statute, mostly unexciting but sufficient to satisfy the requirement without putting anybody to sleep. Up rose ol' Crazy Lizzy then, not the least bit interested in all of that monetary stuff but focused solely on whether J.P. Morgan & Co. had presented to the Fed a "living will" as required by the legislative disgrace known as Dodd/Frank and whether Ms. Yellen and her colleagues had accepted it.  Further, if they had not accepted it, then she inquired, why hadn't The Fed exercised the remedies granted to it and broken up J.P Morgan?  Ms. Yellen hung in there long enough so that time ran out on Warren.

Now, one could simply dismiss all this by saying, "stupid is as stupid does," but let's face it the woman is a U.S. Senator and has a hell of a lot of power and influence not to mention her lap dog on the Fed Board of whom we have spoken in the past.  There aren't five people in that august body who believe that a living will could ever work but she is clever enough to recognize that the real lever she has is the possibility to begin reducing the size of financial institutions, as you can be damn sure that a plan, outlined in some 10,000-odd pages covering a financial institution of over $2 trillion in assets under constantly changing markets and conditions will ever be accepted by the Fed. Nobody is that stupid.  But what we saw yesterday is the opening salvo it what is going to become a constant bombardment on the regulatory apparatus and the public to "solve" the "too big to fail" problem by reducing the size of the institutions that fit that category according to the Gospel of St. Lizzy.  And it's going all the way through to 1916 because Lizzy has her sights set on far higher office having now been convinced by the left wing of her party that Hillary must be stopped.

The result will not be success in either the acceptance of her views or her quest, but she has the ability to sure as hell stop the financial legislative process dead in it's tracks.  When recognized, I think we will see the industry itself begin to shrink as a result of this pressure and also as a result of the inability to produce a proper return on the amount of capital required to support a substantial balance sheet.  Once again, I shall be bold in my prediction that within the industry we will see its own form of "inversion"--not for tax reasons but simply to get the hell out from under.  What we shall also see is the migration of corporate financings  from today's institutions to an entirely new breed of financial intermediaries…or principals for that matter…who are far less subject to overall financial regulation or oversight.  The growth of the Blackstones of this world will continue even more unabated.

Perhaps that is a good thing.  I know I'm not smart enough to figure that one out, but it troubles me.   What troubles me even more is that Crazy Lizzy thinks she is.  That's not silly.  That's downright…well…crazy.

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