Well, it's hundreds of pages long. Baby Barney and The Suit's people have come up with a master plan to save the financial business from itself, but oddly, rather than a definitive reading of what went wrong the last time and a game plan for the reenactment of the doomsday scenario it seems to tacitly admit that at some point it's going to happen again and what has been produced is merely an outline of who might be in charge when it does. It , to this poor scribe, appears to be a predictable authoritarian overreach than when could expect from politicians operating without oversight and adult direction. In short, it is a grave disappointment at first blush but I haven't gotten through the entire thing as of yet. I shutter to think what I will find.
Underlying the entire effort appears to be be a rather transparent attempt for a lot of...there is no other was to say this...ass-covering for the actions taken--and not taken--over the past year especially for the use of taxpayer's money to dig us out of this mess. The overriding theme seems to be that when this happens again--and it will--we have to have laws an a mechanism in place so that we (politicians, Suits etc.) cannot be judged by our actions...we were just following the rules. You see, we just COULDN'T take over Lehman or Merrill because we weren't authorized to do so. We just COULDN'T tank Citibank because we weren't authorized to do so. But now we can! Oh, ok. And when you do, just what will you have done? And of course the takeover and wind-down of an institution operating under 90 different national laws with 400 clearing arrangements will go perfectly smoothly because Barney Frank says it will. Just wondering.
The proposed legislation creates a form of oversight in the creation of a council of regulators that will monitor potential threats although I'm not quite sure what happens after a threat is identified. The proposal appears to give a good deal of authority to the Federal Reserve Board in that the Fed would have the power to engage in the management of certain financial institutions that could be deemed to be a threat to the financial stability of the United States to the point of ordering divestiture of assets and cessation of businesses, in addition to the afore-mentioned take-over power in connection with the FDIC who would perform the closing-up function. Great stuff, eh? Well, not quite. It seems that the Fed could only perform these functions after consultation with the Treasury, or to put it in language normal people can understand, after all the POLITICAL hurdles have been cleared. In the real world, that means nothing happens.
It has been my experience that financial crises have a long gestation period but tend to come to fruition all at once. Once again, to use my definition, a systemic risk occurs when everyone has the crap scared out of them at exactly the same time. It happens fast, and somebody has to make hard, immediate decisions. Enter politics and you have nothing happening quickly, but what you do have is deniability on every level; what has been created is the perfect buck-passing scenario.
Only a Barney Frank could figure this one out. Remember, for four years TWO administrations and the Fed tried to rein in Fanny and Freddie but no one had the authority but Congress. Frank and Dodd stopped all efforts cold. Both have skated on taking the fall for their lack of responsible action, but Barney isn't going to put himself in that position again. Now NO ONE will have clear responsibility, every decision will be a political one and the pols will be in a far better position to cast the blame if anything goes wrong.
Another bird has been killed with this stone as well. For a century the Federal Reserve has been independent. No longer. For the first time in our history the Fed has allowed itself to come under not merely the influence but the sway of the political establishment. What Mr. Bernanke has allowed to happen is a disgrace. This political camel has gotten more than its nose under the tent; it has gotten its entire head and one hump as well. Ever get up close to a camel? They stink.
One final comment for today. The proposed legislation also creates the ability for the FDIC (That's Little Miss Dummy) to recoup, certainly from banks but perhaps from other financial institutions as well, public monies spent in any wind-down or salvage operation that the government might spend. Now if a major institution gets into trouble what genius thinks that the difficulty is going to be so contained that every other institution is not going to be under some stress as well? What Mensa member decided that the orderly wind-down cost of, say, Citibank, is not going to put every other institution in the tank if recoupment is sought in a period of less than two lifetimes? I swear to God, you can't make this stuff up.
More tomorrow. Comments?
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