No, not a referee at the World Cup although there are certainly some candidates there from what we witnessed over the weekend. I'm talking about the Barney/Chris the Crook bill that came out of conference. I called a buddy of mine whose on the inside (or so he tells me).
"What up?"
"Not sure."
"Have you seen it?"
"Not exactly. I did get a 30 page summary in 10 pt. type of the salient points according to our guys."
"Read it?"
"Nah."
"Talk with anyone else?"
"Yeah."
"...and?"
"Let me say this; if I were you I'd pray like hell that nothing bad happens before November because if it does there aint nobody around who knows who's supposed to do what and there sure as hell aint nobody that is going to want to do anything."
Somehow that didn't inspire a great deal of confidence but one would think that SOMETHING had to be accomplished with 2000 pages, so I'm trying to piece together what I read in the popular press and frankly, I'm wondering what the fuss was all about.
It seems we now have ourselves a Financial Stability Oversight Council which will itself be overseen by the Treasury whose job it will be to define and if need be, shut down those firms which could pose a systemic risk to the system. Just how it does that appears to have been left to the imagination or to be made up as we go along. The definition of systemic risk appears to be...that which could pose systemic risk; kind of like pornography under the old definition until we essentially decided that there was no such thing. That should make everyone sleep better at night.
The Federal Reserve, in appreciation for the fine job of oversight done in the past has been given more oversight authority to oversee more institutions with probably, due to the world wide call for austerity, few extra resources to accomplish the mission. Kinda like Afghanistan. I'm feeling better as we go along.
The "Volker Rule" will exist in some way yet to be defined which will mean that the risker aspects of the business of insured deposit-taking banks will be separated into separately-capitalized subsidiaries if allowed at all (to be defined). Funny, I thought that's what Sec. 20 subs created in 1989 were supposed to do. I guess I was wrong. Oh well.
THERE WILL BE NO MORE "TOO BIG TO FAIL" INSTITUTIONS! Well, not quite. It seems that the Fed can still provide liquidity to affected institutions in exceptional circumstances which in the real world means anytime the growth enhancer hits the fan but this was to make Poo Bair happy despite the fact that it was admitted in conference that nobody ken how this would work. Easy. You put out the fire so you have a house to sell which gets us back to the Oversight Council which, if it were to do its job correctly should obviate any need for this language at all. Right? Wait a minute, how's that again? doesn't that mean...Oh Bother...as Poo's brother Winny would have said.
The we come to derivatives. The world has clearly been saved. These horribly creatures will now be run through a clearing house which will provide transparency and require capital placed against them by the originating institutions. Yea! Except...these forms of derivatives weren't what got us into trouble in the first place. You see, those "derivatives" ala the AIG fiasco weren't derivatives at all but guarantees dressed up to look like derivatives in order to avoid the capital requirements placed on guarantees by--you guessed it--regulatory authorities. In addition, guess what? Although I'm not really certain about this it appears that somebody, either the Fed or the Treasury will be authorized t provide liquidity to the clearing house(es) in the event that the dedicated capital is insufficient. But I thought...oh, bother.
We also seemed to have wound up with a Consumer Protection Agency (what, another one?) that will be housed within the Fed but controlled by political appointees. Wonderful. The Fed gets the responsibility but no authority. Gets the blame, too when things go wrong as they will. Great job, being a central banker.
We'll have more on this and the momentous meeting up in Toronto this weekend but My smart friend Larry just rang up. Seems he was in Brazil for a week and apologized for the delay in responding.
"Read my concerns?"
"Oh yeah but I wouldn't worry."
"Why not?"
"Well, the Brazilians aren't concerned and they're pretty bright."
"No kidding! That's pretty good news, right?"
"Well, I guess. Of course they are of the belief that neither the U.S. or Europe count for much. The only thing important is China...and the World Cup."
"Oh."
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