AT WHAT POINT DOES RESPECTABLE CRITICISM TIP THINGS?
The United States currently faces economic turmoil related directly to a loss of confidence in our largest financial institutions because policymakers accepted the idea that some firms are just "too big to fail." I do not. Yes, these institutions are systemically important, but we all know that in a market system, insolvent firms must be allowed to fail regardless of their size, market position or the complexity of operationsBravo. This guy is a voting member of the Federal Open Market Committee (the group primarily responsible for setting interest rates, and therefore monetary policy). Will we see some revolt within the Federal Reserve regarding Bernanke's lunacy? I have my doubts, but a wave of discontent is flooding over the Geithner/Summers/Bernanke policy from respected, mainstream quarters. It's too late to turn back the clock on what we've done over the last 8 months (and 25 years), but maybe we can stop some of the madness from continuing.
* * *
Actions that strive to protect our largest institutions from failure [such as Geithner's indication that none of the 19 largest banks will fail the so-called "stress tests," see below] risk prolonging the crisis and increasing its cost. Of particular concern to me is the fact that the financial support provided to firms considered "too big to fail" provides them a competitive advantage over other firms and subsidizes their growth and profit with taxpayer funds. These "too big to fail" institutions are not only too big, they are too complex and too politically influential to supervise on a sustained basis without a clear set of rules constraining their actions. When the recession ends, old habits will reemerge.
Anyway, what is the latest lunacy (hard to keep track)? As reported yesterday, Timmy's so-called "stress tests" will be more difficult for regional banks . . . meaning the tests will be easier for the national banking titans like Goldman Sachs and JP MorganChase. Check this out:
The federal bank stress tests rate the individual loans held by big regional banks as riskier than the complex troubled assets held by the industry titans, according to a Federal Reserve document obtained by The Associated Press. That approach could threaten some major regional banks while making the national banks appear in better shape when the government releases the results of the tests next month.Every time a "respected" economist or a central banker speaks out against the Obama Administration's shenanigans, I suspect we get a step closer to stopping this trainwreck. maybe I'm wrong, but I'll hold out some sort of hope that maturity, sanity, and responsibility will win in the end. Again, it's too late to save a deeply corrupted system, but it may prevent utter ruin. We'll see.
* * *
Under one scenario, the tests assume banks will see "no further losses" on the complex securities, according to the document obtained by AP. By contrast, it estimates that individual loans will lose up to 20 percent of their value. Regional banks are holding more individual loans and fewer of the securities Wall Street giants specialize in — complex derivatives backed by huge pools of mortgage-backed loans and other debt.