Congress Gave Wall Street An Early Christmas Present

government-pickpocket

Dave Hodges on The Common Sense Show wrote, In an obscure, but well reported 2011 event, Bank of America announced it was shifting derivatives in its Merrill investment-banking unit to its depository arm, which has access to the Fed discount window and is protected by the FDIC. This was announced as a news blurb in the main stream media and was prominently reported in the Daily Bail.

This was the single biggest financial event in the history of America. It was bigger than the 1929 stock market crash and it was bigger than the beginning of the bail outs in 2008, but it did not received the banner headlines that it should have received. What does this mean? It means that the Bank of America’s European #derivatives are now going to be “insured” by U.S. taxpayers and its two most important financial institutions, the Federal Reserve and the FDIC. What is even more distressing is that the Bank of America did not even seek or receive regulatory approval for this action. This action was simply acted upon on behalf of frightened counterparties. Under the Federal Bankruptcy Act of 2005, the counterparties derivatives debt receive “super priority” when it comes to the disbursement of FDIC insurance payments to failed banks. Where do the rest of us stand in terms of reimbursement for a failed bank? We are in last place. In short, when your bank fails, your money is gone.

Congress got Wall Street two early Christmas presents.

In addition to spending appropriations, the bill passed last night in the House, includes changes to various laws that are known as “policy riders.” One of these is drawing sharp criticism from Democrats and financial industry watchdogs. The Dodd-Frank #Wall Street reform package passed in 2010 put new limits on how banks that receive taxpayer backing can use high-risk financial instruments known as a swaps, which were a key driver of the last financial crisis. Banks and other financial companies hate the “swaps pushout rule,” which has been praised as a crucial component of the reform law by the White House, Sen. Elizabeth Warren (D-MA), and Bush-era banking regulator Sheila Bair.

The #cromnibus repeals the swaps pushout rule. Americans for Financial Reform and the Leadership Conference on Civil and Human Rights blasted the move as “a backroom deal buried deep in a stopgap government funding measure” that will increase the risks taxpayers and the economy face. Former Rep. Barney Frank called it “a terrible violation of the procedure that should be followed on this complex and important subject, and a frightening precedent that provides a road map for further attacks on our protection against financial instability.”

 

2 Responses to “Congress Gave Wall Street An Early Christmas Present”

  1. I had a lot of confidence in Sheila Bair. Sheila Bair, in my opinion, could have led an orderly transition for failed banks. I think she was constitutionaly desirous of such an outcome.

    I would be interested in your take on the role that moral hazard played pre-crisis and plays post-crisis.
    .

  2. I’m not familiar with Sheila Bair. I will think about the big topic you pose. I do know that since Congress just repealed a key provision of Dodd-Frank regarding derivitives, the banks are free once again to speculate. They get to keep the profits and losses will go to taxpayers.

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