More Easy Money for Wall Street by William Greider

[robertpaulsen]

More Easy Money for Wall Street

by William Greider

The sales pitch for financial-reform legislation pending in the House claims it would put an stop to "too big to fail" bailouts for the leading banks. The reality is the opposite. The federal government would instead be granted unlimited authority to spend whatever it takes to prop up the big boys when they get in trouble. Only in the next crisis, Congress won't have to be asked for the money. The financial rescues will be funded by the secretive Federal Reserve, not the Treasury, with money the Fed itself creates.

And the emergency lending could be pumped into any financial institution in trouble--not just behemoth commercial banks but investment houses like Goldman Sachs, insurance companies, hedge funds or any other pools of private capital whose failure regulators believe would threaten the system.

This sounds nutty and it is. A permanent security blanket for big boys of finance could further inflame public opinion. Only the public isn't likely to know. The crucial terms for Fed financing are set by an innocuous-sounding amendment offered by Representative Brad Miller of North Carolina. Any financial holding company designated as a "systemic risk" and subject to stricter regulatory standards "shall have the same access to the discount window lending of an appropriate Federal Reserve Bank as is available to a member bank of each Federal Reserve bank."

This last-minute amendment, if included on final passage, solves a huge problem for the Obama administration--how to pay for the next bailout if another financial calamity unfolds. In the House banking committee, the administration's legislation originally sought unlimited authority for the Treasury and the president. But committee members choked on the implications after Representative Brad Sherman of California denounced it as "TARP on steroids." TARP was the original $700 billion bailout jammed through Congress last year. Citizens are still angry and some members of Congress who voted for TARP are likely to lose their seats.

Solution? Let the Fed do it behind closed doors. The Federal Reserve's discount lending to commercial banks is normally not disclosed to the public since it might signal the bank is in trouble and undermine investor confidence. That secrecy can hardly be sustained in another crisis, however, since financial markets will swiftly figure out which financial firms are the lucky winners in the Fed's fail-or-flourish lottery.

http://www.thenation.com/doc/20091221/greider?rel=emailNation

[Overseas]

1. K&R. //nt

[Smashcut]

2. K/R

[girl gone mad]

3. I think some of these issues were addressed in the bill that passed.

Don't quote me, because I have only done a hasty read through yesterday and now I am going off of memory. From what I could gather, the systemic dissolution fund with unlimited access to the discount window was NOT included. There is no "TARP on steroids" or permanent bailout fund. Dissolution fund can borrow from the Treasury, but it is limited to $150 billion which must be used to dissolve the failing company.

Unfortunately, the bill is full of loopholes and the Melissa Bean amendment, which essentially guts the Consumer Financial Protection Agency, made it in.

Now we will have to see what happens in the Senate, because I am certain the "TARP on steroids", unlimited slush fund plan won't stay dead for long.