Thursday, September 24, 2009
Senior Harvard and Cato Economist: Government is Proposing to Institutionalize Bailouts for the Giant Banks
Jeffrey Miron will testify today at 9 am east coast time before the House Committee on Financial Services.
Miron is the Senior Lecturer and Director of Undergraduate Studies in the Department of Economics at Harvard, and also a Senior Fellow at the Cato Institute (and a card-carrying Libertarian).
In his prepared testimony, Miron says that Congress is proposing - by way of Title XII of the proposed Resolution Authority for Large, Interconnected Financial Companies Act of 2009 - to make bailouts of large financial institutions permanent.
Specifically, Miron says that the bill would allow (and encourage) the FDIC to:
Make loans to the failed institution, to purchase its debt obligations and other assets, to assume or guarantee this institution's obligations, to acquire equity interests, to take liens and so on. This means the FDIC would be putting its own - that is to say, the taxpayer's - skin in the game, a radical departure from standard bankruptcy, and an approach that mimics closely the actions the U.S. Treasury took under TARP. Thus, this bill institutionalizes TARP for bank holding companies.
Miron says that this drastically increases moral hazard and the threat to our economy. Miron instead recommends that the too-big-to-fails be put into bankruptcy.
Paul Volcker is saying pretty much the same thing.
1 comment:
→ Thank you for contributing to the conversation by commenting. We try to read all of the comments (but don't always have the time).
→ If you write a long comment, please use paragraph breaks. Otherwise, no one will read it. Many people still won't read it, so shorter is usually better (but it's your choice).
→ The following types of comments will be deleted if we happen to see them:
-- Comments that criticize any class of people as a whole, especially when based on an attribute they don't have control over
-- Comments that explicitly call for violence
→ Because we do not read all of the comments, I am not responsible for any unlawful or distasteful comments.
Posts
If one reads today's maneuvering by FDIC's Sheila Bair concerning fiscal drains on the FDIC Depositor Insurance Fund, it is all too apparent, the article-described-approach of -institutionalizing- the ongoing banking-bailout is already in place.
ReplyDeleteThe article is timely, and to the point. There is no exaggeration in it.
There has been an ongoing -coordinated- expansion of balance-sheet-sleight-of-hand. This is quite literally being facilitated by banking examiners from the FDIC, by the Fed and by the Treasury in many ways that are continuing to envelop the reality of our economy with devastating results.
These governmental organizations are calling their collusion with the Big Banks "saving the economy".
Journalists of every ilk dubbed it -"bailouts".
It is -bank fraud- being committed by bank examiners in collusion with politicians, other government officials and Big Banking. How so?
The role of a bank examiner is ethically clear. The bank examiner's role is to protect depositors from bank fraud> This includes bank fraud that is political in nature -as historically -a large percentage of all bank fraud -is political in nature.
Bank examiners are not overseers of the -economy- in any abstract sense. Sheila Bair is -in no sense- an overseer of the economy.
The FDIC was set up to protect the deposits of FDIC insured depositors, -only.
FDIC bank examiners cannot be persuaded by wild exaggerations and enlarged political agendas about the effect on any bank -concerning what they are required to do to protect depositors.
Nor should banking examiners be affected by similar arguments about the effect on any community, or the effect on the economy at large -as whomever may see some such possible effect.
All that spurious emphasis is contrary to the role and proper function of the FDIC.
Banking examiners have discretion when it comes to examination of accounts. They have no discretion when it comes to the result of what they find in those accounts, or, what they call what they find in any such account.
"FDIC's Bair Seeks Alternative for Second Fee, Lauds Prepayment" at Bloomberg.com 09/24/09 http://www.bloomberg.com/apps/news?pid=20601087&sid=a38BY_WVZi6o
A "prepayment" is again a loan -when this is not a loan at all. This money is required to pay out insurance claims to FDIC insured depositors.
The FDIC Depositor Insurance Fund is a fund financed by insurance premiums paid by banks.
The FDIC Depositor Insurance Fund -supported by the premiums paid by banks- is there to protect depositors' deposits -and to act as a mechanism by which ethical considerations are made self-evident in the banking industry.
This current economic collapse is not an act of God. There should be no one blaming God today for this debacle.
It has become necessary for banks to pay higher FDIC Insurance premiums.
Sheila Bair is now trying to call what is required to address this need a "prepay" -which will allow these insolvent SDI banks to keep on their books -money -they do not have-, and which, -neither will the FDIC have.
This defrauds the bank depositors whose interests are required to be kept sacred by banking examiners -and certainly no less so -by FDIC banking examiners.
This new money needed to shore up the FDIC Depositor Insurance Fund -is required for disbursements to FDIC insured depositors who have lost their funds due to bank failures.
The same solution is being re-aired again today (with an obviously more cynical slant) in an FDIC coordinated effort designed to affect accounting irregularities that are only meant to hide the insolvency of FDIC member banks from FDIC insured depositors.
Nothing is being hidden from the FDIC or the insolvent banks. They each know that these banks are increasingly insolvent, but only -just like a woman can look increasingly pregnant.