"The central bank is an institution of the most deadly hostility existing against the Principles and form of our Constitution. I am an Enemy to all banks discounting bills or notes for anything but Coin. If the American People allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the People of all their Property until their Children will wake up homeless on the continent their Fathers conquered." Thomas Jefferson
Excerpt from Yves Smith’s, Naked Capitalism, writing on the agreement between the Fed, the SEC and the Treasury, and the lack of congressional intervention in this "regulatory land grab."
"[Fed] agreement is very bad news for taxpayers"
"We recently wrote about a long overdue shot across the bow from the Senate Banking Committee about initiatives by the Treasury and now the Fed that amount to a regulatory land grab. Why do we think Congress should have done more, sooner? Because the proposed action put the Fed in the position, as with the Bear bailout, of taking actions that have fiscal implications. That’s the purview of Congress, not the central bank, and Congress has every right to reassert its authority over the public purse.
And having an Administration that is a blatant enabler of financial services industry assign itself sole responsibility for financial services reform is not just letting the fox into the henhouse but per reader Zippy is turning it into a chicken wing bordello.
Well, the Fed has gone ahead anyhow, and so far no one has interceded. In fact, there has been perilous little media recognition of its significance, which may account for the lack of pushback.
Peter Wallison in a comment at the Financial Times, "The Fed and investment banks," makes a case that many readers would support: that this move will increase moral hazard and that investment banks are not too big to fail.
Wallison also notes that Congress could nullify or limit the Fed’s agreement. If you aren’t happy with this move, now is the time to let your Congressman know.
From the Financial Times:
‘Since the Bear Stearns bailout, most commentators in the US have assumed that the Federal Reserve’s action would eventually result in Fed regulation of investment banks – a superFed, as some have called it. But it was always assumed that this would occur through legislative action, as Congress considered whether to place the resources of the US government behind the investment banking industry, as those resources have been placed behind commercial banks.
However, on Monday, with the support of the Treasury, the Securities and Exchange Commission and the Fed signed a memorandum of understanding that, in effect, puts the key elements of a Fed regulatory structure – and implicit Fed backing for the large investment banks – into place. What this amounts to is a straightforward Fed reach for important new regulatory authority, an unprecedented step in which a weak SEC – chastened after the failure of Bear Stearns – has been complicit. It would be perfectly acceptable if the agreement covered only the emergency period the markets are now experiencing, but it has no time limit.
‘The agreement is very bad news for US taxpayers. Fed involvement with the regulation of investment banks will introduce moral hazard into the securities business for the first time and pave the way for a vast new US government liability."….
