Financial Stability Act - I would Like To Buy This Cave Please

Just like the Derivatives Bill is going to destabilize global markets and perpetuate more risk taking into infinity, so to will The Financial Stability Act with regards to TBTF financial institutions. All this really is the legalization of TBTF. If this act passes, then TBTF is an official policy of the Obama Administration.

http://www.financialstability.gov/

We had Tim Geithner defend the administrations stance earlier in the week. He keeps saying the right things, but the execution is not up to snuff.

The bill he is aggressively defending calls for putting a resolution process in place which ostensibly allows the cost of the failure of a too big to fail to not be passed on to taxpayers or the wider economy. The sentiments he expresses are the right ones. But, he is rightly being questioned about whether this proposal gives the executive branch power which it could abuse. Let me say - I am OK with giving the executive branch the power they need. But what have they done so far? Nothing! They have allowed Wall Street to loot the country. What good is power if its not used?

Its beyond any level comprehension that right after this speech GMAC was effectively nationalized and guess what? The non-government equity wasn't cleaned up. What is going on? Why is the tax payer being looted? The testimony and the actions are in direct contradiction with one another.

The biggest problem I have with the FSA is that TBTF is and will live on to perpetuity if and when this is passed. The banks are falling all over themselves in laughter at this moment. More so, TBTF institutions will now see an implicit government subsidy that puts them in the same category as FNM and FRE before the crisis. This in turn gives the large unbreakable banks a huge funding advantage over the regional banks. This just destabilizes the financial system more as more risks will be taken with even more leverage.

Its capitalism on steroids.

Geithner and the Obama Administration are suffering from Regulatory Capture. It was the Federal Reserve that wrote most of the regulations for the TBTF banks. Afterwards it was the Fed that failed the most. Now one wants to take accountability for this massive overhaul.

If this regulation gets passed, we are all in serious trouble. Its no longer calling the bomb squad to defuse a bomb. That's an after thought. We are going to let the bomb explode, and then figure out a way to clean up the mess later. Of course with taxpayer money and bonus subsidization involved. If this bill gets passed, Congress will no longer have the right to say yes or no to bailouts, that decision goes to the Executive Branch. Congress then is really off the hook with regards to bailouts. Is that good or bad ultimately?

The Obama Administration doesn't want to do the heavy lifting involved in regulating these banks. Don't worry though, the market will eventually come around to do the heavy lifting for them. Starting today.