Shrink The Repo Market

In prior posts I have made the point that to reduce systemic risk one must reduce the leverage inherent in the system. The Obama plan to tax liabilities at institutions with more than $50B in assets is a strong first step in shrinking banks. The only way to shrink banks is to shrink the leverage. Shrinking the Repo Market is the best way to shrink bank balance sheets. The way they do it is the trick.

http://www.reuters.com/article/idUSTRE60S00820100129

But I don't understand why the Administration now wants to exclude Treasuries.

I am not a fan of excluding treasuries. Why? If banks need to show restraint. Why shouldn't government? The simple reason for not including Treasuries is simple. If you include the value of Treasuries, the government would have a tougher time peddling it to investors. The cost of borrowing will go up.

The size and scope of the Repo Market has made it far too easy for the banks to build up leverage. There was too much short term borrowing financing long term positions.

The banks in turn are using Treasuries to lever up the system once again. We are back to square one. Taking this one exemption away does nothing. Its just another empty Obama Plan.

The big problem here is every time we have some sort of head way, its always shot down. Here Treasury officials want to exclude Treasury debt AFTER they spoke to Wall Street. If they continue to listen primarily to Wall Street and its lobbyists, the looting will just continue.

Obama ripped the lobbyists who are trying to stop progress in his State Of The Union address a few nights ago. What does he do the next day? He invites the same lobbyist's that he ripped to a private chat to talk about he did? Its beyond preposterous and appalling.

The lobbyists along with Wall Street have become so deeply embedded into the fabric of government that any type of regulation and blow back has to be extinguished. It seems to me that Wall Street is just blind to how corrupting their influence is on the rest of society. What's worse is they (lobbyists) actually think they have a legitimate role in government. Whats worse is that all three, yes all three branches of government just lets them do it.

All in the name of Plausible Deniability.