Does this give anyone else the willies? - Part III

[steve.foote]

And, now, the other shoe drops. This is what I have been afraid of all along.

 

Fed Leaders Ponder an Expanded Mission

 

In the past two weeks, the Federal Reserve, long the guardian of the nation's banks, has redefined its role to also become protector and overseer of Wall Street.

 

With its March 14 decision to make a special loan to Bear Stearns and a decision two days later to become an emergency lender to all of the major investment firms, the central bank abandoned 75 years of precedent under which it offered direct backing only to traditional banks.

 

Inside the Fed and out, there is a realization that those moves amounted to crossing the Rubicon, setting the stage for deeper involvement in the little-regulated markets for capital that have come to dominate the financial world.

 

Leaders of the central bank had no master plan when they took those actions, no long-term strategy for taking on a more assertive role regulating Wall Street. They were focused on the immediate crisis in world financial markets. But they now recognize that a broader role may be the result of the unprecedented intervention and are being forced to consider whether it makes sense to expand the scope of their formal powers over the investment industry.

 

Do you all realize that this is YOUR money they're playing with?

[Marty Hill]

Steve,

 

Drumroll please...I'm on your side.

 

Hope they get confused and put a bunch in my account.

[Fugu]

They should call this the War on Free Markets or something catchy.

 

Hopefully they still have that mission accomplished banner to hang up when Wall Street implodes.

[steve.foote]

What makes this so frightening is that now that the Fed is in the business of "protecting" investments when they decline, they will also be affecting them when they rise. That is not a 'free' market.

 

As we have done in the recent past, this time, we are foolishly trading prosperity for security. This could be the end of free markets as we have known them.

 

We're becoming a nation with a low threshold for pain.

[Dick]

It is very sad. I want to go on record now and beg the forgiveness of this great nation's young people for that which we are doing to their future. Perhaps they will show us mercy someday. But, I doubt it. I wouldn't.

[MattS]

Do you all realize that this is YOUR money they're playing with?

It's actually their money. That's why I write a check, so that they get their money and I'm done with it.

 

For the record, it appears they're providing emergency liquidity in the form of low-interest loans; rather than outright bailouts. In a lot of ways it's no different than the FDIC guaranteeing your checking account for $100K. If your bank goes tits-up, you gonna complain then? And that's been going on since the nineteen-thirties.

 

I think this is a lot of wind about nothing, frankly. It's becoming apparent that the "shadow economy" of hedge funds, securitizations and the like have perhaps too much sway over our overall financial health, and requires additional regulation. Nothing to see here, move along now.

[steve.foote]

Matt, there was a time when I too had a general ambivalence towards things like this. I find it much more difficult to ignore them now.

 

First of all, it is your money. The government would like you to believe that it’s theirs, but it is not.

 

Second, though the FDIC is intended to protect depositors for up to $100,000, the truth is that the system is very leveraged and can only handle the failure of a relatively small number of banks at any given time. If we suffered a widespread failure of banks, the FED wouldn’t be able to cope and would quickly collapse. Now, add in the additional exposure to investment brokerages and the system is even more leveraged.

 

But none of that compares to the horrible precedent which is being set. Today it’s investment brokerages. What will be next? Credit card companies? Insurance companies? Airlines? Title pawn’s? Casino's?

[steve.foote]

It is very sad. I want to go on record now and beg the forgiveness of this great nation's young people for that which we are doing to their future. Perhaps they will show us mercy someday. But, I doubt it. I wouldn't.

 

Dick, that's pretty much how I feel now.

[steve.foote]

Hope they get confused and put a bunch in my account.

 

If there is anyone here who should be so lucky, it's you Marty.

[steve.foote]

More wood for the fire: Treasury’s Plan Would Give Fed Wide New Power

[steve.foote]

How about this one?

 

Fed eyes Nordic-style nationalisation of US banks