Two months ago, Fed governor Jeremy Stein
caused a major stir among the very serious excel-using economists and other wannabe "scientists"-cum-voodoo witchdoctors, when he hinted that it was the Fed's actions that were leading to "overheating" in the markets. It took quite a bit of rhetoric by other very serious people to talk down his comments and give the impression that the S&P is not about 50% overvalued. Today, Stein has managed to stick his foot in his mouth for the second time in a row, and do what virtually nobody in the status quo is capable of: tell the truth.
In a speech titled
"Regulating Large Financial Institutions" Stein made something very clear: if and when a TBTF fails, and since this time is not different, and a failure is only a matter of time, depositors will lose everything (courtesy of some $300 trillion in gross unnetted liabilities which once there is a counterparty chain failure, suddenly become very much net and immediately marginable - a drain of cash), which now that Cyprus is the template, is to be expected. Not only that but Stein makes it all too clear that part of the Dodd-Frank resolution authority guidelines, a bailout is no longer an option.
Perhaps more to the point for TBTF, if a SIFI does fail I have little doubt that private investors will in fact bear the losses--even if this leads to an outcome that is messier and more costly to society than we would ideally like. Dodd-Frank is very clear in saying that the Federal Reserve and other regulators cannot use their emergency authorities to bail out an individual failing institution. And as a member of the Board, I am committed to following both the letter and the spirit of the law.
At least he can't say Americans weren't warned when the Cypressing(sic) hammer finally falls.
Oh, and as a reminder...
Source:
Zerohedge
Comptroller Of The Currency: Four Of The Largest US Banks (Total Exposure To Derivatives) $207 Trillion And Growing (Total Assets) Around $4.7 Trillion
Dallas Federal Reserve Bank President Richard Fisher Urges Dodd-Frank Rewrite, Economy In Constant Jeopardy End Too-Big-To-Fail
How Cyprus Exposed The Fundamental Flaw Of Fractional Reserve Banking
Banks Win Again As Judge Tosses Antitrust Claims In Libor Lawsuit
Federal Reserve Governor Jeremy Stein Warns When A TBTF Bank Fails, Depositors Will Be Cyprus'ed
