“The Bear situation changed everything: people saw death before their eyes.”
March 22nd, 2008Via: Financial Times:
The Federal Reserve and Treasury are playing a dominant day-to-day role in overseeing Wall Street following this week’s rescue of Bear Stearns, raising the prospect that the central bank might be given more permanent authority over securities firms.
Bankers say the greater authority is a direct consequence of the Fed’s extraordinary decisions to extend a $30bn credit line to help JPMorgan Chase’s takeover of Bear and to lend emergency funds to securities houses for the first time in more than 70 years.
“There is a new sheriff in town,” said a senior banker. “The Bear situation changed everything: people saw death before their eyes. The Fed and Treasury are in charge now and are not going to let go”.
Under a regulatory regime dating back to the 1930s, the Fed oversees commercial banks, but investment banks are primarily regulated by the Securities and Exchange Commission.
But as the credit crunch deepened, Ben Bernanke, Fed chairman, Tim Geithner, president of the New York Fed, Hank Paulson, Treasury secretary, and Robert Steel, his number two, have been in unusually close contact with Wall Street executives.
People close to the situation said the Fed and Treasury feared further problems among securities firms could destabilise the financial system and expose US taxpayers to sizeable losses on the new Fed loans.
Their stance has triggered talk of new financial services legislation, with bankers and politicians, including Barney Frank, House financial services committee chairman, asking whether investment banks should be regulated by the SEC or the Fed.
An extension of the Fed’s powers to investment banks might force them to reduce risk and leverage in order to comply with the tougher requirements faced by deposit-taking banks.
However, any change would require legislative action, which looks increasingly difficult ahead of the November presidential election, and could be even more problematic under a new Administration.
The SEC said different agencies were functioning as “equal partners at the regulatory forefront”.
You think they’re fashioning some kind of artifical spine for the SEC? Sounds good to me, is there a down-side to lower leverage caps? Probably not specifically, but in this context, by this agency?
Here’s an article about the Bear Stearns bailout. Nothing surprising about it, except that its yet another clue about who really runs our banking system – and by extension the U.S. gov’t:
http://www.dailyreckoning.us/blog/?p=761
“The initiator of the bailout was Geithner, who
as head of the New York Fed maintains a traditional intimate relationship with Wall Street. Neither a banker nor an economist,
Geithner left Kissinger Associates in 1988 at age 27 to go to work at the Treasury and begin an uninterrupted career in government service
(promoted in 1999 by Treasury Secretary Robert Rubin to under secretary for international affairs).”
Kissinger Associates, which is now Kissinger McLarty Associates, has long been a leading member of David Rockefeller’s Council of the Americas. Its funny how everything sleazy and underhanded in American politics and business can be traced back to that treacherous old fart.