Meltdown Five Years After
So appropriate that the architect of
banking deregulation, Larry Summers pleads that he is not the right person to head up the Federal Reserve. No
S$%#. Well, the Fed is certainly the hot seat under normal circumstances. What will it be like when the next crisis directly
puts into play the reserve currency status of the dollar? Do not worry, anniversaries are supposed to look at the brighter
side. Never mind, our benevolent government is hard at work presenting the public with the kind of assurance that
would make anyone start singing happy birthday.
money provides charts for inspection. However, what did all that TARP money do to correct the
panic? According to Anthony Reyes writing in Treasury Notes comes to a laughable conclusion in The Financial Crisis Five
Years Later: Response, Reform, and Progress In Charts.
"But putting out the fires of the crisis was not enough. To address the underlying
causes of the crisis, we had to modernize our regulatory framework and put powerful consumer financial protections in place.
That is why President Obama took up the mantle of financial reform by championing and enacting the Dodd-Frank Wall Street
Reform and Consumer Protection Act?. Americans now have a dedicated consumer financial protection watchdog, financial markets
are more transparent, and the government has more tools to monitor risk, and resolve firms whose failure could threaten the
entire financial system.
As we approach the five-year anniversary of
the height of the crisis, the financial system is safer, stronger, and more resilient than it was beforehand. We are still
living with the broader economic consequences, and we still have more work to do to repair the damage. But without the government’s
forceful response, that damage would have been far worse and the ultimate cost to repair the damage would have been far higher."
Sound so reassuring. However, Dodd-Frank ignored serious derivative overhaul. Forget about
mere regulation of financial markets, what about the federal government taking on even more fiscal responsibility of last
resort. Too big to fail is an empty phrase, when the full faith and credit of the Treasury is placed into question.
Just whom do you trust?
"Hester Peirce, a scholar
at the Mercatus Institute, told TheDCNF how Dodd-Frank’s placement of all financial derivatives into government-managed
clearing houses could lead to poor investment decisions and possibly unbalance the financial markets.
Because derivatives are such a complicated
and long-term investment, Peirce argues that investors should always pay close attention to who they’re dealing with.
"What Dodd-Frank does is say, ‘Don’t worry about [your counterparty], because you’re going to be in
this relationship now with a clearing house for a year, and the clearing house is safe, so don’t worry about it,"
"What we’ve done then is we’ve removed a whole
layer of market scrutiny on counterparties," Peirce concluded."
Ah, the "so called" success of the Sugar Daddy rescue effort is
that the final counterparty is the U.S. government, financed by the private Federal Reserve. Over at the Fiscal Times in an
article, The 5 Best and 5 Worst Regulations
in Dodd-Frank, provides the operative summary.
"The worst thing about Dodd-Frank is the misguided effort to remove risk from the system," said Dan Crowley,
a partner at K&L Gates and head of the capital markets reform group. "Risk is essential to the capital formation
process. Empowering the government to reduce risk in the system will inevitably increase compliance costs and decrease investor
Oh, that nasty risk, raising
its head again. After the toll in human suffering from the loss in capital value and income return, it is a rare person who
can say that their wealth factor has recovered to pre 2008 conditions. So too, the government has taken a tremendous hit.
The New York Times presents in their Business Day, Adding Up the Government’s
Total Bailout Tab, a two year old list of additional guarantees that are part of the price
of the Wall Street bailout.
"Beyond the $700 billion
bailout known as TARP, which has been used to prop up banks and car companies, the government has created an array of other
programs to provide support to the struggling financial system. Through April 30, the government has made commitments of about
$12.2 trillion and spent $2.5 trillion — but also has collected more than $10 billion in dividends and fees. Here is
an overview, organized by the role the government has assumed in each case."
Read the entire breakdown. Wonder what Mr. Reyes over at Treasury would say to this cost to the taxpayer? Does it
not seem that the math just does not add up? The next summary from the same Treasury Notes has Mr. Reyes stating.
"The federal government’s crisis response was designed to stop the panic
and stabilize the financial system with a series of measures, including government guarantees, emergency financial programs,
and capital investments. It succeeded in doing so.
of the potential losses at the time exceeded $1 trillion dollars. By mid-2013, with most of the emergency programs wound down
and most of the funds disbursed under the Troubled Asset Relief Program (TARP) recovered, we can more realistically measure
the potential losses and gains on the overall effort."
Review A Detailed Timeline of the 2008 Financial Crisis on the MoneyMunk site.
Well, just ask anyone with a positive
net worth before 2008 and inquire if they still consider themselves part of the middle class. The overview of the last five-year
monetary architectural plan of providing costless money to the banksters, while starving the average worker and depleting
individual investment coffers, is frightening. It is a hard sell for the Treasury. Putting a smiley face on a report, when
the actual results are killing Main Street, is preposterous. Thanks Larry Summers, for designing the free rein, wheeler-dealer
derivative house of cards that only partially broke in phrase one.
wonder what kind of improved government charts we might expect when the next government debt guaranteed bubble bursts wide
open. Save the cost to the Treasury, your credit is zero.
Hall – September 18, 2013
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