Fed Governor Tarullo: Don't Break Up TBTF, Just Regulate Them to Death
Fed Governor Daniel Tarullo is at it again and at this rate, he'll be Bernanke's right-hand bitch in no time. Congratulations, homie, if that's what you're going for.
Washington's Blog summed it all up in a title: Tarullo: Because People Die of Both Poisoning AND Car Crashes, We Should Not Ban Arsenic (bwhahahaha and LMFAO, btw):
Specifically, giant banks become dangerous to the entire economy if they:
(1) Are too big;
(2) Speculate too much, especially if they are speculating with deposits gained through normal depository banking functions (the whole dynamic Glass-Steagall was enacted to stop); or
(3) Focus most of their investments in credit default swaps or other instruments which allow massive looting.
All 3 of these problems should be addressed. The TBTFs should be broken up (see this and this). Glass-Steagall should be reimposed. And risky investments which encourage looting and which generally destabilize the system should be reined in.
Why can't Tarullo understand such a basic idea?
I think Tarullo just got told.
The slightly less opinionated take on Tarullo's spiel is as follows:
Prohibiting big commercial banks from owning investment-banking institutions would be unlikely to limit the "too big to fail" problem with big banks, a key Federal Reserve regulator said Friday.
"One suggested approach is to reverse the 30-year trend that allowed progressively more financial activities within commercial banks and more affiliations with nonbank financial firms," said Federal Reserve Gov. Daniel Tarullo at an event at New York University. "This strategy would seem unlikely to limit the 'too big to fail' problem to a significant degree."
Tarullo said that financial institutions that experienced so many problems -- such as Bear Stearns and Lehman Brothers, which did not have commercial banking operations -- would still have posed a "too big to fail" threat had commercial banks been prohibited from owning investment banks prior to the crisis.
He also said that commercial banks without investment-banking issues have, in the past, had serious difficulties as well. "Some very large institutions have in the past encountered serious difficulties through risky lending alone."
Instead of dividing commercial banks from their investment-banking units, Tarullo argues that the imposition of higher capital and liquidity requirements for risky trading activities can "achieve what proponents of this approach have in mind."
Isn't that kind of what we had already? You know with the regulations and the requirements and the risk-based capital versus just plain old bitch ass capital?
Who is supposed to measure an appropriate level of these additional requirements? Hopefully not the same asshats who came up with the stress test scenarios or we're truly doomed.
Find Tarullo's comments via the Board here.
This guy is getting boring, what's Warsh up to these days besides giving depressing speeches?
Bonus, W's blog gives us this: "The Fed is worthless. (See this and this.)"
Tried to tell you that.