The headline in the 'Money & Investing' section of Wednesday's Wall Street Journal was 'Fed Official Backs Bank Breakups' (p. C1) which must have given all the investor class and banksters new heart palpitations that if Bernie is elected they have much to fear - and they will. ( See e.g. Wall Street Journal 'Populists Reject Economic Orthodoxy' where author Greg Ip alerts us to the trepidation now felt by investors, terrified because well, Bernie Sanders appears quite serious in his determination to break up the big banks.)
As the earlier cited WSJ piece notes (and let's please bear in mind the Journal is no "radical" publication):
"The Federal Reserve's newest bank president, a Republican who served as a top Treasury Department official during the financial crisis, called Tuesday for policy makers to consider breaking up big banks to prevent future government bailouts."
This is especially a crucial issue to those of us invested in money market funds as opposed to the volatile stock market. Many may not recall that in the wake of the 2007-08 disaster Bernanke's Fed was actually considering limiting any protection of money market funds, monies. . In 2010, the SEC actually started to run with the idea of allowing money markets to "float" as opposed to having a fixed $1 net asset value (NAV).
In The Financial Times of January 28, 2010 ('Markets & Investing' section, page 23) - about a third of the way down the page - there appeared a nondescript four column story under the header: 'Curbs on Money Market Funds'. As readers may be well aware, at the apex of the credit meltdown and banking crisis there was a veritable flood of investors toward safety, after seeing their investments in equities cratered. The first destination was money market funds, which are also the safest instruments available for most people with IRA or 401k holdings.
The FT article also pointed out:
"The SEC is to evaluate the merits of requiring a floating net asset value for money market funds rather than the stable $1 mark. Such action would involve substantial changes to the money market fund industry."
But WHY do that? This would introduce the very element of phantom or variable asset value (that exists in stock holdings) to now intrude into the "safe" money sphere. It would also let money market fund companies and managers off the hook, since if the share value is permitted to float, there will simply not be the same commitment to adhere to the $1 value at all.
Untold was the underlying theme that this gimmick was in fact a hidden means of bailout for the bankster gamers and gamblers. Because of the risk of a new credit crisis (now increasing with student loan debt) we who hold safe investments would be required to aid in the next bailout. This, of course, is bullshit.
Getting back to the Minneapolis Fed bank chief (Neel Kashkari's) remarks and contrary to Hillary's bloviations: "the 2010 Dodd Frank law did not go far enough". He added that (ibid.): "the law hasn't ended the problem of banks so big that their collapse would endanger the financial system and economy forcing the government to rescue them in a crisis."
Indeed, and those of us who've been paying attention have noted how the Reepos and their Maul Street lobby pallies have been gradually tweaking Dodd- Frank downward. In the most recent (Dec., 2014) iteration, the Repukes snuck a last minute poison pill amendment into a critical $1.1 trillion spending bill to keep the gov't open. The amendment allowed risky derivatives to be insured by Federal Deposit Insurance Corporation thereby setting the stage for a pre-emptive bailout if the CDS market goes south. See e.g. WSJ, A Warning Signal Flashes' (Feb. 12, p. C4), noting the market for credit default swaps - the same buggers that nearly crashed our financial system in '08 - are now on the rise again. According to the Journal (ibid.):
"At the end of June the global CDS market was $14.6 trillion as measured by the total amount of default protection outstanding according to the Bank for International Settlements"
Do voters really want to risk another financial shit storm, and recession to make the last look like a jamboree? This is the threat to which what Sanders is trying to awaken citizens.
What are Kashkari's prescriptions for bank reform? According to the WSJ piece, "policy makers need to give serious consideration to":
- Breaking up large banks into smaller, less connected, less important entities
- Regulating large banks like a public utility, or
- Taxing leverage through the financial system to reduce systemic risks wherever they may be
The Fed bank chief added, in a talk at the Brookings Institution (ibid):
"The financial sector has lobbied hard to preserve its current structure and thrown up endless objections to fundamental change. And in the immediate aftermath of the crisis when the Dodd-Frank Act was passed the economic outlook was perhaps too uncertain to take truly bold action. But the economy is stronger now and the time has come to move past parochial interests"
Indeed, and no surprise that Sen. Sanders released a campaign statement after the speech saying he was "delighted" with Mr. Kashkari's position. Other citizens should also be once they wake up to what Sanders is saying, and repeating. (Well, as a former prof, if you repeat something often enough eventually it sinks into the student's cranium).
Let's also bear in mind Mr. Kashkari isn't some detached observer. During the financial crisis he ran the $700 billion Troubled Asset Relief Program, an effort aimed at stabilizing the financial system by pumping capital into banks.
From this perspective of his experience, he likened big banks to nuclear reactors whose meltdown would be catastrophic and compared bank regulators to Transportation Security Administration workers checking shoe x-rays to thwart terrorist attacks. Kashkari is so concerned about the next big fail, that he's called for immediate proposals (such as those from Sanders) to attack big bank risk and to hold conferences and recommendations by year's end.
Are people, citizens paying attention? Or are Kashkari's and Bernie's calls for banking reform and the financial structure too abstract for most people to grasp and attend to? They had better attend to it soon, and vote with their brains as opposed to believing more fake promises from pols who only want to get elected to "make history".