FDIC

Regulation Power - Where are the Checks and Balances?

Before us we have the proposal to expand the powers of the Federal Reserve as the systemic risk regulator.

Consider this:

Thus within 18 months of taking office, Obama will likely have appointed five of the seven Fed governors . The central bank is designed to be independent from politics, so a president's best chance of influencing how the Fed will regulate banks or respond to economic changes is through these appointments.

The Federal Reserve acts independently of government, with pretty much only these appointments, each a 14 year term, and confirmation of each governor by the Senate.

fed reserve org. chart

Considering we cannot find out which institutions received Federal money or where the $12.82 trillion dollars of Federal Reserve financial commitments are, isn't this making the Democratic aspects of financial regulation even worse?

During the Bush administration we had then Treasury Secretary Hank Paulson, acting as CEO in Chief, strong arming banks and even Congress into passage and use of the TARP. No other ideas were seriously considered and Congress simply handed over the cash with a lot of scare tactic rhetoric.

The Blogosphere Banking Panic (I.)

There have been recent blog posts which imply a panic in the banking sector worse than the Great Depression, with highly respected financial writer Mish a/k/a Mike Shedlock making the extraordinary claim that "The entire US banking system is insolvent." His essential reasoning:

There is roughly $6.84 Trillion in bank deposits. $2.60 Trillion of that is uninsured. There is only $53 billion in FDIC insurance to cover $6.84 Trillion in bank deposits. Of the $6.84 Trillion in bank deposits, the total cash on hand at banks is a mere $273.7 Billion. Where is the rest of the loot? The answer is in off balance sheet SIVs, imploding commercial real estate deals, Alt-A liar loans, Fannie Mae and Freddie Mac bonds, toggle bonds where debt is amazingly paid back with more debt, and all sorts of other silly (and arguably fraudulent) financial wizardry schemes that have bank and brokerage firms leveraged at 30-1 or more. Those loans cannot be paid back.

What cannot be paid back will be defaulted on.

Is he right?

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