Investor offers "translation" of latest news from U.S. regulators.
If I was the head of Comedy Central, I'd be getting worried that Bloomberg might be trying to move in on my turf. In addition to serving up my "Quote of the Week" from Henry Paulson, Bloomberg managed to “tickle my funny-bone” a half-dozen times with the following piece (see original article on Bloomberg.com):
“Regulators Lay Plans for Investment Banks' Fed Access”
U.S. regulators are planning how to let investment banks retain access to Federal Reserve loans if the central bank shuts an emergency program in September.
Translation - How do we prop up Wall St., once we take them off life-support?
The Treasury and SEC want the program, designed to be in place until at least September, to be temporary. The discussions with the Fed center in part on what precautions might need to be in place in case a large securities company with hundreds of trading counterparties faces failure, as was the case with BearStearns Cos.
Translation - How do we prevent the whole system from crashing once we take it off life-support?
At the same time, any new rules would need to deter firms from becoming too dependent on Fed loans, addressing concerns that such aid might lead to more reckless lending and future financial crises.
Translation - Maybe shoveling U.S. banks two trillion in hand-outs (so far), with no strings attached wasn't such a great idea?
Paulson today said it’s “imperative that market participants not have the expectations that lending from the Fed is readily available.”
Translation - Bernanke is running out of paper to print more money.
By statute, the Fed can only lend to nonbanks in “unusual and exigent circumstances.”
Translation - How long can we continue to call this a "TEMPORARY emergency"?
“The provision of backstop liquidity to the major investment banks has unavoidably reduced the penalties they face for taking on excessive risk.”
Translation - Handing a group of reckless, greedy, compulsive gamblers two trillion dollars (so far) to bail out their bad bets isn't exactly discouraging their compulsive gambling - as evidenced by their derivative bubble growing by ANOTHER 50% in the last year, to $1.1 quadrillion ($1,100,000,000,000,000).
Some current and former Fed officials criticized the Fed's lending to Wall Street for creating moral hazard, or encouraging firms to take on more risk in anticipation of a rescue if their bets go wrong.
Translation - see above
Jeffrey Lacker urged that the central bank “clearly” set boundaries for its assistance. He warned in a June 4 interview that even new limits may not be believed by investors unless a financial firm fails “in a costly way.”
Translation - We've got to find another "Bear Stearns" to use as a patsy. (Are you listening Lehman Brothers?)
“We run the risk of sowing the seeds of the next crisis,” Philadelphia Fed President Charles Plosser told reporters.
Translation - We screwed up royally - again!
This article was written by a member of the Stockhouse community.
