Thank heaven for Tom Hoenig, the only proven-honest central banker we’ve got. Yes, I know he’s moved on from the KC Fed to serve as Vice Chairman of the FDIC. He actually might do a lot more good over there, anyway.
In recent months, we’ve heard how Wall Street’s Blood-sucking Vampire Squids have reformed themselves. They no longer pose any danger to our economy. They’ve written “living wills” that describe how they’ll safely bury themselves without Uncle Sam’s help next time they implode.
You see, it doesn’t matter that they remain big—indeed, the biggest behemoths are much bigger than they were before they caused the last Global Financial Crisis. They are no longer “too big to fail” because they’ve all got plans to unwind their dangerous positions when stuff hits the fan.
This is very important to Wall Street and Washington because Dodd-Frank requires downsizing and simplification of the Vampire Squids if they remain a threat.
Big financial institutions that are highly interconnected can cause a relatively small problem with one bank’s assets to snowball into a national and international crisis that forces Uncle Sam to intervene to bail-out the miscreants.
We know that the biggest half-dozen US banks are huge and have highly interconnected balance sheets. We know they have legacy garbage on their balance sheets, and they are creating massive quantities of new trashy assets every day they remain open.
That’s their business model. They love that model because it enriches a handful of top management at each institution. As Bill Black says, these are run as control frauds—their motto is “Frauds R Us.” Nearly every day one of them gets caught red-handed in yet another fraud. They pay peanuts in fines and go about their fraudulent business. Nice work if you can get it.
So it is critical that each of these demonstrate it has a way to disconnect its balance sheet from the others as it oversees its own demise. Otherwise, these institutions would have to be downsized and their frauds curtailed.
As expected, most government officials have been congratulating themselves and Wall Street’s “finest” for the “heckuva job, Brownie” they’ve been doing in writing those living wills. continue reading…