We mentioned the news in Ben Bernanke's speech this morning: the Fed's emergency lending is likely to go on past its September expiration.
Two additional morsels were included in the speech. Bernanke suggested that Congress give the Fed authority over payment and settlement to deal with counterparty risk and other problems. His "a strong case could be made" preface strikes us as the regulatory version of "I'm not saying, but I'm saying."
Bernanke also endorsed the creation of a special resolution regime to help financial firms fail quickly and efficiently unwind their positions, although he caveated that with a demand for "a prudent manner" in doing so, implicitly later so as not to spook markets.
The mandate and tools for the special resolution regime are part of Paulson's plan, and while Bernanke didn't say who should command these new powers, we think he could be pointing out to the apparently Anglophile Hank that the Bank of England is taking control of Britain's liquidation oversight.
Posted by guest , Jul 08, 2008 5:52PM
I think this has all gone too far. We are a nation of laws. Paulson and Bernanke can agree all they want to meld the powers of the SEC and the Fed, but ultimately what each agency should do is defined by the scope of their statutory mandates. The courts have avoided ruling on the expansion of the power of the Federal Reserve, particularly in the Bear Stearns takeover, because no one wanted to be the judge that made the international financial situation come unglued.
But the courts can't remain silent forever, and Congress should not sit on its hands, and let the U.S. Treasury and the Federal Reserve decide how management of the economy is going to be carved up. If the Fed needs expanded power, let the Congress debate it and pass whatever laws are necessary. In the meantime, someone wake up the Democratic Presidential Clueless Nominee and the Republican Presidential Clueless Nominee (is one of them still campaigning for free trade in South America and the other speaking out for the expansion of faith-based initiatives?) and explain to them in words of one syllable what is going on, and let them speak out to curtail this usurpation of power. And by the way, George Bush, until Inaugural Day, you're still responsible for excesses of the executive branch.
My God, we have rolling thunder in the economic markets every day and no one in charge!
Posted by guest , Jul 08, 2008 7:06PM
Good idea. Let's trust inane bureaucrats to be in charge of the economy.
Swing and a miss on that one, Francis.
Posted by guest , Jul 08, 2008 9:08PM
Relax. Ben isn't actually making any decisions. He takes his orders directly from the Bank of Israel.
Posted by guest , Jul 08, 2008 9:38PM
God, if things aren't bad enough, we've got anti-Semitic conspiracy nuts posting now.
Posted by guest , Jul 08, 2008 10:09PM
A "Special Resolutions Regime"?
So Bernake or Paulson will have the power to play god and decide who lives and who perishes.
These federal euthanasia regime never work and will, on balance, do more harm than good to the markets. These regimes have no transparency in how they operate. The proponents of this regime are basically saying they are smarter than the rest of the markets.
Correct me if I'm wrong, but I thought the Fed and the US government had always advocated free market policies and against bail-outs of any sort. What are these grumpy old men doing???
Posted by guest , Jul 08, 2008 10:36PM
What's amusing about all this is they are basically saying that they see the failure of at least 1 major banking/invetment banking instituition on the horizon and they are trying to avoid the complete melt down of the WHOLE USA banking system by extending their power because they don't know what the heck else to do. More amusing is that the financials rallied on this news.
Posted by guest , Jul 08, 2008 11:30PM
The financials rallied to the news that the Fed will continue to make fed funds available to i-banks until 2009 if necessary.
This is not good news at all. This confirms the i-banks cannot survive without Fed support and the Fed is now so deep into it and has no choice but to continue to support the i-banks indefinitely.
Posted by guest , Jul 09, 2008 3:55AM
Bernanke's real test is going to be his handling of Fannie Mae and Freddie Mac.
I can't see how these two mortgage companies can raise equity (however cheap and dilutive it may be) to repair their balance sheets. Bernanke may want to set up a new 'black box' agency to absorb both Fannie and Freddie.
But regardless of what happens, the Fed and the Treasury cannot be conferred unreviewable powers. There has to be real time checks and balances. Not like JPM-Bear Stearns. Such ex post review is no more than an autopsy.