Swap Lines Contradict Dodd-Frank

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Bernanke is a voting member of the newly-created Financial Stability Oversight Council. One of its legislated duties is “…to promote market discipline, by eliminating expectations on the part of shareholders, creditors, and counterparties of such companies that the Government will shield them from losses in the event of failure…” Got that? The FSOC is supposed to be making it known, through word and deed presumably, that there will be no more bailouts. Is the FSOC going to inform Americans that the FDIC insurance fund can’t possibly insure all their bank accounts? And that the Government won’t be there to shield said depositors from losses? The obvious answers tell you how credible this duty actually is.

Then there are the swap lines. I refer to this announcement several weeks back in which we learn that the Federal Reserve, led by Bernanke, will engage in buying securities via repo agreements from various European financial institutions that have run out of cash! This is a bailout, friends. How does such a bailout eliminate expectations of bailouts??? It doesn’t. If we observe such a crass and gross violation of the FSOC’s mandate by the FSOC itself, how much credibility does this provision of the Dodd-Frank bill really possess? I think we are at that stage of the deterioration in the Empire where the legislators pass laws whose real enforcement is highly haphazard.

9:24 am on November 5, 2011