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Power Grab at the Fed -- They Have No Idea

By       Message Mike Whitney     Permalink
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This is really rich. The author of this story knows exactly why "nothing much has happened" to make money markets safer. It's because the big Wall Street banks -- who are the Fed's primary constituents -- have fought any changes to the existing system tooth and nail. They don't give a rat's ass whether the markets crash or not. What they care about is boosting quarterly profits so they can add a few zeros onto the Xmas bonus check. Here's the story from Bloomberg:

"Money-market fund companies have doubled lobbying efforts to convince regulators and lawmakers that they aren't a threat to the financial system. The money may have been well-spent...

"The companies are seeking to block new rules championed by Securities and Exchange Commission Chairman Mary Schapiro that are headed for a vote before a divided commission as soon as this month...

"'If the industry blocks this plan and something else bad happens and people on Main Street lose money, they'll be kicking themselves for not fixing this,' Douglas W. Diamond, a finance professor at the University of Chicago Booth School of Business, said in a telephone interview. 'The current structure does potentially have systemic risk, and it's the kind of thing that could happen very quickly given the situation in Europe.'" ("Doubling Down to Block Money Market Reform", Bloomberg)

And these are the guys that Dudley wants to save, these self-serving miscreants who're doing everything in their power to make the system more less safe, more unstable, and more crisis-prone?

The reason the money markets are so vulnerable is NOT because there's no fix, but because the big money is blocking even modest changes to the existing system. Wall Street would rather put the whole system at risk, than lose even one-thin dime in profits.

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More from Dudley: "The sheer size of banking functions undertaken outside commercial banking entities -- even now, after the crisis -- suggests that this issue must not be ignored. Pretending the problem doesn't exist, or dealing with it only ex post through emergency facilities, cannot be consistent with our financial stability objectives."

In other words, the Fed has no idea of how leveraged this gigantic, unregulated shadow banking system really is. All they know is that it poses unseen risks that WILL lead to another disaster. So, rather than implement rules that could improve stability -- as one might expect from the nation's chief regulator -- Dudley wants a blank check to spend whatever-it-takes to prop up this ghastly system.

Unbelievable.

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Mike is a freelance writer living in Washington state.


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