Submitted by Tyler Durden: Two months ago, Fed governor Jeremy Stein caused a major stir among the very serious excel-using economists and other wannabe
"scientists"-cum-voodoo witchdoctors, when he hinted that it was the
Fed's actions that were leading to "overheating" in the markets. It took
quite a bit of rhetoric by other very serious people to talk down his
comments and give the impression that the S&P is not about 50%
overvalued. Today, Stein has managed to stick his foot in his mouth for
the second time in a row, and do what virtually nobody in the status quo
is capable of: tell the truth.
In a speech titled "Regulating Large Financial Institutions"
Stein made something very clear: if and when a TBTF fails, and since
this time is not different, and a failure is only a matter of time,
depositors will lose everything (courtesy of some $300 trillion in gross
unnetted liabilities which once there is a counterparty chain failure,
suddenly become very much net and immediately marginable - a drain of
cash), which now that Cyprus is the template, is to be expected. Not
only that but Stein makes it all too clear that part of the Dodd-Frank
resolution authority guidelines, a bailout is no longer an option.Perhaps more to the point for TBTF, if a SIFI does fail I have little doubt that private investors will in fact bear the lossesAt least he can't say Americans weren't warned when the Cypressing(sic) hammer finally falls.
--even if this leads to an outcome that is messier and more costly to society than we would ideally like. Dodd-Frank is very clear in saying that the Federal Reserve and other regulators cannot use their emergency authorities to bail out an individual failing institution. And as a member of the Board, I am committed to following both the letter and the spirit of the law.
Oh, and as a reminder...
Source
banzai7
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