http://media.bloomberg.com/bb/avfile/News/Surveillance/vhJd8DQu17Eg.mp3

CW: “The FDIC Chairman was doing her job while the rest of [the regulators of capital markets which underpin the world's primary reserve currency] these spineless weasels, these duplicitous, traitorous villains were selling out the taxpayer to subsidize the bond holders of the large banks — the clients of PIMCO, BlackRock and the rest of the Buy Side.”

I don’t know of anyone else who is calling much attention to this issue: Bondholders v Taxpayers. The knee-jerk is bonds are held by pension funds (PBGC) and Big Important Foreign Institutions (you really don’t want to know how big or important — trust us). More please.

If the premium based on all liabilities drive institutions to separate their bond based and deposit based activities into two different companies, that would as far as I can see only be good.

I would add that the two most important actions taken during the crisis to honestly deal with TBTF (too big to fail or, as Ed Kane correctly prefers, “too big to resolve”) were not taken by the Fed, not by Treasury and not by the OCC. They were smart, discreet actions that have not been fully considered but were taken by… you guessed it, FDIC Chair Bair.

The 2 most major risks generally considered to justify a consideration of an institution as TBTF are deposit runs and counterparty risks.

The first was the FDIC’s emergency increase in the insurance limit to $250,000 on interest bearing accounts and an unlimited dollar value for non-interest bearing accounts – this sends a strong message to retail and business customers – don’t panic and pull your deposits. It ameliorates any rational basis for bank-runs.

The second was, to my mind, the most important piece of prudential rule-making in a decade. The public and markets have ignored it… The rule ( http://www.fdic.gov/news/board/08DEC15rule3.pdf ) requires institutions that are rated a 4 or 5 on CAMELS or are over $10bb in assets and rated a 3 to, upon written request of the FDIC, provide the FDIC will all relevant deal documentation regarding all QFC’s. This includes information about the collateralization levels relative to exposures, the contact info for both the party and counterparty teams…. This rule was quietly opposed by Dugan and other seemingly “captured regulators” who argued it was too onerous.

Too onerous my butt! It allows the FDIC to begin to consider and even possibly design the resolutions of large and complex institutions. Appropriately collateralized counterparties’ exposures could be placed in a “good bank” and under-collateralized in a “bad bank”. The rule became effective Jan 2009. We can assume that many troubled institutions are probably already being required to comply and, given the lack of lobbyist outcry, that they have found they are able to.

Unlike the regulators who seek to protect sleestacks, Ms. Bair has proven herself a capable and considered public servant. Unlike those who do the bidding of the banks that own the NY Fed, she should be given far more public support.

LIke our President, Ms. Bair is working toward a day where we can institute policies that recognize the answer to “too big to fail” is not to be ok in accepting those institutions as a special and protected species but, rather, that it means they are too big. Perhaps assessing the costs of oversight proportionally to size and risk would create enough dis-incentives that some of these institutions would become “small enough not to worry about”.

Thanks again for the post.

The 134B bearer bonds is a juicy story. “Hans – did ya have to nuke the whole building?”. Why the secrecy passing over customs? taxes / press / … and for who? Japan / China / Roman Cath Church … and I’d like to know what the ratio of exchange is going at? 1:1 / 1:2 / 1:3

Hopefully she’s up to the task, it seems like a damn rough one. I can’t imagine being in a room with all those high-level sales-guys, and being repeatedly berated for what they say are “dangerous policies”, when her goal is actually to protect the American taxpayer. Ugh.

I suppose there’s still hope.

I just hope that she doesn’t get knifed in the back eventually. She must also be as pure as the wind driven snow or else the jackals would have waged a smear campaign to be rid of her by now. Interesting lady indeed. We can only hope that she will win out in these battles for the taxpayer vs. the banksters.