TBTFs Remain Immune From Reform, There Is "No Way To Break Them Up" When Need Arises

Tyler Durden's picture

When (not if) the need arises to dismantle the TBTFs, full of noncashflow producing loans, the next time around we have a Flashiest Crash, we will have no way to do so, despite the widely propagandized Obama FinReg reform. These are the words of Obama's right shoulder man Paul Volcker, who on William Isaac's program earlier noted that proposed legislation is "not going to prevent the top five banks from being saved." In that sense, the primary goal of Obama's attempt to overhaul financial regulations: the prevention of taxpayer bailouts when banks implode, is a miserable failure, yet it will not stop countless hours of self-congratulatory, teleprompterized appearances by the president, the Congressman from Fannie Mae and the Senator from Countrywide. In other news, the bankers win again, and nothing changes. Next up: how to get bank leverage to 100x all over again, without alerting the general public that next (if not this) year's bonuses will be once again fully funded by the US middle class.

Huff Po's Shahien Nasiripour brings us some more on this much under-reported scandal, whose outcome, unfortunately, was self-evident from the very beginning:

Former Federal Reserve Chairman Paul Volcker believes the centerpiece of the administration's effort to end Too Big To Fail -- the perception that the nation's largest banks will always be bailed out when in trouble -- will not actually apply to megabanks.

In a September 2009 speech on Wall Street, President Barack Obama said that the administration's preferred way to dismantle failing systemically-important firms is a new "resolution authority" outside the normal bankruptcy process. The authority, which would enable regulators to wind down failing financial behemoths, "is intended to put an end to the idea that some firms are 'too big to fail,'" Obama said.

His top economic adviser, Lawrence Summers, has said that ending Too Big To Fail is the administration's "central objective" in reforming the financial system, and that resolution authority is the "most crucial" part of that plan.

But on Monday, during a discussion on CNBC, Volcker, the head of Obama's Economic Recovery Advisory Board, said the proposed authority is a "workable proposition for anything short of these biggest banks."

According to Volcker, it isn't "workable" for the nation's megabanks.

As reported previously on Zero Hedge, dissent to the theatrical farce currently being peddled by Washington's most corrupt, has come from the very heart of the mafia syndicate itself: Dallas Fed's Fisher and Kansas Fed's Hoenig "argue that it doesn't end TBTF because it lacks a credible threat that policymakers won't step in with a bailout when a megabank faces failure."

Another perspective comes from William Isaac who said pervioust that "we have five banks that control over 50 percent of the banking system. No government can allow very large banks that control over half the financial system to go down."

Which means, dear taxpayers, that of the roughly 40% in taxes you paid last year, and this year, within 24 months at most, at least 50% of that amount will once again go to fund the compensation packages of the Blankfeins of the world. Incidentally, we wonder how long before Goldman pulls the plug by demand massive collateral from such counterparty institutions as the Illinois Teachers Retirement System, which we discussed yesterday.

That leaves taxpayer-financed bailouts as the only option to deal with failing systemically-important firms.

Such firms -- which many observers believe to be Bank of America, JPMorgan Chase, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley, among others -- enjoy the support of an implicit government backstop. This allows them to issue debt at a lower cost than their competitors because their creditors credibly believe that they'll be bailed out should times get rough. Collectively, the firms save billions of dollars a year thanks to this implicit government guarantee.

And still, these banks are public companies with freely traded stock, when effectively they continue to be proxies of the government with infinite backing via the Discount Window and other FRBNY perpetual lifelines.

The sad thing is all this will only end one way: with the massive, unprecedented collapse of America's, and the entire world's, financial system, and an ensuing revolution. FinReg reform could have been true to its name, and truly reformed financial regulation, instead of ingraining the status quo even deeper. They failed, and all of America will pay for their greed, corruption, and stupidity.

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bigdumbnugly's picture

the game now and has been just putting it off the inevitable until TPTB are stocked up and out of town.

Fish Gone Bad's picture

This is actually no surprise.  What is a surprise  is that anyone thought things could change without a catastrophic event.

cymro33's picture

We supposedly live in a free country - what a joke! I guess the average Joe does not have a clue what is happening, courtesy of the big White House propaganda machine. Money is evil.

Calculated_Risk's picture

"But, as you well know, appearances can be deceiving, which brings me back to the reason why we're here. We're not here because we're free. We're here because we're not free."


Rider's picture

This is cool, insures more chaos in the future when they have to rescue them again, bringing down the whole Ponzi.  More wild market movements, more wild long and short opportunities for traders ahead.

Chaos will reign the world again.

GFJ CONgressmen!

knukles's picture

Whole thing leaves me in Awe.

The Original Intent was to Break them Up Before they Fail.
Amazing how "they" manage to divert and turn our attention form the initial more pertinent, important principle.  Polemics.... get us arguing over polemics, distractions.

101 years and counting's picture

There is no way any of the criminal banks are broken up.  If they are....well, we already saw what will happen.  They demonstrated their powers on May 6, 2010.



Muir's picture

"Move on...move on, move on..."



Let them all fail's picture

Taxation without representation, while we technically have elected representatives, they no longer represent our beliefs or needs as a country...only one way for this to end: very badly

Politicians apparently are either extremely stupid, ignorant, out of touch, selfish, greedy or short-sighted (or maybe all of the above?)

economessed's picture

The 2008 elections were the last of the representative democracy you cited.  Unaccountable corporations, with the full backing of the Supreme Court (soon to sell their naming rights to become the "Verizon Supreme Court" or the "Marriott Supreme Court Yard") will now drive the outcomes.

So let's not spend years agonizing about when the "very badly" ending arrives.  Let's do our part to help it end faster -- vote for the insane, corrupt, greedy, self-centered mouth breathers.  Let this thing collapse under its own weight.

On a related note, I saw the headline yesterday that Obama cancelled NASA's manned-moon mission.  We aren't going to send Americans to the moon anymore.  We're going to take the deficit there instead.

calltoaccount's picture

All of the above + CORRUPT   Bribe-taking bloviators who get away with it only because the no-longer- truth-seeking MS media consistently fails to honestly apprise the public of how badly it's being raped and plundered by the kleptocracy that now controls America.

"Why were all the safeguards so intentionally set in place in 1933 and 1934 abandoned? Because those empowered to make and enforce our laws— sworn to be good stewards of the public interest— allowed themselves to be seduced and inducted to serve private interests, not the least of which their own, courtesy of campaign contributions, lobbyist largess, lucrative job prospects, and other co-optive emoluments known anywhere else in the world as bribes. When will we learn that it’s not about politics, ideology or principle? It’s about the money! But drop me a line the next time you hear any corporate or mainstream media pro daring to talk or write about it in those terms. Somehow, as obvious and pernicious a role as it plays in our political process, discussing venal motive is off limits, part of the pretense that our elected officials actually represent the best interests of the people who voted for them (as distinguished from those who bankroll them)...."

extracted from: Army Of Avarice Plunders America Into Calamity That Did Not Have To Happen http://calltoaccount.wordpress.com/

Sam Malone's picture

Ah but you assume your readers pay taxes!

Currently Smoking Cannabis's picture

So it's now explicit that if they mess up, we'll cover?  Always?

That seems to up the ante a little bit.

And I for one am happy about it.  Babylon is burning and this is more fuel.

Burn, baby, burn...and take me with you down the vortex.

Zina's picture

How that fucking koreans can run run run all the time? Are they nuclear powered? Never seen runners like those guys. Where Jabulani goes, they go, fast running!


AnAnonymous's picture

Brazil was such a disgrace. Where is that blazing passing game that used to be the hallmark of Brazil?

Your teams now play like Italians, a slow, calculating, riskless game, waiting for the other to commit a mistake.


Shortbus Bully's picture

That's what you get with Dunga running the show.

AccreditedEYE's picture

So sick of the same old games and the same old outcomes... All I have to hang my hat on now is that the destroyed engine of growth in this country (aka the middle class) sorely disappoints these scum bags (aka the financials) in the consumption game. Hopefully I will get to watch them beat the tar out of each other to unload risk in violent wave of red ink... (I won't hold my breath)   

SheepDog-One's picture

Just hang them, I dont see what the problem is? If all anyone will ever do is analyze the tyrants, then the people of this country deserve what they'll get- serfdom while being experts on their captors methodology.

Commander Cody's picture

I've said it before and I'll say it again: the alleged financial crisis has been engineered and implemented to create ever bigger TBTF banks.  What TBTF bank did not get bigger as a result?  Competitors were dismantled and their pieces gobbled up by the survivors.  The net result is worse than before - aided and abetted by the criminals in Congress, the Federal Reserve and the Administration.  Wealth transfer continues unabated while the sheeple remain blithely and comfortably numb.  Serf city here we come.

Lighty's picture

I agree, more or less. These banks just pushed the bubble to the limit knowing it would collapse, and then they jumped down fully aware landing would have been soft, except for the ones without enough friends in high places.

I think, with all the chaos they raised, they ran some risks, because politicians could gather enough consensus for a serious and drastic reform. But more probably, they were fully aware of their support, and they are definitely right. This presidency will be remembered as  the last missed occasion to avoid total economic disaster. A lost occasion.


Noah Vail's picture

No problem, as of 1Q2010 combined federal and state spending (borrowing) constitutes 39% of GDP. Soon we won't have to worry about the private sector anymore. There won't be one.

Forget this risky investing shit, get a government job and steal all you want, risk-free.

carbonmutant's picture

Anything that's too big to fail is a sovereign power.

AnAnonymous's picture

Food for thought.

I'll think of it.

killben's picture

There is only one guy who should be held responsible for this bailouts and creating unprecedented moral hazard in the system ... BEN BERNANKE!!


When will the public understand this and LYNCH THIS CONNIVING SCOUNDREL ... who sets policies which favours banksters and bails out banksters with tax-payers money ..all in the guise of saving the main shit .. This guy's audacity has no bounds all because he feels that public is a bunch of fools and can be taken for a ride whenever he feels like it.


This guy deserves treatment reserved for XXXXXXXX