More Stupid Stuff From D.C.

Bruce Krasting's picture


Reid TAGs Up


We’re going to get an important vote in the Senate later today. The vote will be on S.3637.



This about TAG; an emergency measure taken in 2008 where the FDIC guaranteed 100% of all money in checking accounts. Originally, it was intended that TAG would be around for only two years, in 2010 it was extended for another two. Now Harry Reid wants two more.


As is required with any proposed law, the Congressional Budget Office gave Reid’s bill a review. Some words from the CBO on S. 3637:


CBO estimates that fees collected by the FDIC would not offset the full risk of the additional insurance coverage.


CBO expects that, using recent history, the FDIC would underestimate probable losses when setting fees to charge for this additional coverage.


Because the fees charged for the additional insurance would be insufficient, in CBO's estimate, to offset the expected value of the cost, enacting S. 3637 would have a net cost to the FDIC over the next 10 years.



This is a D- report from CBO, yet Democratic Senators will line up to sign S. 3637.


The CBO calculated that extending TAG would cost about $20m a year. That seems like a very low number to me. It comes to an insurance premium of only 0.001% on the $2 Trillion of account balances that are getting the protection.


TAG is the poster boy for TBTF. Trillions of bank deposits are guaranteed by the FDIC without any insurance premiums being paid. TAG is not necessary in 2012 anymore than it was for the hundred odd years that the banking system worked before TAG came into being.


TAG is a free subsidy for big and medium sized banks. Reid’s motivations are questionable on this legislation. Either this is payback for corporate donations, or, even worse, it is a show pony law designed to piss off Republicans; possibly both.


Reid is a little guy, but has big clout in D.C. He might have the votes in the Senate to past this bill tonight, and send it to the House. But House Republicans are not going to go for this. Nor should they. It’s a bad law that makes big government bigger.


When the House does reject the Senate Bill, the Democrats will be able to cry that the “Reds” are the ones who are resisting progress. The American people don’t understand what TAG is about; they will believe that the Republicans are to blame (once again) for the lack of movement in Washington.


I don’t think Reid is a complete ass. He knows that the Bill he is sponsoring is bad law. This is about pay back. What a horrible place Washington is.




Eddie D. Takes a Walk


The Wall Street Journal reported yesterday that Ed Demarco, the current boss at the FHFA, is out of his job at the end of the month.



This development is no surprise to me, I wrote about this happening on November 7 (Link). Liberal Democrats in the House (Elijah Cumming and Maxine Waters), have been trying to get DeMarco out of his job for the past two years. Obama has used his Treasury Secretary, Tim Geithner in an attempt to push Ed out. But Ed has hung in. His survival has been assured, up till now, by a very powerful player, Senator Richard Shelby (R- AL).


DeMarco has, in my opinion, done a very good job with America’s busted mortgage lenders. The principal objective of the FHFA was to protect taxpayers from losses at these two dogs. F/F have proved to be a disaster for the country, but the losses that could have been incurred were many times larger than the actual results. DeMarco has saved the country tens of billions, possibly as much as $100B. For that, he is being shown the door.


A new, White House placed head of the FHFA will open the door for a massive Mortgage Mod program. Obama has been trying to do this for the past few years, DeMarco stood in the way. Come January, there will be a new person running the show, a lapdog for the Administration. A Mod program will follow, F/F will get stuck with the losses. In the end, the taxpayers will pay the bill.



You have to put Reid's Bill and the “Public” announcement that DeMarco is out, in the proper context. (Leaks at the WSJ are now public announcements) Democrats are strutting their stuff. The “big win” a month ago gives them that right, at least that is what they think. Now that they have a “mandate”, they can pass stupid laws (S.3637 is stupid), and they can do back backdoor bailouts that cost hundreds of billions, without asking a soul.


Hopefully, intelligent people in the House will see through the Reid scam. I don’t think that good ole Harry’s law comes into being. It will get through the Senate, but it will die in the House. All Reid will have accomplished is to set up the opportunity for another pissing match.


As for Senator Shelby, well, unlike Reid, he’s a big guy, but like Reid, he too has lots of clout. The President has hit his hot button with DeMarco. I can’t imagine that the good Senator is too pleased with this outcome. It’s hard to get deals done in D.C. without guys like Shelby stepping up.


The fiscal cliff debate gets center stage. But offstage, the Democrats are throwing knives on unrelated issues. Dumb ones at that. It’s as if they are trying to poison the well.


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atomiclown's picture

Bruce, would be helpful if you reduced frequency of your articles and try to increase quality ... will make entire world happier.


pfairley's picture

Money Market king, Fidelity Investments was on Bloomberg this week warning that expiration of these federal guarantees might be very 'markets'....(no comment on disruptions to Fidelity)...and at least drive short term T notes even lower in yield.  tnx for updates

ozzz169's picture

It seems to me that people dont understand the whole TAG shadow banking connection, just read an artical about the "inversion" of shadow banking and traditional banking.  Shadow Banking is simply a work around the FDIC coverage limits, and with TAG in place there is less need for the shadow banking system (shadow banking is simply a regulatory arb.)  so of course in 2008 when TAG came into effect your going to see a drop in shadow banking and increase in traditional banking.  The sum of the 2 has been stable after its drop, this shows simply a shift from shadow to conventional banking.  plain simple.  The sharp decrease in 2008 was a result of the crisis.  This whole shadow banking creating assets is bogus, they simply use deposits of accounts other then traditional checking/savings, anyone have a money market account?  your part of the "shadow banking" system.



andrewp111's picture

Instead of TAG they might as well allow transaction accounts to be deposited with Treasury Direct.

Of course, would you put your billion dollars of corporate cash in a non-interest bearing bank account in an insolvent TBTF bank when you can deposit it with the Treasury instead? I think not.

tnquake's picture

The CBO calculated that extending TAG would cost about $20m a year. That seems like a very low number to me. It comes to an insurance premium of only 0.001% on the $2 Trillion of account balances that are getting the protection.


This is no insurance, there is a sale @ on printer ink and the $20m should about cover it...

Jendrzejczyk's picture

The heads of all the major banks are actively preparing for hyperinflation. The Government knows what's coming and trying to reassure all us sheep that our money is safe.

The politicians are just kicking the can as far as possible.Delaying the mathematically inevitable.

There is no safe place to hide. They will come after everything you have to keep this ponzi going for a few more days.

Buy useful tools/materials and learn how to use them.


TyrannoSoros Wrecks's picture

Reading ZH is like mining for gold in sewer. Occasionally a you find a gold nugget like Jendrzejczyk's comment in between all the crap.

Jendrzejczyk's picture

Thanks Tyranny. Playing in the ZH sewers can be fun and enlightening. At first you pick up and examine all the turds, then after a while you learn to let most pass by.

(I've laid many a useless turd here myself)

steelhead23's picture

Elsewhere, Bloomberg I believe, suggested that allowing TAG to lapse would force more money into risky assets (e.g. NYSE) as large sums would leave commercial banking and go looking for a new home.  Treasuries would likely sky as the risk-averse piled into them and stocks would rise as treasury rates fell.  Above, some rube suggests that Bruce has an agenda.  As ending TAG would likely cause the markets to go up, one might conclude that Bruce is currently long the market.

HedgingInfiniteRiskIsNotPossible's picture

I wasn't aware of anything that came out of D.C. that wasn't stupid.

Cap Matifou's picture

If you study the wording, President Nixon also only temporarly suspended the gold standard.


bank guy in Brussels's picture

Yes it's kind of like Israel's 'temporary' occupation of Palestine since 1967

Or the US-Nato 'temporary' military operation in Afghanistan

kaiserhoff's picture

Poisoning the well?  When has Obammy done anything else?

SAT 800's picture

kind of off-topic; kind of not. there's a banner ad running on the right side of my zero hedge page for 1oz. Canadian Maple Leafs for 39.99 over spot; unless that's a come on of some kind; that's a pretty attractive deal. Especially considering that 2013 will show some very noticable inflation.

virgilcaine's picture

I look for strings when Harry speaks.. seriouzly.

Joebloinvestor's picture

I appreciate how corrupt Washington is, but when HBSC walks with a 1.9 billion dollar fine and no bank person goes to jail I give up.


123rainier's picture

Joe ,  i keep pushing the green arrow, it's stuck at 15

Widowmaker's picture

JAIL?!  WTF have you been, faggots don't do time.

All civil, all the time baby - robbin and stealin, stealin and robbin.


Krasting could write about free market abortions, but nope, TARP IS GOOD, JUSTUCE BAD.

Diogenes's picture

They didn't see it coming and they didn't see it going either. It just "vaproized".

ceilidh_trail's picture

Yup. Repubs get tagged with the 'banker buddy' label, but, look who is letting them all off the hook and then getting rich from royalties on a book that nobody reads. The debt brother has got the productive half of the country by the short hairs. His power base of unions/msm/blacks is tough to overcome. Oh, is it OK to write "blacks" that way? I figure yes, since 90+% of them voted for him. Nothing racsist there... Don't hold your breath waiting for HSBC or Corzine or anyone else to actually get prosecuted. This administration is a joke.

SAT 800's picture

Well, it may be a joke, but I'm having trouble seeing the humor in it. It looks like some kind of street gang took over the country.

semperfi's picture

and the Kenyan Thug is the leader - Democrats are nothing but corrupt marxist thugs - gonna need a civil war to fix this

hawk nation's picture

dont limit your statement ti just democrats

the republicans with the rinos are just as corrupt

the whole political system in washington is corrupt and will collapse on their greed [money printing]

disabledvet's picture

"and of course this is reflected in interest rates." If the markets rally on the news who cares, right?

SmoothCoolSmoke's picture

Interesting.... but as the SP levitates to 1431 FOR NO REASON.............. on stuff like this, no one cares.

SAT 800's picture

I used to laugh at people who said the Fed bought up the S&P through their hand-maidens the beholden NY Banks; now; not so much.

SAT 800's picture

Marketwatch says the reason for the rally is "hopes for a budget deal". ?? Well; that's what it says. Optimism can be a dangerous thing. I keep hearing this voice in my head that says, "bubble", bubble".  Maybe it's a good short at 1431? I think I'll check that out.

Oldwood's picture

Its God's way of culling the heard. Once all of the idiots are in, the house will burn down.

Stuck on Zero's picture

Reid is the guy who mysteriously won an election in which he was behind by huge percentages.  All the exit polls showed him trailing.  Voter fraud was rampant.  Suddenly he went to work as a tool of the state, a neocon, statist, and paid hood for Wall Street.  Gee.


SAT 800's picture

It almost seems like a gang of people whose common element is having a criminal mind are taking over Washington. Nah, that couldn't be; I guess I'm just a paranoid old fart.

TruthInSunshine's picture

Reid & Obamney, two of the most fiery "populists" that Wall Street loves long time.

blunderdog's picture

I'm struggling to even figure who this is supposed to help.

FDIC already guarantees demand deposits up to...$150K?  $250K?

This is about guaranteeing the account totals GREATER than those figures?

Why should ANYONE care about people/businesses keeping MORE than $150K in a checking account? What a fuckin joke.

Papasmurf's picture

The issue isn't guarantee of demand deposits, the issue is the freebie subsidy for the FDIC default insurance.  It's there in the article:

Trillions of bank deposits are guaranteed by the FDIC without any insurance premiums being paid.

NotApplicable's picture

While not defending TAG, you seem to forgetting all of the local government entities that have bank accounts, as well as businesses we depend upon, such as insurance companies.

Of course, the real answer would be a sound banking system. Thing is, the only sound the cartel is interested in is "Uncle!"

NotApplicable's picture

Once again, I defer to a system of sound money as a solution to nearly all forms of fraud. 

idea_hamster's picture

Re TAG, isn't this just DC (finally) acknowledging what has been the de facto rule all along?

IIRC, the FDIC has never allowed depositors to lose their deposits, even those whose exposure to a failed bank exceeded the FDIC limits.  If the actual deposit insurance mechanism has never operated with functional limits, then openly legislating an all-in FDIC program simply allows the CBO to calculate the effect.

At least now, we'll know what the real rules are.  (OK, I take that back, but you know what I meant....)

waterhorse's picture

We've been TARPd, ZIRPd, Twistd and now TAGd by the banksters - all synonymous for getting fucked.

NotApplicable's picture

Maybe we should put the FDIC in charge of the commodity futures markets?

I keed.

SAT 800's picture

Oh, I see; you're making a joke. I almost choked on that one.

Debeachesand Jerseyshores's picture

The worse affects of this Administration are yet to come.

Buy Gold and Silver.

SAT 800's picture

Silver Bitchaez! BTFD. (I had to say it; the devil made me do it).

Cookie's picture

Bruce, please stop writing on politics, outside of this your comments and observations are first class.

Bruce Krasting's picture

I'm a writer-holic. Normally the markets give me plenty of things to rant about.

But look at the shit markets today. All FX is in the hands of the CBs. There is no fun there. Bonds are played out too. There is no upside, but you can't sell in front of the Fed. Stocks go up in front of the Fed. Ho-Hum, seen that movie before. Comods are boring, PMs are no fun.

So politics it is. Working on Geriati-cidal....

cossack55's picture

Good points. You are forgiven. However, if you MUST write about politics, leave none of the quarry alive.

bank guy in Brussels's picture

Though Bruce's political thoughts in writing, give us all an opportunity to once more inform Bruce that this 'Dems - Repubs' thing in America is just a fraudulent game

Bruce Krasting is indeed a class act, as you say ... Although he is yet somehow a babe in the woods about the macro fraud-game of 'Congress' but he is a thoughtful compassionate guy and one of ZH's best contributors

As Gore Vidal said years ago, there is only one 'Party' in America ... Like Huey Long said, one restaurant, same slop food, but you have your 'Republican' waiters and 'Democratic' waiters (Senators, Congresspeople)

We have a weaker version of it in Europe, with our 'Centre-Left' and 'Centre-Right' dominating amid the 10 or so significant parties in each country

Assetman's picture

Bruce... you certainly get a pass from me about writing whatever is on you mind.  Politics or not.

And for sure, the Fed has taken a lot of the "game" out of the markets.  Politics, however, is always a game played 24/7, so long as the Earth keeps rotating.

As for the subject at hand, TAG has well-intentioned purposes-- yet unfortunately, there are potential winners and losers.  Under the original TAG, initial recipients of TARP were given a free pass-- and just remember TARP money was essentially imposed on the largest TBTF (whether they needed the TARP money or not).

If you were not a TBTF bank, in many cases your premiums to pay into the FDIC tripled (as was the case with one banking institution I worked for).  Unfortunately, it very likely that this TAG extension will annoint the same winners, while the losers (healthy banks and taxpayers alike) become the risk absorption mechanism for a over-levered business model.



waterhorse's picture

All politicians shit where they eat, some just shit a little less.