It is difficult not to come away with the impression that the many officials and quasi-officials issuing forth from the Federal Reserve and the Treasury (hereinafter the "Treserve") to defend from all enemies, foreign and domestic, the current structures that define these institutions richly enjoy and leverage the complexity, opacity and inscrutability in which they have cloaked themselves. That the Treserve's cadre now traverse through a complex weave of dim shadows, crossing the dark tendrils of financial and regulatory obscurity with practiced ease is a function of... well... the great deal of practice they have had at it.
In fact, one immediately recognizes something of the smug smirk that finally emerges in the third act of the pool hustler's successful performance when confronted with the expression on the faces of cadre seniors engaged with woefully outmatched citizens (or even legislators) as they deliver commentary like this:
If the names of our member banks who borrow emergency funds are publicly disclosed, the likelihood that a borrowing bank's customers, counterparties and other market participants will draw a negative inference is great. Public speculation that a financial institution is experiencing liquidity shortfalls - which would be a natural inference from having tapped emergency funds - has caused bank customers to withdraw deposits, counterparties to make collateral calls and lenders to accelerate loan repayment or refuse to make new loans. When an institution's customers flee and its credit dries up the institution may suffer severe capital and liquidity strains leaving it in a weakened competitive position.
What is simply mesmerizing about this refrain, aside from its numbing and incessant repetition for going on two years now, is its absolutely flawless record when used as a bright red ball gag firmly jammed into the hesitant mouth of critical discourse- even in the presence of those political and financial experts who should know better than to open wide.
Necromancy being a dark art, it is difficult to tell exactly which incantations within this spell of silence are doing the real psychic work, but if we had to guess we might nominate some of these sections:
"...severe capital and liquidity strains..."
"...weakened competitive position...."
So powerful, it would seem, are these ancient words, that their mere, careless whisper dulls the senses of all those present, muddling higher cognitive functions until, drooling, fatigued and approaching incontinence, they file out of the chamber once the gavel is banged and handfuls of analgesics are quickly swallowed. Few mantras are more needful of a liberal application of sunlight than the class of castings this conjuring occupies. Let us reflect:
If the names of our member banks who borrow emergency funds are publicly disclosed, the likelihood that a borrowing bank's customers, counterparties and other market participants will draw a negative inference is great.
Would it be outlandish of us to suggest that the likelihood of the bank's customers, counterparties and other market participants drawing a negative inference is great because borrowing emergency funds might actually somehow be indicative of a funding emergency? We know we are straining the limits of credulity there, but perhaps the point is worth considering?
Yes, we are aware that we have already stressed the fragile fabric of the logical universe almost to the threshold of its tensile strength, but to torture the matter even further we should like to wonder out loud if it should be the role of, for instance, the Treserve in its capacity as [regulator|lender of last resort|buyer of last resort|monetary authority|printer|tax authority|executive agency|debt underwriter] to actively conceal the distressed state of a financial institution from its depositors, shareholders, customers, market actors, the citizenry, the FDIC, the Securities and Exchange Commission and Congress. Putting matters another way, shouldn't it be painfully obvious that anyone asserting that action X might cause various parties to draw a negative inference begs the question "Isn't that inference absolutely legitimate?"
Zero Hedge readers might well be forgiven for noticing that there is an oddly circular logic to Treserve reasoning here. We might paraphrase this neatly in English (though it is much prettier in German). To wit:
In order to prevent a loss of confidence in the system caused by uncertainty on the part of market actors with respect to the stability of financial institutions, we are going to conceal signs of financial institution instability from market actors (read: make the true level of financial institution stability unknowable).
Zero Hedge readers might also be forgiven for being overtaken by the vague notion, perhaps laced with a subtle but discernible dose of déjà vu, that they have already seen this trick. Perhaps dressed up a bit more like this:
In order to prevent a loss of confidence in the balance sheets of financial institutions caused by uncertainty on the part of market actors with respect to the price of illiquid securities, we are going to conceal signs of weakening prices of illiquid securities from market actors (read: make the true prices of illiquid securities unknowable).
This sudden epidemic of déjà vu is related to the alarmingly ubiquitous abuse of the "ignorance is confidence" theory of financial regulatory affairs. This particular development depends for its lifeblood on the continued acquiescence of the citizenry to masters who are content to draw an arbitrary border between that information deemed safe for public consumption and those facts which their wards are insufficiently developed to be trusted with.
Strangely, given the placid manner with which this attitude is received, even the most oblique and naive observation will expose the crass, underlying assumption: our masters believe themselves our intellectual superiors.
It is, in fact, the same deadpan lie one finds deceptively stitched into the phrase "Relax, these handcuffs are for your protection." There is a moment, and this epiphany reveals itself at a different interval for everyone, when one realizes that one is being insulted by such treatment. That one is being handled and managed, like a child. If the brain is not totally fried by this point, perhaps one notices a number of circumstances where authority figures are working hard to suck information away from the public, or cloud it under the thick fabric of a number of TARPs. This should revolt us. But, then, it is awfully warm in Mommy's arms, isn't it?
Mmmm, nap time.