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.