In regard to regulating too-big-to-failness, the Wall Street Journal reports that:

The measure would also give the Federal Reserve the power to direct any large financial holding company to sell or transfer assets or stop certain activities if the central bank determined there could be a “threat to the safety and soundness of such company or to the financial stability of the United States.”

Without question, the biggest threat to the financial stability of the United States is the U.S. Government itself, and the FED follows closely behind. If this is what Tim Geithner has been “calling for” then it explains the bizarre inconsistency that he would be calling for anything at all, since he did nothing at all as Chairman of the NY Fed, other than to grease the bailout chute to Goldman Sachs (and subsequently attempt to cover up of their “at par” counterparty payoff through the AIG bailout).

Notwithstanding the idiocy of putting foxes in charge of hen-house security, any measure which attempts to constrict “too-big-to-failness” at the institutional level is doomed to fail (par for the course) as it is not the size or activity of an institution which puts the “system” at risk, but rather the interconnectivity of the global derivative counterparty entanglement. That said, how can any regulatory body insure that “large, highly complex financial companies that fail will do so in an orderly and controlled manner.”

With millions of contracts involved here, and no adequate army of regulatory manpower to analyze them, this massive network of global financial “event” risk cannot be managed – any attempt to do so, or to pretend to do so, at any regulatory level is ridiculous. That is what happens when an “event” is monetized. Events can affect the value of an asset, but the asset remains, regardless. Events in and of themselves have no underlying basis value–they are pure, speculative bets. Derivatives need to go. We cannot regulate them away–they just need to go away altogether.

Then we have the issue of international banks investing in fraudulent securities, emanating from U.S. subprime mortgage and other questionably “backed” CDOs, and related malfeasance. If the FED, or Treasury or the SEC does not possess the will to prevent the fraudulent underwriting, rating, and selling of that toxic mess, how on earth do you suppose that the FED is going to prevent the swelling of dollar denominated toxic assets on foreign balance sheets?

All indications are that the administration’s policy is to continue a behavioral propaganda campaign to increase the appetite for risk,  jump-start the speculation economy, and blow a little more CONfidence into the U.S. debt bubble. 

Regulators didn’t use existing laws to prevent the global liquidity crisis, and the FED did nothing to prevent bailing out international balance sheets through liquidity swaps. There is grand talk, and chest thumping, but actions speak louder than words. The actions speak “business as usual“.

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