In what amounts to a dog and pony show without dogs and without ponies, Dodd Bill Empowers Regulators to Limit Size of Financial Firms.

U.S. Senator Christopher Dodd, the Connecticut Democrat who chairs the Senate Banking Committee, speaks about overhauling U.S. financial regulation. Dodd, speaking at a news conference in Washington, unveiled a plan to overhaul financial rules and empower the Federal Reserve to break up large firms that pose a “grave threat” to U.S. economic stability.

Seriously, does anyone think Bernanke would act on this? Hell, Bernanke did not see a housing crisis or a recession. Bernanke thought he could put a floor on interest rates at 2% by paying interest on reserve. No one was more useless than Bernanke.

Take a look at Goldman Sachs. It is preposterous that a hedge fund, (and that is all Goldman Sachs is), can borrow money from the Fed at absurdly low rates and speculate in whatever the hell it wants.

Is this a systemic risk? Of course it is.
Does Bernanke or the Fed want to do anything about it? Of course not.

Beyond absurdities in lending arrangements, Goldman Sachs routinely trades against advice it give its clients. Where is the separation of duties? I think giving advice to clients and trading against it is fraudulent, at the very least it is unethical.

Does the Fed want to do anything about that? Of Course not.

What about off balance sheet assets at Citigroup and JPMorgan?
Does the Fed want to do anything about that? Of Course not.

What about the Pay Option ARMs mess at Wells Fargo?
Does the Fed want to do anything about that? Of Course not.

Dodd’s bill, assuming it gets passed, is much ado about nothing.

If Congress really wanted to do something it would require physical (not logical, within one company) separation of duties, it would prohibit trading against clients, and it would prevent off balance sheet accounting. Instead, Dodd’s bill “empowers” the Fed to do nothing. And “nothing” is exactly what the Fed will do.

Mike “Mish” Shedlock
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