I used to think The Fed had no more tools in their tool box. Until they announced a method to halt a liquidity trap when systemically significant Banks are insolvent.
When the crash of 2008 occurred, Lehman Bros was a weak link. The Vulture Funds, pretty much everyone, drove the Brokerage house into bankruptcy . This created a cascade effect:
- a lack of confidence in the overall banking system
- the monetary collapse of all interconnected Banks
- massive public bailout of the Banks , Wall Street , Insurance Cos. , etc. Everyone was bailed out except Main Street.
This simple rule proposed by the Fed, makes it impossible to short any Bank in fiscal trouble for 48 hours. There will be time for Systemically vulnerable Banks to separate their Derivative trades and other risky trades from the main bank, creating as Paulson had recommended a “good bank, bad bank scenario”. The Bank’s would be able to wind down their operation with out fear of a disorderly disruptive liquidity crisis.
- I would have ONE request, before waiting for a crisis , why can’t Treasury implement a 6 basis point tax on Derivatives and millisecond trades, generating $660 Billion in revenue and curtailing insolvency risk?
This rule sounds reasonable and protective of our Monetary System. Raising interest rates under the false assumption that the Economy is “overheating”and productive, flies in the face of recent evidence that productivity has declined and more people are under employed or still seeking good paying jobs. As the Middle Class continues to slip into poverty, I’d like the Fed to explain their reason for raising the Fed rate. What are the consequences to the Middle Class when they’re Trillions in debt? What will happen to Mortgage Rates? The Middle Class has no buffer. The Middle Class is struggling to save $400.00
This is one policy, I wish, the Fed would reconsider. Clue us in Janet Yellen, please! What is the Fed thinking?
“the heart and pulse of the Middle Class”