What may be the biggest farce from the Dodd-Frank legislation was that it was designed to “rein in” banks so the poor tax-payers didn’t have to bail them out again. While the tax-payer was busy losing his home and his car during the financial crisis, he was also busy bailing out the very bank that was taking his property.
So is anyone surprised to read this morning that regulators announced that five out of eight of the biggest U.S. banks do not have credible plans for winding down operations during a crisis without the help of even more public money?
Which is precisely the point: now that the precedent has been set and banks know they can rely on the generosity of taxpayers (with the blessing of corrupt legislators) why should they even bother planning; they know very well that if just one bank fails, all would face collapse, and the only recourse would be trillions more in taxpayer aid.
Welcome to liberal America. Welfare for the very rich and the very poor, all courtesy of the middle class.
As Reuters writes, the the Dodd-Frank “living wills” that the Federal Reserve and Federal Deposit Insurance Corporation jointly agreed on in 2010 were not credible came from Bank of America, Bank of New York Mellon, J.P. Morgan Chase, State Street, Wells Fargo. What is more impressive is that the Fed and FDIC found any living will to be credible.
Also amusing: it was only the FDIC which alone determined that the plan submitted by Goldman Sachs was not credible while the Goldman-dominated Fed (thanks Obama) gave its blessing; alternatively, the Federal Reserve Board on its own found that the plan of Morgan Stanley – Goldman’s arch rival in investment banking – not credible. Citigroup’s living will did pass, but the regulators noted it had “shortcomings.”
None of the eight systemically important banks, which the U.S. government considers “too big to fail,” fared well in the evaluations. However, a bank has to fix deficiencies only if the two regulators jointly determine its plan does not have the potential to work.
“Each plan has shortcomings or deficiencies,” said FDIC Vice Chairman Thomas Hoenig in a statement. “No firm yet shows itself capable of being resolved in an orderly fashion through bankruptcy. Thus, the goal to end too big to fail and protect the American taxpayer by ending bailouts remains just that: only a goal.” After almost 10 years, the situation is actually even worse, not better.
How seriously did banks take this finding? Earlier today JPM confirmed its intentions to to increase capital of an incremental $1.9b in share buybacks, which is like trying to stay healthy by eating your own vomit. Because why worry: there are “living wills”, and if that fails, there is always another tax-payer bailout.