Friday, March 28, 2008

Off the Subject: Recession, Bailout, Bush's Sweeping Plan.

This is breaking news tonight. The Bush Administration has a plan out, to be unveiled Monday.

Bush seeks financial regulation overhaul

Like any plan supported by Bush, this makes me nervous. It's tough to squeeze an Honest plan out of a Corrupt Administration.

The proposal would designate the Fed as the primary regulator of market stability, greatly expanding the central bank's ability to examine not just commercial banks but all segments of the financial services industry.

Congress needs to look very carefully at how the bolded statement is defined.

In the case that "market stability" is at risk, what resources does the Independent Fed have at its disposal to stabilize it? Does the Plunge Protection Team, in concept at least, become a truly legitimate part of the Market?

We've already seen the Fed giving Billions of Dollars in Emergency Loans to Bear Stearns and other struggling Financials, which, for collateral "will essentially allow the government to hold as collateral a wide variety of investments that include hard-to-sell securities backed by mortgages." This seems to be saying that in the case that Securities crash in value and put at risk the Financials that own them, the Fed is authorized to lend unlimited amounts of real money in exchange for control of those possibly valueless securities. If the value of the securities goes to zero, then the Fed, and somewhere down the line, the taxpayer, loses. It would then be the equivalent of a "bailout" to the institutions that loaded up on bad investments in the first place. The possibility that it could potentially be a bailout of unlimited scope is worrisome. Even in the best case, the Fed is saddled with the administrative costs of managing a large number of diverse investments.

Another potentially disturbing quote that I've seen, was included in the above-linked Yahoo article when I originally read it, but now is gone. I've found it in another source:

"The blueprint also suggests several areas where the SEC should take a lighter approach to its oversight. Among them are allowing stock exchanges greater leeway to regulate themselves and streamlining the approval of new products, even allowing automatic approval of securities products that are being traded in foreign markets."

I'd like to know what the hell this entails, because it sounds sketchy to me. Isn't one of the reasons that US Echanges are considered to be among the safest in the world is because there are safeguards in place to assure (at least to some extent) that Securites on those exchanges are vetted according to consistant standards? I don't know. I'd like to know more.

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