Tags: US | Miller | Bank | Bailouts

US Rep. Miller: Market 'Wildly Unrealistic' in Assuming Big Bank Bailouts

Monday, 28 Jan 2013 05:19 PM

By Michael Kling

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Financial markets are "wildly unrealistic" to assume governments will bail out huge financial institutions, asserts Congressman Brad Miller, a Democrat from North Carolina and former member of the House Committee on Financial Services.

The market believes governments will not let huge banks fail, if their failure would mean catastrophic consequences like collapse of the financial system.

"Really? Does the market watch the news?" Miller poses in an article for American Banker.

It's time to face the truth, he says. "The market is dumber than a box of rocks, at least when it comes to politics."

Editor's Note: The Final Turning Predicted for America. See Proof.

Miller points to an article by Andrew Haldane, executive director of financial stability for the Bank of England, who points out that the market's assumption that governments will bailout mega-banks is greater now than before the financial crisis. The assumption that mega-banks are too big to fail was worth tens of billions of dollars each year to the biggest banks before the financial crisis in terms of reduced borrowing costs. It's now worth hundreds of billions of dollars a year.

Miller notes that the Dodd-Frank Act, on paper, rules out U.S. regulators from bailing out banks again.

"In fact, Dodd-Frank may give the Fed and the FDIC some wiggle room, but they may not have time to wiggle in a crisis," Miller says. "That means the market expects that Congress would act, and quickly."

He recalls that the bailout – the Troubled Asset Relief Program (TARP) – was immensely unpopular across the political spectrum. Both the left and right believed it helped Wall Street more than Main Street. Its unpopularity was instrumental in creating the Tea Party and ending political careers of Congressmen who supported it.

Congress, now even more partisan than in 2008, will be sure to remember the public's rage the next time.

"Bank bailouts really do not fit anyone's ideology," he states. "If you think Congress might not close ranks and bail out the banks again, you are probably smarter than the market."

The too-big-to-fail banks should be broken up, said Federal Reserve Bank of Dallas Director Richard Fisher, in a recent speech.

“In a nutshell, we recommend that TBTF financial institutions be restructured into multiple business entities," Fisher said. "Only the resulting downsized commercial banking operations – and not shadow banking affiliates or the parent company – would benefit from the safety net of federal deposit insurance and access to the Federal Reserve’s discount window.”

Editor's Note: The Final Turning Predicted for America. See Proof.

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