Sunday, July 28, 2013

The Great Deformation by David Stockman

David Stockman is receiving a flurry of media attention over his new book, The Great Deformation, and he is using it for all it's worth to go after Federal Reserve chairman Ben Bernanke's policies as having set the U.S. up for the mother of all financial crises. He denounced Bernanke as "the most dangerous man ever to hold high financial office in the history of the United States," in a Fox News interview this week. Charged that his deregulation binge as budget director for Reagan helped cause the crisis, Stockman protested that he never argued for deregulating the financial system (just everything else). "In my book, I list policy heroes," he said, and "Number one is Carter Glass. He happened to be the author of Glass-Steagall... So I do not agree that we should have deregulated banks because I don't think banks are legitimate free market institutions. They're awards of the state. They get deposit insurance. They get to go to the fed and borrow money cheap."

 He said that one of his policy recommendations at the end of his book is what he calls "super Glass-Steagall." By which he said he means that (1) banks over a certain size simply have to be broken up; and (2) if any bank wants to receive deposit insurance or access to the discount window at the Fed, it can only be involved in lending to households and businesses and taking in deposits. No trading. No underwriting. No asset management of any kind. No prop trading. No London Whales. None of the rest of the stuff. "We need to stand firm and do that instead of the stupid Dodd-Frank thing," he added.

Let's have some real banking reform, or the next crisis is going to be worse than the crisis which scared us the last time. [buried in the thousands of pages of Dodd-Frank is the mechanism for "bail-in" (Cyprus model) that allows TBTF banks to confiscate depository funds, making the ripped off depositor a "shareholder" in the essentially worthless bank in return. Chris Dodd, and Barney Frank then quit politics--job done for the TBTF Banks. Glass Steagall cuts the money supply off to the TBTF Banks.

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