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Obama's Fed Board Appointee: "We're Here to Steal Your Bank Accounts."

In a recent speech to an IMF conference, Fed Governor Jeremy Stein noted that, if a "systemically important financial institution, or SIFI, does fail, the losses would fall on its shareholders and creditors, and taxpayers would have no exposure."

And then, Stein clarifies, "Perhaps more to the point for TBTF, if a SIFI does fail, I have little doubt that private investors will, in fact, bear the losses — even if this leads to an outcome that is messier and more costly to society than we would ideally like."

Stein identified Title II of the Dodd-Frank Act, with its "orderly liquidation authority (OLA)," as the mechanism under which too big to fail investment banks are to be recapitalized and restructured "by imposing losses on shareholders and creditors;" that is, the "bail-in" carried out in Cyprus.

So there we are. Dodd-Frank was supposed to prevent another TARP situation, but at the time we all knew this was because it was politically challenging to have elected officials on the hook for such a thing. And, of course, Dodd-Frank confirmed the "necessity" of the SIFI, which is just a nicer acronym than TBTF.

But its much worse than that. Dodd-Frank's OLA ensures that any future SIFI problems would be taken care of by seizing assets from, say, depositors -- the Bail-In. This would be a backdoor Bail-Out, of course, since OLA assumes that FDIC would cover the losses for up to $250,000 per depositor.

However, the collapse of a SIFI implies a bailout many times larger than anything FDIC could handle. This would mean depositors left with a lot of promises and no money on hand. But this is not surprising. The American economic model has had a deep hatred of savers for the last thirty years. Seizing the few savers' assets to bail out Wall Street gamblers would be righteous in the eyes of the Krugmanites and MME zombies.

See Stein's speech at http://www.federalreserve.gov/newsevents/speech/stein2013041...



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