Moyers and Volcker interview
Bill Moyers points us back to banks and fiduciary responsibilities:
“You shouldn’t run a financial system on the expectation of government support. We’re supposed to be a free enterprise system,” Volcker tells Moyers. “The problem of course is once they get rescued, does that lead to the conclusion they’ll get rescued in the future?”
From Bill Moyers and Company, an interview with Paul Volcker on the Volcker rule in Dodd-Frank, transcript included.
The hidden or is it not discussed reason the TBTF banks were allowed to skate is that without them the Treaaury would not have been able to borrow $1.3 trillion, give or take, at low low rates without them. The mechanisms of the Treasury market are fully contained within the TBTF banks who are the most important Fed Primary Dealers. If they had been allowed to go down, or if they are, the system of Treasury borrowing will dislocate.
A similar dynamic is in place in the EU. Governments need freely flowing credit, for themselves, and only the financial system of the giant banks allows the system to operate. If In the US in particular if the giant banks fail the government fails. Fails to pay it’s bills that is. The day the Treasury can not issue a check is the day the entire political economy dislocates. The government/Treasury and the banking giants are full partners and niether can operate without the other, for now. Eventully the giant banks with the Fed will take the upper hand and dictate how much the government can borrow, and for what and we will have returned to the day, post Panic of 1907, when JP Morgan sent a note to TR demanding his people meet TR’s “people” to work things out.
$1.3 trillion per year, give or take…………..
for an interesting other look at Volcker’s belief in “free enterprise,” read William Greider “Secrets of the Temple.” It’s very long, and harder to understand than you might realize while you are reading it, but the one thing that can be said about Volker is that he did NOT practice “free enterprise” when he was Fed Chairman.
Of course people don’t always recognize their own contradictions.