https://wallstreetonparade.com/ at its most recent post, here, reports.
The Crabgrass headline is a paragraph from that recent post, with this text following the headline quote:
The new emergency lending program set up by the Federal Reserve was announced last evening, as follows:
“The additional funding will be made available through the creation of a new Bank Term Funding Program (BTFP), offering loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. These assets will be valued at par. The BTFP will be an additional source of liquidity against high-quality securities, eliminating an institution’s need to quickly sell those securities in times of stress.”
The translation of the above is as follows: to prevent banks from further panicking the markets by taking massive losses on their underwater Treasury securities by selling them in order to meet depositor withdrawals, we’re going to accept these Treasury securities as collateral for one-year loans and pretend that their market value is par (the full face amount at maturity).
It’s not clear if this new emergency bailout program from the Fed complies with the statutory language of Dodd-Frank, which prohibits the Fed from setting up an emergency bailout program to bail out a specific financial institution; requires that it accept good collateral; and requires that any new Fed emergency facilities be broad-based across the financial industry.
Federally-insured banks that did themselves in with crypto deposits or functioned as an IPO pipeline to Wall Street, do not appear to us to represent a broad base of the federally-insured, commercial banking industry in the U.S. The Fed’s bailout program, once again, appears to be rewarding hubris and enshrining moral hazard in the U.S. banking system.
Equally troubling, both Silvergate Bank and Silicon Valley Bank were supervised by the Federal Reserve Bank of San Francisco. Why the San Francisco Fed’s bank examiners didn’t blow the whistle on the dangerous manner in which these banks were operating deserves its own investigation. For years now, Wall Street On Parade has warned that the crony Fed should be stripped of its supervision of banks.
Readers should access the original report by the Mertens spouses. They know more than Crabgrass about banking, and about dangerous risk-love (the opposite of risk-aversion). They track over time error and abuse in the financial grease and gum business - some playing the game as insiders get liquidity succor, while regular people seeking or servicing mortgages may wonder why the Federal Homeloan Banking assistance system is doing low-key bailouts of stuff having nothing to do with home lending.
It seems abusive, which might just be business as usual in the moral hazard world that banking regulated by the bankers themselves (the Fed) seems to embrace or at least entail.
That last paragraph of the quote, the end of the Mertens' post, is fine, but who is to investigate? Tom Emmer? Merrick Garland? If Garland, under what federal law would an investigation be based? The Mertens spouses do suggest Dodd-Frank, of which Crabgrass is ignorant to the point of not having an opinion.
Expect a Senate Committee to take up the question. The Democrats are the majority there, and the Administration would likely prefer that venue to the House.
Bernie and/or Warren could be voices worth hearing as this situation runs its course.
_____________UPDATE____________
The story of Moonstone Bank involved regulatory San Francisco neglect, the SF Fed in that case. A possible starting point for reform might be to ask what is the functional equivalent in banking to driving drunk and causing havoc?
In the latter situation, they at a minimum pull or suspend your driving license. Even, sometimes, jail.
Being barred from banking activity in the future for going splat where taxpayer money bails out individual error might deter bad banking, where absence of any real penalty for failure makes risking failure an easier option.
Every story has a moral. Or maybe not every one, only some fairy tales. Like Humpty Dumpty. Compare: Where the U.S. of A. reality is all the king's men ride horses again.