Secret members at that! The source of this is the Wall Street Journal. According to the Journal we have new members of the TBTF Club because of language inserted into the Dodd-Frank Bill by Senator Chris Dodd.
These new secret TBTF members are not even banks. They could be called Commodity Exchanges - like the Chicago Mercantile Exchange. It's about what to do when derivatives - the $1.2 quadrillion derivatives market - blows up the next time.
From the Journal article:
We’re told that the clearinghouses of Chicago’s CME Group and Atlanta-based Intercontinental Exchange were voted systemic this week, and rumor has it that the council may even designate London-based LCH.Clearnet as critical to the U.S. financial system.
The London Exchange? The there are no rules and any derivative trade goes exchange is going to be part of this transmogrified TBTF pack of criminals?
This happened last week because the enabling legislation allowed the new Financial Stability Oversight Council chaired by Treasury Secretary Tim Geithner to designate these institutions as TBTF.
Back to the Journal:
Specifically, the law authorizes the Federal Reserve to provide “discount and borrowing privileges” to clearinghouses in emergencies.There ya go - backstopping a corrupt foreign exchange while the middle class implodes. WTF are doing protecting a foreign exchange? Oh yea, look at the regulator!
Last year regulators finalized rules for how they would use this new power. On Tuesday, they began using it. The Financial Stability Oversight Council secretly voted to proceed toward inducting several derivatives clearinghouses into the too-big-to-fail club. After further review, regulators will make final designations, probably later this year, and will announce publicly the names of institutions deemed systemically important.
U.S. taxpayers thinking that they couldn’t possibly be forced to stand behind overseas derivatives trading will not be comforted by remarks from Commodity Futures Trading Commission Chairman Gary Gensler (a Vampire Squid alumni). On Monday he emphasized his determination to extend Dodd-Frank derivatives regulation to overseas markets when subsidiaries of U.S. firms are involved.I'm not really sure how an outfit like the CME would be on the hook for derivative losses if their function is supposedly to bring two parties together to do derivative deals, but that old sharpie Turbo Timmy must surely know what he's doing..........for the TBTF crooks.
It might be hard to get the Volcker Rule activated, but if it's about laying trillions of dollars of risk off on the hapless prisoners of this corporate colony aka the USA, then it will pass in secret!
Backstopping these derivative trading fools, likely means the bets they take can get bigger because the risk is no longer on them. But............the losses for us could be cataclysmic. Giving these clearinghouses the green light to roll the dice means we'll pay for this someday.
If the Fed ends up printing trillions to cover losses, the losses might be through a nasty inflationary shock.
Story was on Zero Hedge