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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.

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.

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!
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  

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Comment Preferences

  •  Tip Jar (14+ / 0-)

    The darkness drops again but now I know That twenty centuries of stony sleep Were vexed to nightmare by a rocking cradle, And what rough beast, its hour come round at last, Slouches towards Bethlehem to be born? William Butler Yeats

    by deepsouthdoug on Sat May 26, 2012 at 06:15:26 PM PDT

  •  It has always been clear (0+ / 0-)

    that even more than the banks the exchanges have been too big to fail.   There is no way to avoid this.

    Of course, originally, the exchanges were very different.

  •  Former Sen Dodd's wife is on the board of CME (2+ / 0-)
    Recommended by:
    Musial, deepsouthdoug

    What a coincidence!  What a small world.  Imagine CME choosing the wife of the chairman of the Senate Banking Committee to be on their board! This is especially true considering her limited prior experience in the world of finance.

    It is also a coincidence that CME was so well treated by the Dodd-Frank bill.  Also Sen Dodd has not compromised what he did as senator despite the millions his wife received in cash, stock and options.

    Sen Dodd's wife is shown here in her bio as a board member.

    Sen Dodd's bio shows her to be his wife.

    The most important way to protect the environment is not to have more than one child.

    by nextstep on Sat May 26, 2012 at 09:10:41 PM PDT

  •  To big to fail has many downsides (1+ / 0-)
    Recommended by:

    as well from a regulatory standpoint.

    I work in a bank, and right now we are required to build a plan on how the government will take us over if we run into trouble.  Internally we liken it to a living will.  

    We also have to demonstrate that our balance sheet is strong enough to handle a significant downside in the market.  It isn't just the banks or exchanges on the list for a handout of they screw up.

    Putting an exchange on a list like this recognizes that a lot of money flows through those institutions and if they fail, there needs to be a plan on how to handle that cash flow so the economy does not lock up.  Think about this like a major cities roadways.  If there is a major exchange between several expressways that has an accident, all the roadways get backed up.  There has to be a plan to deal with this.  

    Wouldn't you rather know that institutions like this are regulated to a high degree?

    After the Republicans burn down the world, they will prove the Democrats did it.

    by jimraff on Sun May 27, 2012 at 06:32:23 AM PDT

    •  I'd rather not have a $1.2 quadrillion (0+ / 0-)

      opaque derivatives market.

      The darkness drops again but now I know That twenty centuries of stony sleep Were vexed to nightmare by a rocking cradle, And what rough beast, its hour come round at last, Slouches towards Bethlehem to be born? William Butler Yeats

      by deepsouthdoug on Sun May 27, 2012 at 07:17:55 AM PDT

      [ Parent ]

  •  FSOC rules on systematic non-bank firms (0+ / 0-)

    The Financial Stability Oversight Council is a United States Federal government organization, established by Title I of the Dodd–Frank Wall Street Reform and Consumer Protection Act, which was signed into law by President Barack Obama on July 21, 2010. A group of federal financial regulators decided Tuesday on criteria to decide which non-banking financial services companies are in the most need of firmer regulations to prevent future economic disasters like the one that struck the country between 2007 and 2009. FSOC rules on systematic non-bank firms. Its mission is to identify and regulate companies that could put the economy at future risk, should they practice unfair or unchecked lending habits.

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