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NY Fed’s Dudley Indicts Banks’ “Lack of Respect for Law, Regulation, Public Trust”

Posted by Larry Doyle on November 8, 2013 7:33 AM |

Wow, just wow.

It is not often if ever that a major Federal Reserve governor will turn on his own banking bedmates, but we witnessed just that yesterday in an address delivered by New York Fed governor William Dudley at the Global Economic Policy Forum in New York City.

Dudley’s talk was intended to provide an outline for ending the ongoing ‘too big to fail’ reality of our major banking institutions.

Hey, wait a second. I thought Dodd-Frank ended too big to fail, didn’t it? President Obama told us so. Well, he also told us that if we liked our health care plan and our doctors and our hospitals that we could keep them . . . and we see where that got us. Back to Dudley’s talk in which he let slip a statement that should unnerve Wall Street and Washington to their very core.    

In the midst of navigating through the finer points of: (1) defining the too big to fail problem; (2) the fairness/subsidy issue; (3) solving too big to fail; and (4) reducing the likelihood of failure, Dudley delivered the following:

Some argue that what I have proposed—higher capital requirements and better incentives that reduce the probability of failure combined with a resolution regime that makes the prospect of failure fully credible—are insufficient.  Perhaps, this is correct.

After all, collectively these enhancements to our current regime may not solve another important problem evident within some large financial institutions—the apparent lack of respect for law, regulation and the public trust.  There is evidence of deep-seated cultural and ethical failures at many large financial institutions.  Whether this is due to size and complexity, bad incentives or some other issues is difficult to judge, but it is another critical problem that needs to be addressed.

Although many in our nation may be numbed by the almost daily stream of stories about market manipulation on Wall Street and dysfunction in Washington, for those watching closely Dudley’s statement is an ABSOLUTE BOMBSHELL. The executive suites at JP Morgan and Goldman Sachs will certainly view Dudley’s grenade akin to friendly fire.

Why is Dudley’s statement so meaningful? Very simply, before being able to eradicate a cancer, there needs to be a formal diagnosis that the malady exists. Dudley’s assessment is real progress on this front.

But Dudley falls far short when stating that it is “difficult to judge” why the lack of respect for law, regulation, and the public trust has gained a real foothold within the industry. Why do banks flout the law, regulation, and the public trust ? Because they can. And why? Because they are in bed with their partners who pretend to oversee them atop Capitol Hill and within the financial regulatory realm. They are all benefiting like never before and we all pay for it in ways both large and small.

Thank you governor for slipping these remarks into your talk. I should get you on my sales team promoting my book because addressing and exposing this incestuous and cancerous dynamic is the motivation for that book coming out in early January.

Governor, I’ll send you a copy. It’s the least I can do.

Navigate accordingly.

I thank the regular reader who brought Dudley’s speech to my attention.

Larry Doyle

Please pre-order a copy of my book, In Bed with Wall Street: The Conspiracy Crippling Our Global Economy, that will be published by Palgrave Macmillan on January 7, 2014.

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I have no business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

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