The Phaserl


Contagion – What the Next Wall Street Crisis Will Look Like

by Pam Martens and Russ Martens, Wall Street on Parade:

Last week the Fed announced a plan for the next financial crisis that feels to some observers like a plan to burn down the trading houses on Wall Street – or, alternately, guarantee another massive taxpayer bailout of the biggest banks.

The Federal Reserve Board and its regional banks are overflowing with economists. What the Fed does not seem to have is an honest, informed voice to consult about how trading markets think in a severe financial crisis.

Last Tuesday, the Federal Reserve Board along with other bank regulators announced a new liquidity rule for the largest Wall Street banks – the ones that required the massive bailout in the 2008 to 2010 financial crisis. The goal of the new rule, according to the Fed, would be to force the biggest, most complex banks to hold enough “high quality liquid assets” (HQLA) so that they could be easily liquidated if there was a run on the bank, eliminating the need for another taxpayer bailout. So far, so good.

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