Holy cats! (I'm still reading the Bailout Bill) This jumps out at me...

[FlyingSquirrel]

SEC. 128. ACCELERATION OF EFFECTIVE DATE.

Section 203 of the Financial Services Regulatory
Relief Act of 2006 (12 U.S.C. 461 note) is amended by
striking ‘‘October 1, 2011’’ and inserting ‘‘October 1, 2008’’.

--------

Now when something that was gonna happen 3 years from now is gonna happen in 3 days, I gotta dig deeper.

But others quicker and smarter than I have already done so:

http://www.vdsat.com/2008/09/28/bailout-bill-will-destroy-the-banking-system/

What the Financial Services Regulatory Relief Act of 2006 does is allow the Federal Reserve to set reserve requirements for banks at 0%. If nothing is done, the Financial Services Regulatory Relief Act of 2006 will go into effect on October 1, 2011. The bailout bill changes the date to October 1, 2008.

In case you have trouble understanding what I just said, THE RESERVE RATIO IS GOING TO BE CHANGED TO 0%! THE BANKS WILL BY LAW NOT BE REQUIRED TO POST RESERVES. THERE IS NO MONEY IN THE BANK!

And do you know what the scary thing is about the Financial Services Regulatory Relief Act of 2006? Guess who voted against it? NO ONE. How did this piece of crap get passed?

[ShortnFiery]

1. All roads to passage lead through K Street.

:(

[Kip Humphrey]

2. Time to stuff the mattress.

[redstate_democrat]

3. Interesting.

[liberalmuse]

4. So...

if you need cash on 10/1/2008, the banks aren't required to have it? I'm stupid. What does this mean?

[FlyingSquirrel]

6. I'm stupid too. Or else it means what it says.

What possible reasonable reason there can be for banks to not need to carry any reserves at all is beyond me. I guess it's aimed at preventing more bank failures if they can't meet the reserve requirements - but if you got no money, are you still a bank?

[RoyGBiv]

9. It's more complex than that ...

The UK and Canada currently have a zero reserve requirement.

I'm reading a paper on this at the moment, which I probably won't finish until tomorrow.

[RoyGBiv]

5. Yeah, this is troublesome ...

No one seems to know what the point of that is.

Now, the real problem here is that this provision was passed two years ago, before the current crisis. So what's up with that?

It has a purpose, and that purpose is being accelerated. Whoever is responsible for adding that section *knows* the purpose.

The speculation (of a rational reason) is that this is being instituted so that banks can operated during something like one-day periods when the banks aren't open so that they can temporarily drop their reserves while cleaning up after themselves. That actually works, but of course it fails to address the fundamental problem of banks getting themselves into the position where they have to clean up. Still, it happens, even among well-managed institutions.

The speculation that is more problematic is that this is being done to mask FDIC insolvency. Related to this is the possibility of preventing bank seizure even though they can't cover their deposits.

Anyway ... I hope to see some more discussion of this ... discussion hopefully from and between people who understand these things and aren't just shouting platitudes.

[Land Shark]

8. deliberative discussion would be nice, but.... Congress says RUSH RUSH RUSH

Before complaining too much about platitudes, do consider WHO is setting the rushed pace here!

That being said, thoughtful posts like yours are appreciated.

Here's my analysis of Congress' stay on court orders PROVING constitutional violations by the Secretary. Another "Holy Cow!" moment. Even if you go to the superhuman lengths of proving a constitutional violation, congress is commanding that it be stayed until all appeals are exhausted (if the SEcretary wants that, which of course he or she would)
http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x4116021

Note that the trial court procedures are all expedited, but once the stay goes into effect for appellate purposes, I don't see any provisions expediting the appeals process. holy cow.

[RoyGBiv]

12. Yes, the pace is a problem ...

... but I don't think it helps to shout this that or the other thing ("LET IT BURN!" is my "favorite" reply of the past few days) without even trying to understand what's going on here. I've seen a number of people posing questions for the past couple of days, and most of the replies are nothing, absolutely nothing, but ranting and raving. Many of the replies in your thread, from all sides, are much the same. Your OP is informative and interesting, but the discussion that ensued is, imo, rather pointless. (That's not a reflection on you, just a comment on the hysteria that is surrounding this whole thing.)

With the section under discussion in this thread, there is much more to this than meets the eye. As mentioned, the only section of the current bill that is relevant here is the acceleration of implementing a provision of another bill already passed *unanimously*.

Why was it passed unanimously? Why is implementation being accelerated? I think I can guess the answer to the last question in that a momentary zero reserve allows more flexibility to institutions on the brink of failure. That is, with current law, if an institution over the averaging period falls below minimum reserves, it can be seized and its assets sold off. A zero reserve allows more recovery flexibility.

A little cursory research into this reveals that two of the G7 nations already have zero reserve policies of one form or another, and their financial institutions, irrespective of their investments in US institutional holdings, are largely solvent. So, there must be something to this. It may or may not be as bad as it looks on the surface. Indeed, it could be much worse. Several possibilities exist.

Of course there is a very good reason for requiring a minimum reserve on deposits. The US currently has a larger requirement than any G7 nation on transaction accounts (checking, etc.). Why are we getting rid of it?

I don't know, and I'd like to know.

[TahitiNut]

11. "before the current crisis" ??? That's funny!

:rofl: :rofl:

Fer crissakes! This shit has been coming on like an enormous avalanche of elephant shit in slow motion for YEARS! I've been reading about the housing bubble, subprime mortgages, Alt-A mortgages, derivatives, and swaps for at least two years! Hell ... and I'm not even in investment banking!

Why izzit that we seem to become a nation of amnesiacs when the shit finally hits the evening news when it's been coming on for years???

The ONLY thing that's changed is that the Secretary of the Treasury finally, after waiting until the (alleged) 59th minute of the 11th hour, put a number on the protection racket fee and said "cough it up or die!"

[RoyGBiv]

13. The Crisis ...

The crisis can be broken up into phases. Would use of the phrase "the current phase of the crisis" be more satisfactory?

I am well aware of how long this has been brewing.

[juno jones]

14. Thanks Tahiti

I'm a freaking LINE COOK and I've seen it coming. A tad powerless to do a damn thing about it, but this is no surprise.

Thank goodness I have my a) rent paid for next month, b) 2 months worth of non-perishibles in the pantry including cat food and c) a couple of job interviews tomorrow because the world needs bakers :)

[girl gone mad]

7. Yes, it's crazy and needs to be removed. n/t

[Kool Kitty]

10. I don't understand a lot of this,

and I sure don't get this.