Gallows Humor
A forum on how the government could wind down failing institutions in a future crisis does not exactly make for levity.
But the daylong meeting Tuesday of the Federal Deposit Insurance Corp.'s advisory committee on its new resolution powers — with an impressive list of participants led by former Federal Reserve Chairman Paul Volcker — did produce its share of one-liners.
The agency's authority granted by the Dodd-Frank Act to resolve "systemically important financial institutions" is touted by its fans as the answer to the chaos that defined the Lehman Brothers bankruptcy.
But the new facility is still very much in the development phase, and it is hard to imagine how it will work until the first time it is used. Volcker appeared to say as much when asked for his thoughts toward the end of the morning session. "I'm aware we are approaching 10:30," he said, sparking laughter. "That's the only thing I'm really certain about."
Later, Volcker remarked about the importance of the "living will" — a firm's own pre-drawn resolution plan meant to help the government in a resolution. "I'm at an age where I worry about living wills," he said.
In the event's second session, which focused on an FDIC study about how Lehman would have been resolved using the Dodd-Frank authority, Michael Bradfield, the FDIC's former general counsel, cited air travel weather delays in illustrating the importance of regulators being prepared for crises.
"What you want to avoid is how the airlines handle summer thunderstorms," Bradfield said. "They know there are thunderstorms coming, but they don't do a damn thing about it preparing the staff and the systems that are needed to deal with the traffic flow that's delayed."
To which Arthur Murton, the FDIC's director of insurance and research, responded, "Are you saying we should designate the airlines as SIFIs?"
Bradfield quipped: "I think that would be a big contribution."
Joint Effort
Reps. Barney Frank and Ron Paul do not agree on much when it comes to banking, but when it comes to pot they're in lockstep. The two House Financial Services Committee members from opposite ends of the ideological spectrum introduced a bill last week that would remove marijuana from the list of controlled substances and give the states power over the issue, according to the Associated Press.
The news organization noted that the bill would also let individuals grow and sell marijuana in states that make it legal.
"Criminally prosecuting adults for making the choice to smoke marijuana is a waste of law enforcement resources and an intrusion on personal freedom," Frank told the AP. "I do not advocate urging people to smoke marijuana. Neither do I urge them to drink alcoholic beverages or smoke tobacco. But in none of these cases do I think prohibition enforced by criminal sanctions is good public policy."
While most legislation faces an uphill battle these days given the hyperpartisan atmosphere, this bill has zero chance of becoming law, at least anytime soon. Why? Because neither party wants to be seen as soft on drugs, and legalizing pot remains controversial.
Indeed, House Judiciary Committee Chairman Lamar Smith told the AP that he would not consider the bill. "Marijuana use and distribution is prohibited under federal law because it has a high potential for abuse and does not have an accepted medical use in the U.S.," Smith said.
Where's the Gold?
Speaking of Rep. Paul, it's been obvious for a long time how much he dislikes the Federal Reserve System. The title of his most recent book, after all, is "End the Fed."
But the Texas Republican lobbed a new accusation at the central bank last week by suggesting it was "hiding" some of the country's gold reserves.
During a hearing, Paul said that the Federal Reserve Bank of New York, which has 5% of the U.S. gold reserves, has the ability to secretly sell or swap gold with other countries without anyone knowing, according to a story posted on CNN's website. "The Fed is pretty secret, you know," Paul said, according to CNN.
As a result, Paul would like the Treasury Department to open up Fort Knox and other reserves and count the gold bars manually to ensure they are all still there. (Currently, audits are based on samples.)
Administration officials say a recount is not necessary. "We know where it is," said Treasury Inspector General Eric Thorson, according to CNN.
