"The Federal regulators adopted a new rule that requires the country’s largest banks – those with $250 billion or more in total assets – to hold an increased level of newly defined “high quality liquid assets” (HQLA) in order to meet a potential run on the bank during a credit crisis. In addition to U.S. Treasury securities and other instruments backed by the full faith and credit of the U.S. government (agency debt), the regulators have included some dubious instruments while shunning others with a higher safety profile.
Bizarrely, the Fed and its regulatory siblings included investment grade corporate bonds, the majority of which do not trade on an exchange, and more stunningly, stocks in the Russell 1000, as meeting the definition of high quality liquid assets, while excluding all municipal bonds – even general obligation municipal bonds from states with a far higher credit standing and safety profile than BBB-rated corporate bonds."
Comment: In theory, the states and the Federal government are separate sovereigns with separate areas of expertise. In practice, state sovereignty is threatening to the dominance of the Central State. The Federal goverment has a huge advantage in this area. It can print money from thin air while state governments can't. So it is using its power in this area to strangle the states.
No comments:
Post a Comment