Municipal Bonds excluded from "high quality liquid assets"

This is a big business move (corporate bonds and certain stocks are considered "high quality liquid assets" to take over the world by making it even harder for We The People to fund infrastructure and social projects to benefit all members of the society.

This just makes me sick.

The Article: The Fed Just Imposed Financial Austerity on the States

wallstreetonparade.com...

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.

This, rightfully, has state treasurers in an uproar. The five largest Wall Street banks control the majority of deposits in the country. By disqualifying municipal bonds from the category of liquid assets, the biggest banks are likely to trim back their holdings in munis which could raise the cost or limit the ability for states, counties, cities and school districts to issue muni bonds to build schools, roads, bridges and other infrastructure needs. This is a particularly strange position for a Fed that is worried about subpar economic growth.

a reply to: FyreByrd

I got the impression reading through your post that it's like they're tying off loose ends.

originally posted by: EA006
a reply to: FyreByrd

I got the impression reading through your post that it's like they're tying off loose ends.

You may be right. But to, for all intents and purposes, downgrade PUBLIC securities in favor of PRIVATE securities just seems evil. The only rational reason I can attach to such a move is to deliberately make it hard for Local governments to actually do anything for themselves.

I'll be curious to see exactly what the 'state treasurers' have to say about this.

originally posted by: FyreByrd

originally posted by: EA006
a reply to: FyreByrd

I got the impression reading through your post that it's like they're tying off loose ends.

You may be right. But to, for all intents and purposes, downgrade PUBLIC securities in favor of PRIVATE securities just seems evil. The only rational reason I can attach to such a move is to deliberately make it hard for Local governments to actually do anything for themselves.

I'll be curious to see exactly what the 'state treasurers' have to say about this.

Could be a paralysis tactic for when martial law kicks in?

Many Municipalities are close to bankruptcy and many have filed bankruptcy.

This move is an indicator of that.

Many Municipalities are deep in debt already.

Bb--

a reply to: FyreByrd

U.S. Treasury securities and other instruments backed by the full faith and credit of the U.S. government

The Fed has also basically mandated these banks shore up their reserves $100 billion in Treasuries by Jan 2015. Someone has to purchase US government debt, the Fed found an unwilling sucker. Added to that will be Obama's pyramid scheme "MyRA" which will also be in US Treasuries. Looks like the US government may have found a way to kick the debt can down the road a little further.

Suckers.

a reply to: FyreByrd

This game is gonna end within your lifetime ladies and gentlemen.

You know exactly what I mean

Munis are not high quality liquid assets, so they should be excluded. At the same time, I cannot fathom how corporate debt and the Russell index have been included as neither meet a true definition of HQLA.

I noted years ago on some financial forums/blogs (when the LCR requirements were first proposed by Basel...this is not a US initiative) that it would serve to prop up sovereign debt as countries continued to accrue debt. Was ignored then.

This also introduces massive systemic risk. On the way up, banks are all buying the same liquid assets. In a liquidity crisis all affected banks will be unloading the same securities. To whom?

Here is another article on this revolting ruling:

Preparing to Asset-Strip Local Government? The Fed's Bizarre New Rules

www.truth-out.org...

Privatize, Privatize, Privatize. We're doomed.

Why this unprecedented move by US regulators? It is not because municipal bonds are too risky, since corporate bonds with lower credit ratings are accepted under the new rules. Nor is it that the stricter standard is required by the Basel Committee on Banking Supervision (BCBS), the BIS-based global regulator agreed to by the G20 leaders in 2009. The Basel III Accords set by the BCBS are actually more lenient than the US rules and do not include these HQLA requirements. So what’s going on?

In any case, switching the banks’ holdings from muni bonds to corporate bonds or Treasuries is liable to have little effect in a crash. The stricter rules are supposed to be a defense against bank runs; but in a major derivatives bust and bail-in, the available collateral will go first to the derivatives claimants, through a massive concession to financial institutions in the Bankruptcy Reform Act of 2005. (See my earlier article here.) The FDIC and the depositors are both liable to be out of luck, no matter what form the collateral takes.

Been watching what happened to the Russian People's Assests after the Fall - We're seeing it in the US now.

Have to add another quote:

The rule change may not have much effect in a crash, but where it will have a major effect is on the cost of credit, which will increase for municipal governments and decrease for corporate and financial institutions. The result will be to further shift power and financial resources from the public sector to the private sector.


Why would regulators dangerously jeopardize state and local government budgets in this way? Skeptical observers speculate that the intent is to Detroit-ize municipal governments, so that assets can be stripped as is being done in that imperiled city. The international bankers got away with asset-stripping Greece. Why not make the US itself a wholly-owned subsidiary of private banking interests?


If that seems far-fetched, consider what is happening with Argentina, which has been forced into bankruptcy by a US court to satisfy the exaggerated claims of certain hold-out vulture funds. IMF regulators have discussed establishing an international bankruptcy court that could strip a country such as Argentina of its assets, including prime sections of real estate, to pay off the nation’s creditors.

Why can't the right or the libertarians see how dangerous this is. I know the right is all for Corporate Feudalism but libertarians?

It might not have such an effect on munis. While the banks are having to chase sovereigns it will drive (or Keep) those yields artificially low, and against that the munis will look attractive for hedge funds and others who dont have to abide by LCR requirements.

So the conclusion above that muni borrowing costs will skyrocket is just one possibility. I suggest it probably wont change much, as the biggest effect will be further yield suppression for the sovereigns instead.

a reply to: FyreByrd

Why can't the right or the libertarians see how dangerous this is. I know the right is all for Corporate Feudalism but libertarians?

You mean the Progressives are all for Corporate Feudalism.

Progressives are naturally attracted to authoritarian principals like public debt.

Genuine Conservatives want nothing to do with any debt (at least the smarter ones).

Libertarians? Not sure what you mean.

originally posted by: xuenchen

You mean the Progressives are all for Corporate Feudalism.

Progressives are naturally attracted to authoritarian principals like public debt.

Genuine Conservatives want nothing to do with any debt (at least the smarter ones).

You mean to say, I am sure, that so-called 'progressive' politicians are for Corporate Feudalism and I would agree. Individual people who consider themselves progressive are not in favor of Corporate Fuedalism.

What you neglect to acknowledge or consider is that this is an area of common concern to most people left, right and center.

I don't often respond to your posts because you make statements as facts that are not, you never give any source or reference for your perhaps divinely given ideas and you have a single agenda but since this is my thread, I get the last word.