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Dallas Fed President Richard Fisher Calls
for End to Bailout of 'Shadow Banking'

Jan. 17, 2013 (EIRNS)—This release was issued today by the Lyndon LaRouche Political Action Committee.

In a speech delivered January 16 in Washington, D.C., Dallas Federal Reserve President Richard W. Fisher called for an end to the protection of banks which are "Too Big to Fail" (TBTF), and offered what his office is calling a "common sense approach" to banking reform. His proposal is for a kind of bank separation embodied under Glass-Steagall, although he did not call for it by name:

"Only the resulting downsized commercial banking operations — and not shadow banking affiliates or the parent company — would benefit from the safety net of federal deposit insurance and access to the Federal Reserve's discount window."

Fisher went so far as to propose that,

"To reinforce the statute and its credibility, every customer, creditor and counterparty of every shadow banking affiliate and of the senior holding company would be required to agree to and sign a new covenant, a simple disclosure statement that acknowledges their unprotected status."

He even presented a sample disclosure statement, like a health warning on a cigarette package, which would warn that investment and other speculative banking activities were entirely at the risk of the individual investor — not the government.

"WARNING: Conducting business with this affiliate of the ____________ bank holding company carries NO federal deposit insurance or other federal government protection or guarantees. I , ____________, fully understand that in conducting business with ____________ banking affiliate, I have NO federal deposit insurance or other federal government protection or guarantees, and my investment is totally at risk."

As has been the case in several previous speeches, Fisher's attacks on the unending bailout approach, adopted following the September 2008 crash of Lehman Brothers and the near-meltdown of the system, include a relatively sharp analysis of the problems with the ongoing policy, as introduced by Ben Bernanke during the administration of Bush, Jr., and extended by the Obama Administration; and Fisher includes an accurate critique of the Dodd-Frank legislation, which he describes as counterproductive, working against the core problem it seeks to address.

In opening his speech, given before the Committee for the Republic, Fisher denounced "the injustice of being held hostage to large financial institutions considered 'too big to fail'...." He added, referring to their "privileged" status, that these institutions "exact an unfair tax upon the American people. Moreover, they interfere with the transmission of monetary policy and inhibit the advancement of our nation's economic prosperity."

The bulk of his presentation was an elaboration of both what he calls the "pathology of TBTF," and how Dodd-Frank "has made things worse, not better." These TBTF institutions became the "enablers of a financial tsunami," and they and their related shadow banking system have been protected, he correctly argues, but the protection of them, through "accomodative monetary policy" and has "brought economic growth to a standstill and spread their sickness to the rest of the banking system."

Further, Fisher quoted extensively from Bank of England Glass-Steagall proponent Andrew Haldane, on how Dodd-Frank regulation makes things worse.