Fed Looking To Bend Rules To Aid Banks

Hat Tip: Mish's Global Economic Trend Analysis

CNBC is reporting Fed May Ease Rules on Private Equity Bank Stakes.

The U.S. Federal Reserve is considering steps to make it easier for private-equity firms and others to invest in banks, the Wall Street Journal reported on Thursday, a move that could open the door to more capital for cash-starved banks.

Fed officials recently have met with big buyout firms, including J.C. Flowers, Carlyle Group, Kohlberg Kravis Roberts and Warburg Pincus, and banking lawyers to discuss the obstacles, according to people familiar with the matter. Under federal law, to own more than 24.9 percent of a bank, an entity must register as a bank holding company, which is subject to heavy regulation and can be forced to serve as a "source of strength" for the bank, the Journal said.

Ownership of more than 9.9 percent of a bank also subjects the entity to regulatory scrutiny to ensure that it isn't controlling—or even influencing—the bank's operations.

The Fed can't change those laws, but it has room to maneuver in how it interprets them. This announcement today is not unexpected. It is in strict accordance with the Fed Uncertainty Principle.

Uncertainty Principle Corollary Number Four: The Fed simply does not care whether its actions are illegal or not. The Fed is operating under the principle that it's easier to get forgiveness than permission. And forgiveness is just another means to the desired power grab it is seeking.

When it comes to new rules or bending the rules, if the Fed does not like an interpretation, it will simply make the one it wants. The key point now,however, is the Fed feels a personal need to intervene directly in the markets to help line up sources for capital.

If the worst was over as Bernanke suggested (See Things That Have Not Yet Happened) then why is there a need for these kind of actions?

Have the Sovereign Wealth Funds in Singapore, China, etc. had enough? It's looking more like that every day. Yet the writeoffs continue.

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