Paul Volker Upsets The Apple Cart

Not to mention the entire apple-based product industry by calling out President Obama on Too Big To Fail banks.

Former Federal Reserve Chairman Paul Volcker said Thursday that by designating some companies as critical to the broader financial system, the plans create an expectation that those firms enjoy government backing in tough times. That implies those financial companies "will be sheltered by access to a federal safety net," he said.

In testimony prepared for the House Financial Services Committee, Volcker said emergency measures by the Fed, Treasury and Congress during last year's financial crisis created the expectation that the government would step in to protect failing companies, their bond holders and stockholders.

Volcker said he does not differ with the administration on most of its proposals, and takes "as a given" that banks will be bailed out in times of crisis.

But he said he opposed bailouts of insurance firms like American International Group Inc., automakers' finance arms and others.

"The safety net has been extended outside the banking system," Volcker said. "That's what I want to change." He said the administration's proposal to create a new system for winding down large nonbank companies would make that easier.

The administration should make it clearer that "safety net" will apply only to traditional banks, not investment companies or others, he added.

Of course the problem with that is there's no such thing as a traditional bank anymore: they're all investment banks now. All of the Big 19 bailed out as part of TARP have investment arms, so Volker's basically saying that we need to reboot the entire financial system.

Which is exactly what we need. These huge financial behemoths are killing the country. They now 100% expect to be bailed out of any serious issues by you the taxpayer. They know they can't be allowed to fall, so they will continue to make the riskiest, craziest investments possible, period.

Moral hazard is not a basic for an economy.