The clearinghouses “were drooling at the prospect of having access to loans from the Fed,” she wrote. “I thought it was a terrible precedent and still do. It was the first time in the history of the Fed that any entity besides an insured bank could borrow from the discount window.”
According to the text of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, the law is supposed “to promote the financial stability of the United States by improving accountability and transparency in the financial system, to end ‘too big to fail,’ [and] to protect the American taxpayer by ending bailouts.”
However, as is usually the case with federal laws, Dodd-Frank does precisely the opposite. “In fact,” reports the New York Times’ Gretchen Morgenson,
Dodd-Frank actually widened the federal safety net for big institutions. Under that law, eight more giants were granted the right to tap the Federal Reserve for funding when the next crisis hits. At the same time, those eight may avoid Dodd-Frank measures that govern how we’re supposed to wind down institutions that get into trouble.
In other words, these lucky eight got the best of both worlds: access to the Fed’s money and no penalty for failure.
[…]
