Dow Jones reports:
Critics are concerned the financial regulation bill that cleared Congress last week could leave taxpayers on the hook for the failure of another kind of institution: a derivatives clearinghouse.When the CME has Chris Dodd's wife on the board of directors at ($153,000 a year) you can see why the CME website refers to her as just Ms. Jackie Clegg. What better way for Chris Dodd to help his own bank account than give the CME a line of credit from the Fed? Chris Dodd's wife is the $153,000 a year campaign contribution known as an "investment" in a politician. Is the Republican party a laughable joke for not bringing this up before the bill got passed?
A provision in the legislation allows clearinghouses that may pose risks to the broader marketplace to access some of the Federal Reserve's loans, including the discount window. The measure would let clearinghouses overseen by federal market regulators, such as the Options Clearing Corp. and CME Group Inc.'s (CME) clearing venture, potentially tap discount window funds without registering as bank holding companies or being primarily regulated by the Fed.
"This is the classic moral hazard dilemma," said former Minneapolis Federal Reserve Bank President Gary Stern. "My preference would be not to cover them explicitly," he added. "I think you'll get better private sector preparation."
Until now clearinghouses haven't had direct access to the Fed's discount window, which is used by banks to meet unexpected cash shortfalls. When member firms at OCC and CME didn't have the cash on hand to meet margin calls during the 1987 stock market crash, the Federal Reserve didn't provide the clearing members with direct assistance. Instead, Wall Street banks directly tapped the discount window and then in turn helped the clearing members meet their financial obligations to the clearinghouses.
