PDCF vs. Regulation ….take your pick. The Fed and the Treasury and influential members of Congress are suggesting that they need to regulate the investment banks because they didn’t in the past created a new facility to bailout JPMorgan Bear Stearns and since public money is going to be lent to these institutions, some political agency deserves to provide oversight. Okay, I got that.

But I think this debate will string out as long as the firms really need the liquidity that the PDCF offers. If that period ever ends, I expect that they will evaluate the goodies being available at all times vs. their desire to not have big brother looking over their shoulder. Stronger firms like Goldman Sachs may want to opt out. Is it fair that - if you don’t borrow or never have borrowed, that you have to be regulated? I can hear the bullshit arguments now….”that will stifle financial innovation”….”that will cause us to be less competitive compared to non-US investment banks”…. “that might cause us to have to leave the US.”

The industry got what they needed to avoid a meltdown and I have a feeling they are going to say “no thanks” if that means they can go back to minimal / no oversight. It’s the best of both worlds actually. The Fed has made it clear that they will not let one of these guys fail. Bear Stearns set the precedent. So why not just end the PDCF when it isn’t desirable or necessary? That leaves everyone off the hook. No regulation.

And if they get themselves into trouble again???? How much do you want to bet that the Fed will make another short term creative exception, bail out the industry and then revisit this whole debate. Whoa…wait a minute… you might say. The Fed/Treasury/Congress is in charge here. ((((((LAUGHING)))))) Maybe the politicos will force this regulation upon them. Just remember that they get a win if the PDCF goes away too. With regulation comes responsibility and accountability. At least it should (but hasn’t.) If they are supposedly providing regulation and something goes wrong, then it might make the politicians look bad.