Bernanke Put Expires – Fed Gives Green Light to Take Down Banks

As I write, the expiration of the “Bernake Put” is being discussed on CNBC. I first broke this story a few days ago, and now Richmond Federal Reserve Bank President Jeffrey Lacker has put it bluntly (from Bloomberg):

“Lacker urged that the central bank now “clearly” set boundaries for its help to financial markets. In an interview yesterday on the themes of his speech, Lacker said even those new boundaries may not be believed by investors unless a financial firm fails “in a costly way.”

The Fed is backing off of its “unlimited cash for everybody” policy, and in order to convince investors that they are not just blowing smoke, they need a bank to fail.