This is Part 2 of a guest contribution by David Kotok* and Bob Eisenbeis** of Cumberland Advisors. (Click here for Part 1.)

Note to Readers:  This is the second of our two-part commentary on the Fed’s exit strategy and the role the Fed has played in complicating its own operating strategies and ability to conduct monetary policy.

In their Wall St. Journal op-ed entitled “The BLOB That Ate Monetary Policy” (September 27, 2009), the Dallas Fed’s Fisher and Rosenblum use the movie metaphor of the BLOB to describe the “too big to fail” banks.  They argue that these BLOBs stood in the way of the Fed’s monetary policy’s low interest rates and thereby “gummed up” the “monetary policy channel,” which would otherwise be able to stimulate economic activity.

The op-ed doesn’t name names.  But we will.  If you examine the list of the Fed’s primary

This is Part 1 of a guest contribution by David Kotok* and Bob Eisenbeis** of Cumberland Advisors. (Part 2 follows tomorrow.)

Note to Readers:  This is the first of a two-part commentary motivated by speeches and editorials from Federal Reserve officials about possible exit strategies from its current quantitative easing policies.  We comment on some problems that the strategies may pose.  We also identify subsidies in the Fed’s current policies.  In part two we comment on the Fed’s own operating policies that may have played an important role in creating the too-big-to-fail problem.  This last issue was overlooked by the Dallas Fed’s Fisher and Rosenblum in their WSJ op-ed piece of September 27, 2009.  They lamented the bottleneck that the concentration of banking resources now creates as the Fed attempts to exit its QE strategy.  They fail to mention how the Fed’s determination of primary-dealer status has