Fail-Out: Wall St. and the Federal Reserve
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A post by "S-Dott " To see more posts click here |
If you’ve been following the financial news recently, you may have heard that some of the bailed out TARP banks have begun paying back the money given to them by the federal government. Now much hoopla has been made about why these banks are so adamant about paying these funds back now that compensation restrictions are being imposed on all banks receiving TARP funds, or even how paying back these funds so quickly is even possible considering that Wall St. was allegedly “on the brink of collapse” only a year ago. Whatever the reason, these banks making good on their debt to the taxpayers seems like a good investment, right? We’re getting the money returned with interest and Wall St. has stabilized (although the same can’t yet be said for the real economy). But the biggest problem with all this isn’t whether the banks can or will pay back the federal government, it’s the newfound relationships that many of these banks have established with what is arguably the most opaque agency in the United States federal government: the Federal Reserve.
Initially implemented by Pres. Bush and perpetuated by Pres. Obama, the bailout program had two different fronts of attack. One involved the Treasury implementing direct injection of capital into struggling giants like AIG, Bank of America, Citigroup, etc. while the other involved the Federal Reserve dishing out highly discounted loans through what has affectionately been dubbed “the discount window”. These discounted loans were intended to go to commercial banks (although the Fed refers to them as “holding banks”) as a way of freeing up the credit markets and providing access to loans (commercial banks are basically deposit account banks that issue loans to the people and small businesses).
Now you’ve seen the revolving door of Wall St. CEOs sitting in front of Congress to testify what they are doing with the TARP funds and getting grilled over their exuberant compensation, but nobody knows who is getting loans from the Federal Reserve. This is a pretty big deal because practically ANY investment firm can spin-off a small division of its company and call it a “holding bank” (the largest example of this is Goldman Sachs). So this basically means that the very same investment banks that got us in this mess to begin with are now granted access to a bottomless well of cheap money at the expense of both the tax-payer and the honest commercial banks for which those funds were originally intended.
In case the gravity of this hasn’t hit you yet, I’ll basically give you a quick one liner summarizing what this is likely to mean: the financial crisis of 2009 is going to happen again, and will do so repeatedly, because the same culprits will always be given capital for their dangerous investments from the Federal Reserve. That’s right folks, big government is now one and the same with big business, and it is both naive and delusional to think that there is any degree of separation between the two. Some may call this socialism, but I remind you that in a socialist society, the state is the one who is in control, and in our current condition it’s big business that’s determining fiscal policy in this country.
The man sitting on the throne at the Federal Reserve, Ben Bernanke, is likely to be confirmed for his second stint as chairman of the Fed despite the fact that the economy literally went from its top to its bottom entirely under his watch. Despite the plummeting fall, Bernanke still doesn’t have to open the Fed’s books to anyone, which is a dangerous notion since it also means that nobody can check the Feds power by monitoring its transactions. Don’t get me wrong, I think Bernanke is a brilliant economist but it is painfully clear that his capacity for anticipating severe downturns is dubious at best, and the fact that he is not being replaced serves as evidence that the Fed, much like Wall St., is no longer being bothered with the burden of accountability. Considering that Pres. Obama’s economic policy advisory panel is infested with former Wall St. CEOs whose former companies have benefited greatly from the Feds discount window, I can’t really say I’m all too surprised.
Food for Thought: udothedishes . . .
Support HR 1207 the Audit the Fed Bill.
Also, it’s important to link how this lending impacts the average American. By increasing exponentially the money supply behind closed doors, the FED is directly inflating the amount of money in circulation. This leads to a rise in prices without a corresponding rise in quality or amount of goods.
More dollars = less value per dollar.
The FED is what allows our government to grow indefinitely. They just print money out of thin air.
AUDIT THE FED
Then
END THE FED
Relevant topics like this need wide circulation. This is off-subject, but I just read some details about the new defense bill passed thru Congress – 1720 earmarks in defense bill. Upwards of 7000 earmarks by 2005. Only 12 in 1980. Interesting.
Most people don’t really understand what an ear mark is. It’s not a bad thing. If anything, they are important.
Earmarks do not raise the cost of a bill.
Earmarks simply allocate portions of the money to specific causes. I would argue that when the huge pot of money is not allocated, that is where more outrage should be. Having a huge pile of money to use at non-determined discretion promotes very bad fiscal responsibility.
The entire bill should be earmarked so we know 100% where every dollar is spent.
The issue people should have is with the content of the earmark, not the process of earmarking.
John I would agree that earmarks are not necessarily a bad thing. The problem is when they are used for pet projects to buy votes for the bill. I think that this is the biggest failure of the two party political system. If the piece of legislation stinks instead of scrapping it, members of Congress have instead turned to the earmark process. In order to pass a measure with bi-partisan support you essentially have to bribe members of the other party with earmarks. If the bill is legit it members of Congress will vote for it, the words should be all you need. This was one of the biggest issues I had fiscally with the Bush Administration was there acceptibility of earmarks in order to pass bad bills. Despite all of the promises the Obama administration seems to be going to same way. Over 10,000 earmarks already signed on for FY2010. Obama promised they would be reduced down to 1994 levels in his first term of 1,318. Long way to go.
John states “This leads to a rise in prices without a corresponding rise in quality or amount of goods. ” We’ve been in a state of deflation for a large part of the last year, so actually your statement is not always right.
Your idea that curtailing the money supply during financial calamity has been tried before. It led to something called the Great Depression.
that statement is just not true. The great depression was a “GREAT” depression because of the attempt to fix prices and inject more currency. Had the market gone through a rough but necessary correction, it would have been bad, but lasted for only a year or two instead of a decade, like the depression in 1920. And maybe you hint of deflation has been on the prices that have fallen on things like housing which is true. But the inflation danger that I speak of is something that has yet to happen, but will happen once the trickle down occurs from the bankers that got all the money.
if there are 10 dollars in the world worth 1 ounce of rice each, then you add 10 more dollars, but no more rice, how much is each dollar worth now?
seems like 1/2 ounce right?
mal what u say is right, but there are also a ton of factors that aid the dollar being worth less in the world standards right? im thinking like mortality rates, etc? Im more asking than telling.
also, im not so worried about earmarks from above comments i just get a lil ansy as to why there are 10k vs 10 in 1980. i get really worried about special interests over my own interests in the govt.
i agree that the content of the earmarks is appalling, however the process of earmarks is not a bad thing.
If you look throughout history, almost every Fiat monetary system has never survived, for many reasons as you state, but most importantly, because the people in charge print so much of it to accomplish political agendas, or they deficit finance, and then print more to pay off the debt, which devalues and then crushes the trust that the supports the whole system.