"Admit it, mes amis, has the rugged individualism and cutthroat capitalism that was America the land of opportunity in foil-wrapped by half a dozen short sellers in Greenwich, Conn., and FedExed in Washington, DC are spoon fed back to life by Fed Chairman Ben Bernanke and Treasury Secretary Hank Paulson. We are now no different from the Western European semi-socialist welfare states that we love to deride. "
Bill Saporito, "How We Became the United Statesof France, "Time (September 21, 2008)
Last night was the presidential candidate of the last debate before the election. They talked of the baleful state of the economy and the stock market, but was omitted from the discussion of what actually caused the credit freeze, and whether banks should be nationalized as Treasury Secretary Hank Paulson is now in the process to do. The omission was probably excusable, since the financial landscape was changing so fast that it's hard to stop.A year ago, the Dow Jones Industrial Average broke through 14,000 to make a new all-time high on. Those who predict that will nationalize one years later, the Dow drop nearly by half and the Treasury to the banks would have to step would be viewed incredulously amused. But that's where we are today.1
Congress had to hurry on to $ 700 billion Treasury Secretary Hank Paulson Bank Rescue Plan 3 Approved in October 2008, after a turbulent week in which the Dow fell dangerously near thecritical 10,000 level. The market was not appeased, however. The Dow Jones was a breakthrough not only 10,000 but then 9000 and 8000 and closed at 8451 on Friday 10 October. The week was worst than in the U.S. stock market history.
On Monday, 13 October, rather than have the market making a comeback, as he had not seen since 1933, rising a full 11% in one day. This happened after the government released a plan to buy stakes in major banks, the partial nationalizationthem, and the Federal Reserve led a push to flood the global financial system with dollars.
The reversal was dramatic but short-lived. On 15 October, the day of the presidential debate, the Dow fell 733 points, crash landing on 8578th The converse is looking more like a massive pump and dump scheme - artificially inflating the market so insiders can get out - than a true economic rescue. The real problem is not in the much-discussed subprime market but is on the credit market, thehas dried up. The banking scheme itself has failed. As learned by painful experience during the Great Depression, the economy can not be rescued by simply propping up the banks are bankrupt. The banking system itself needs to be revised.
A litany of FAILED bailouts
Credit has dried, because many banks did not meet the 8% capital requirement, which lend their skills. A bank's capital - the money is it from the sale of shares or profits from - can be fanned into more than10-times the value in the form of loans, but this leverage also works the other way. While $ 80 in capital to produce $ 1,000 in the form of loans, a loss of $ 80 standard removes $ 80 in the capital, reducing the amount that can be borrowed from $ 1000. Since the banks have experienced widespread loan defaults has accordingly reduced its capital base.
The bank rescue plan announced on 3 October involved with taxpayers' money to buy mortgage-backed securities from troubled banks. This should reduce theThe need for new capital by reducing the amount of risky assets on banks' books. But the risky assets of banks are derivatives - speculative bets on market changes - and derivative exposure for U.S. banks is now estimated at a breathtaking $ 180 trillion. The sum represents a not-to-fill black hole that is three times the GDP of all countries of the world combined. One critic said of Paulson's roundabout bailout plan, "this seems designed to Hank'sFriends offload trash, clearly more than a market blockage. "2
By Thursday, 9 October, Paulson himself evidently had doubts about his ability to sell the plan. He was not abandoning his old friends, but he soft-pedaled that plan in favor of another option buried in a comprehensive rescue package - with some of the 700 billion U.S. dollars, taking stock in banks directly buy. Plan B would have represented a controversial step toward nationalization, but it was an improvement over Plan A, whichreduced capital requirements only by the value of the books moved to bad debts of the government. In Plan B, would the money be spent on bank stock, increasing the capital base of banks, which could be leveraged into ten times that sum in loans. The plan was an improvement, but the market was evidently not convinced, because of the falling Dow close on, another thousand points from the opening on Thursday to Friday.
One problem with Plan B was that it did not really meanNationalization (public ownership and control of the participating banks). Rather, it came closer to what was described as "cronyism capitalism" or "corporate welfare." The bank has to be purchased as a non-voting preferred shares, which means the government would have nothing to say, as was pointed out the bank. The Treasury would only be feeding the bank money to do so would be as. Management could continue to collect enormous salaries while investing in wildly speculative ventures with the taxpayers' money.The banks could not be forced to use the money to make much-needed loans but could only use it to clean up their derivative-infested balance sheets. In the end, the banks will remain liable to the bankruptcy, wiping out the taxpayers' investment in general. Even if 700 billion U.S. dollars have been fanned 7 trillion U.S. dollars, the amount would not nearly to the elimination of the $ 180 trillion in derivative liabilities from the banks' books. Shifting those liabilities to the public purse would just empty the purse withoutFilling the derivative black hole.
Plan C, the plan du jour, not to impose some restrictions on management compensation. But the more significant feature of the plan this week, the Fed's new "Commercial Paper Funding Facility, which is scheduled on 27 Be operational in October 2008. The plant would be the Fed's lending window for short-term commercial paper open, the companies need the money to finance their daily operations. On 14 October, the Federal Reserve Bank of New York justifiedThis extraordinary expansion of its lending powers, with the words:
"The CPFF is in accordance with § 13 (3) of the Federal Reserve Act allows the Board, in unusual and exigent circumstances to authorize Reserve Banks to loan to private individuals allowed to extend partnerships, and companies that are not in a position to appropriate to obtain credit accommodations ....
"Prevent the Treasury believes this facility are major disruptions to financial markets and the economy andwill make a special deposit at the New York Fed to support this institution. "3
That is, the government and the U.S. Fed are now committing even more public money, while also on more public responsibilities. The taxpayers are already tapped out, so that the Treasury is "special contribution" no doubt come from U.S. bonds, meaning more debt on the taxpayers pay the interest. The federal debt could wind up running so high that the government lose its own triple-A rating. The U.S. could be reducedthird-world status, imposed with "austerity measures" as a condition for further loans, and hyperinflation running the dollar into oblivion. Instead of solving the problem, these "rescue" plans seem destined to make it worse.
300 years of the collapse of a Ponzi scheme
All the King's Men can not put the private banking system together again, for the simple reason that it is a Ponzi scheme that its mathematical limits is encountered. A Ponzi scheme is a form of pyramid scheme into new investors who constantly be sucked on the ground to support the investors at the top. In this case, new borrowers must continually be sucked into the creditors at the head support. The Wall Street Ponzi scheme is built on "fractional reserve" can credit to create the banks, "credit" (or "debt") with postings. Banks are now allowed to give 10 to 30 times their "reserves," essentially counterfeiting the money they lend. About 97 percent of the U.S. money supply(M3) has been created by the banks in this manner. The problem is that the banks only the principal and interest are not required to create repay their loans. Since the banks' lending is essentially the only source of new money into the system, someone somewhere must continually be taking out new loans to create just enough "money" (or "credit") to the old loans, from which the money supply service. This spiral of interest problem and the need to find new debtors, is conducted for over 300 years - since theEstablishing the Bank of England in 1694 - until the whole world has now caught in the debt to private money monopoly of the banks. As British financial analyst Chris Cook observes:
"Exponential economic growth required by the mathematics of compound interest on a money supply to money as debt must always be up eventually against the finite resources of the earth." 4
The parasite has finally assumed its food source. But the crisis is not in the business itself,which basically is sound - or would be with an appropriate credit system to oil the wheels of production. The crisis in the banking system, which can no longer cover the shell game it has played for three centuries with other people's money. Luckily, we do not have the credit of private banks. A sovereign government can create their own.
The New Deal Revisited
Today's financial crisis is very similar to those of Franklin Roosevelt in the 1930s. In 1932, President Hoover set upthe Reconstruction Finance Corporation (RFC) in the U.S. bank that would grant bail out commercial banks owned by loans to them, much like the private Federal Reserve does today. But like today, not Hoover plan. The banks did not need more loans, they were already drowning in debt. They needed customers with money to spend and invest. President Roosevelt used Hoover's new government-owned lending facility loans, where they are most needed to extend - for housing construction,Agriculture and industry. Many new federal agencies were set up and by the RFC, including the HOLC (Home Owners Loan Corporation) and Fannie Mae, the Federal National Mortgage Association, which then funded a government agency) (. In the 1940s, the RFC went into overdrive funding the infrastructure necessary for the U.S. to participate in World War II, setting the country with the infrastructure it is necessary to become the world's leading industry after the war.
The RFC was astate-owned bank, gave way to the private Federal Reserve, but unlike the private banks, with whom she was competing, the RFC had the money in hand before they have credit. The RFC was through the issuance of government bonds (bonds or debentures) and relending the proceeds financed. The result was put to the taxpayers further into debt trap. This problem could be avoided by updating the RFC model. A system of public banks might be set up that had the power to create credit themselves, justPrivate banks do now. A public bank, the private bank model could be on the 700 billion U.S. dollars in capital reserves fan in 7 trillion U.S. dollars in public credit that was derivative free, without warranty and are readily available all the things stand, we think we do not have the Fund money for now, including the loans necessary to pay staff, mortgages, mutual funds and draw the public infrastructure.
CREDIT as a public
"Credit" can and should be a national program, a public service ofThe government serves the people. Many people are accustomed to the Government involved in the banking contrast, but the fact is that the government is already involved. A modern RFC would actually mean less government involvement and more efficient use of the already planned 700 billion U.S. dollars, as politicians just talk. The government would not necessarily could interfere with the private banking system, continue the business as usual. The Treasury would not need to financially assistBanks, could have the same free market forces that they have served so well to be abandoned now. If banks went bankrupt, they were nationalized and put into FDIC receivership. The government would then own a number of banks that are used to the order and credit needs of the community was able to service. There would be no need to change the personnel or procedures of the newly nationalized banks. You could run "reserve" lending as they do now. The onlyDifference would be that the interest on loans to return to the government, would help to cover the tax burden on the population, and the banks would start out with a clean set of pounds, so that its 700 billion U.S. dollars seed capital could be fanned into 7 trillion dollars in new loans. This was the kind of banking system in Benjamin Franklin's colony of Pennsylvania used, where it worked perfectly well. The spiral of interest problem was avoided by printing some extra money and spending in theEconomy for public purposes. Operated in the decades of the Provincial Bank, the Pennsylvania colonists paid no taxes, there was no national debt and inflation is not the result.
Like the Pennsylvania bank would a modern federal banking system does not actually need "reserves" at all. It is the sovereign right of a government, the currency of the realm issue. What backs our money today is simply "the full confidence and prestige of the United States," something that should the United Statescan directly go without the "reserves" of its own credit issue. But if Congress is not willing to go that far, would be a more efficient use of the proposed 700 billion U.S. dollars as the rescue plan for insolvent banks, the funds will rename as "reserves" for a non-reconstituted RFC.
Rather than creating a separate public called the RFC Banking Corporation, the nation's financial apparatus could be streamlined by simply nationalizing the private Federal Reserve, but againCongress may not be willing to go that far. Since there is already successful precedent for establishing an RFC in times like these, this model could not serve as a starting point for a controversial new public credit facility. The G-7 finance Nations planners who met in Washington DC last weekend, seems intent on supporting the banking system with enough government-backed debt to produce a "liquidity" to what Jim Rogers calls "an inflationary holocaust. "As the U.S. private banking --System itself is destroyed, we must ensure that a public credit system is in place and ready to serve the needs of people in their place.
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1 Michael Hiltzik, Ken Bensinger, "Bank rescue plan to test capitalism," Los Angeles Times (October 12, 2008).
2 use Ian Welsh, "Paulson on Fannie and Freddie as Conduit to Bail Out His Friends," firedoglake.com (October 11, 2008).
3 "Commercial Paper FundingFacility: Frequently Asked Questions ", newyorkfed.org (October 14.2007).
4 Chris Cook, "A New Dawn for Iran," Asia Times (October 9, 2008).