This is a few days old but I’m just catching up on news after PorcFest and this goes well with “Fed engaged in “cover-up” of BofA-Merrill deal-lawmaker.”
The Federal Reserve has been hobbled by at least two major shortcomings that were primarily responsible for the current and several previous credit crises. Its failure to spot the importance of changing financial markets and its commitment to laisser faire economics were big mistakes and justify a fundamental overhaul of the Fed.
Bill Bonner puts it well over at FleetStreetInvest.co.uk:
How about that? America’s largest car company is going to be state-owned… nationalized… presided over by the federal bureaucrats.
It’s just a part of the shift away from the free market and towards an un-free market. Free market capitalism has failed, say the pundits. Let’s give the feds a chance.
Even Henry Kaufman, writing in today’s Financial Times, says that the Fed’s “libertarian dogma” prevented it from controlling the banks properly.
But the Fed is hardly a libertarian organization. It’s a banking cartel. As a cartel, it looks out for its member banks – and doesn’t hesitate to use state power to do so. There is nothing libertarian about it… and no dogma associated with it – except as Greenspan’s eyewash – that is even vaguely libertarian.
The Fed colluded with member banks to fix interest rates. In so doing, it helped create the biggest bubble in credit the world had ever seen. It was a terrible thing for the average fellow – who was lured deep into debt by rising house prices and cheap credit. But it was a great thing for the members of the Federal Reserve cartel. Profits in the financial sector – notably, the big Wall Street investment banks – soared.
But bankers are vulnerable to too much of a good thing – just like everyone else. Soon, they made the classic Wall Street mistake – they came to believe their own hype. Not only did they gin up trillions of dollars’ worth of preposterous financial instruments… they actually bought these debt bombs from each other.
This posed a grave danger to the nation’s economy… and to the banking system. Henry Kaufman claims the regulators dropped the ball because they put too much faith in the free market. But the regulators were little more than front men for the banks themselves. After Alan Greenspan came Henry Paulson as head of the Fed. He was probably still replying to messages at his old address when the crisis began. And the head of the New York Fed – now, US Treasury Secretary Tim Geithner – was elected to his post by the very institutions he was supposed to be overseeing.
Neither of them was about to stop the party; they and their friends were having too much fun.
I agree it was inconsistency which helped lead to this. You can’t supercharge an industry and remove the governors (regulations) and not expect shit to hit the fan eventually.
Let’s be consistent. Remove the supercharger. Remove the governors. Stop tweaking with a system you can’t possibly control and leave it be. Get rid of the Federal Reserve and it’s monoply on interest rates and money and credit creation. Remove it’s monopoly on legal tender. Treat fractional reserve banking as the fraud it is (in its current form anyway). Allow the bubble created “too big to fail” failures to fail and go into bankruptcy. Oh and stop handing out our grandchildren’s future tax dollars on failed institutions.
Speaking of which… yesterday Obama said that the government should spend as much on R&D as on the military. On Slashdot someone asked why when we are already in debt would we be spending money on something that would help us but costs would be placed on our children. A response was that it would more likely help them because the advancements would come out later.
My question is… what moral authority does this guy have spending future generations money (which will be forcefully taken from them) regardless of who it will directly effect? Is that not taxation without representation? They have had no say in the matter. Why not let the bureaucrat tyrants of their own time decide how best to steal from them?
The incoming Obama administration is considering setting up a government-run bank to acquire bad assets clogging the financial system, a person familiar with the Obama team’s thinking said on Saturday.
The U.S. Federal Reserve, Treasury and Federal Deposit Insurance Corp have been in talks about ways to ease a banking crisis that is once again deepening — and a government-run “aggregator bank” is among the options.
Outgoing Treasury Secretary Henry Paulson and FDIC Chairman Sheila Bair both said on Friday a government bank was one of a number of ideas U.S. regulators had been discussing.
The source said advisers to President-elect Barack Obama, who takes office on Tuesday, were also considering the idea of an aggregator bank among a range of options that could be pursued.
David Axelrod, a top adviser to Obama, told Reuters the new administration would have something to say about a fresh approach to the financial crisis in “the next few days.”
Yes… because the first two worked out so well.
The story is a few days old but I’ve not seen much coverage. It seems doubtful to me something like this would occur. Those in power and coming to power seem to prefer fascism to socialism.
Fed Defies Transparency Aim in Refusal to Identify Bank Loans
Nov. 10 (Bloomberg) — The Federal Reserve is refusing to identify the recipients of almost $2 trillion of emergency loans from American taxpayers or the troubled assets the central bank is accepting as collateral.
Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson said in September they would comply with congressional demands for transparency in a $700 billion bailout of the banking system. Two months later, as the Fed lends far more than that in separate rescue programs that didn’t require approval by Congress, Americans have no idea where their money is going or what securities the banks are pledging in return.
“The collateral is not being adequately disclosed, and that’s a big problem,” said Dan Fuss, vice chairman of Boston- based Loomis Sayles & Co., where he co-manages $17 billion in bonds. “n a liquid market, this wouldn’t matter, but we’re not. The market is very nervous and very thin.”
Bloomberg News has requested details of the Fed lending under the U.S. Freedom of Information Act and filed a federal lawsuit Nov. 7 seeking to force disclosure.
The full article includes more Fed lies, Barney Frank hot air, and some info on the AIG bailout.
Treasury Secretary Henry Paulson urged banks receiving $250 billion in capital injections from the government to use the funds to spur economic growth.
“We must restore confidence in our financial system,” Paulson said at a press conference in Washington. “The needs of our economy require that our financial institutions not take this new capital to hoard it, but to deploy it.”
With the equity purchases, Paulson is using more than a third of the $700 billion in government support Congress gave him the authority to use on Oct. 3. He didn’t identify any of the lenders. People familiar with the plan said nine companies will get $125 billion: Citigroup Inc., Goldman Sachs Group Inc., Wells Fargo & Co., JPMorgan Chase & Co., Bank of America Corp., Merrill Lynch & Co., Morgan Stanley, State Street Corp. and Bank of New York Mellon Corp.
Mussolini would be tickled.
Paulson said the Treasury will dedicate $250 billion for boosting bank capital through preferred stock purchases. The regulators said in a statement that “thousands” of financial companies would participate.
Participating banks will need to accept limits on executive pay and so-called golden parachute payments. They also will need to give the Treasury warrants for an amount equal to 15 percent of the senior preferred investment, with a strike price determined by the bank’s share price at the time of issuance.
The senior preferred shares will pay a dividend of 5 percent for the first five years and 9 percent after that, the Treasury said. The purchase price of the stock will be the market price of the banks’ common shares at the time of the transaction. Companies will be able to buy back the equity at par after three years.
The possibility for this to turn out bad is pretty high. Even should the companies buy back their shares and the government get out completely from this setup… the precedent alone is incredibly dangerous. What will this mean for these corporations? How involved will the government get? Now that they are partial owners all previous barriers are gone.
It just gets worse by the day.
“Neel Kashkari, the Treasury’s assistant secretary for international affairs, was selected Monday to be the interim head of Treasury’s new Office of Financial Stability.
The designation was made by Treasury Secretary Henry Paulson, who was the head of Goldman Sachs before he joined the Bush administration in 2006. Kashkari, 35, will head the office created by the emergency legislation enacted Friday to fund the largest government bailout in history…”
Kashkari worked for Goldman as a Vice-President. Is this brazen?
Side-note: he has a connection to NASA.
CALL CONGRESS AND ASK FOR GOLDMAN SACHS OUT OF THE US GOVERNMENT
They don’t even try to hide it. Why should they when they get away with it anyway?
UPDATE:
Thinking Liberty
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