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November 30, 2008 at 18:35:00
Promoted to Headline (H2) on 11/30/08: by Ellen Brown Page 1 of 2 page(s) |
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1. Mark Pittman, Bob Ivry, "U.S. Pledges $7.7 Trillion to Ease Frozen Credit," Bloomberg.com (November 25, 2008). The views expressed in this article are the sole responsibility of the author
Thailand and Iceland are leading the way in the "Just Say No" to Corruption protests, and are actually doing something about it democratically (People Power!). I hope Americans won't continue to sit on their heads much longer as they are robbed by the "Just Want to Help" Gang who are behind the scandal. by
boomerang (0 articles, 7 quicklinks, 0 diaries, 556 comments [215 recommended, 1 rejected]) on Sunday, Nov 30, 2008 at 7:36:55 PM
The indebted society... before the great fall... fasten your seat belts. by
August Adams (11 articles, 0 quicklinks, 1 diaries, 583 comments [11 recommended, 0 rejected]) on Sunday, Nov 30, 2008 at 8:14:51 PM
I think this link showing people in Zimbawee is particularly poignant with respect to this article.....fantastic photos!, and make the possibility of inflation look like fun.....even if it is unrelated to the imediate effects of this further bailing out...sure does describe "high powered money" though.....heres the link by
Mike Collalto (0 articles, 0 quicklinks, 0 diaries, 3 comments) on Sunday, Nov 30, 2008 at 8:27:52 PM
Turning paper into gold, silver & tangibles sounds like a prudent idea about this time... I have heard, in Weimar, people were buying toilets, nuts, bolts, anything tangible to trade for...food. And to preserve capital. We are well on our way to "allowing" ourselves to be robbed into poverty. Accountability for the scammers is a must. by
boomerang (0 articles, 7 quicklinks, 0 diaries, 556 comments [215 recommended, 1 rejected]) on Sunday, Nov 30, 2008 at 8:52:48 PM
Fortunately, Ellen Brown understands what's happening and simplifies it for the rest of us. by
William John Cox (29 articles, 0 quicklinks, 0 diaries, 29 comments [1 recommended, 0 rejected]) on Sunday, Nov 30, 2008 at 9:16:41 PM
Good article. Will the American people rise up against this? I think not. For the most part they are just a bunch of dumb sheep. They’ve pretty much bought into the system because it makes them just comfortable enough – and will remain passive until it’s too late. They deserve to lose their liberty anyway. As long as they can watch “American Idol” and “Dancing With The Stars” on TV, they’re happy. If Paul Revere went on his famous ride today, it would be just him and the horse against the whole British Army. There are not many real patriots today. If you ask most young kids what a patriot is they’ll say, “Tom Brady”. by
Joe Vignolo (1 articles, 0 quicklinks, 0 diaries, 55 comments [13 recommended, 0 rejected]) on Sunday, Nov 30, 2008 at 11:02:11 PM
Don't know who said this ................. You can fool some of the people some of the time, but you can't fool all of the people all of the time. by
Mike Collalto (0 articles, 0 quicklinks, 0 diaries, 3 comments) on Monday, Dec 1, 2008 at 12:47:26 AM
Revised it Joe ..........LOL........................ You can fool some of the sheeple some of the time, but you can't fool all of the sheeple all of the time......... by
Mike Collalto (0 articles, 0 quicklinks, 0 diaries, 3 comments) on Monday, Dec 1, 2008 at 12:55:41 AM
Lincoln said that. by
Joe Vignolo (1 articles, 0 quicklinks, 0 diaries, 55 comments [13 recommended, 0 rejected]) on Monday, Dec 1, 2008 at 5:39:23 PM
I don’t claim to be an economist, but I do have a rather logical mind. When I was in high school, way back in the early ‘60s, I asked my father, a bank VP, just where the money to pay interest came from. I thought it was a fairly intelligent question. If I borrow $10 and have to repay $11, where do I get the other buck? Good ol’ Dad, a liberal to the end, explained that that $1 didn’t really exist, but cautioned that if I didn’t have a job, he wasn’t going to loan me $10. Well, I can add 2+2, or in this case, 10+1, and realized that the interest was vitally based on future earnings. At the time, that didn’t seem to be a bad thing. It was just how things were and it had been going on for a long time. Even Jesus kicking the money lender’s ass in the temple didn’t seem to have much effect. And Jesus supposedly had some very high connections. So, it seems to me that this whole economic meltdown is because a bunch of banks loaned a bunch of money to a bunch of people whose real pay had actually been on the decline for a few decades and a whole lot of their jobs were being outsourced to other countries. Some might call that “bad business practice”. Others would call it “stupid”, and as Ron White says, “there’s no cure for stupid. Stupid is forever.” After checking with the Center For Disease Control, it appears that ‘stupid’ can be highly contagious. At the same time, governments around the world were gutting banking regulations to allow Stupid to go unchecked, when in reality, all they were doing was expanding the population of stupid to include politicians, and they even came up with this “trickle-down” theory that got voters to join the population by electing the politicians. Now we have this new guy who’s hiring all these old guys who got us into this mess in the first place, and their solution is to print a bunch of money to give to the Stupids so they don’t die and can lend this money to people who are losing their jobs. According to the formula, the future earnings of banks is based on the interest paid by borrowers purchasing such things as homes, cars, TVs, clothing or even food. But the Stupids are getting less stupid. They’re not going to loan the money. They’re going to keep it and show it as profit so their stock values go up and they can borrow more money. Let’s get back to the $10. If I loan you $10 and I die, who do you owe the $11 to? by
Angelo (6 articles, 0 quicklinks, 7 diaries, 209 comments [1 recommended, 0 rejected]) on Monday, Dec 1, 2008 at 8:06:51 AM
As I understand it the American people are outraged by this bailout and flooded Congress switchboard telling them to vote NO. The Congress along with the President (Bush) ignored the public (as usual). Congress and the President are involved in a conspiracy with the rich and powerful money lenders to bilk the public out of as much money as possible. The American people are angry; but what can they do to prevent this robbery from happening when their government is corrupt. Perhaps one might believe that the rich and powerful money lenders were stupid to get themselves involved in the scam to get richer and richer; but since they used extortion to get governments to cover their losses they seem more like con-men than stupid men to me. Did you guys see Rachael Maddow's show where she compared the amount of money of the bailout with the amount of money spent on wars, NASA, the New Deal, etc. that put things in perspective to me about just how much money is being stolen from the public. With this amount of money we could all have free health care. The fact is that we have a government that has forgotten all about the average American. Will Obama bring a change in government that cares more for the average American or will he succumb to the rich and powerful money lenders? by
Philip Pease (0 articles, 0 quicklinks, 1 diaries, 209 comments [11 recommended, 0 rejected]) on Monday, Dec 1, 2008 at 9:19:36 AM
check the rolls and see how many votes were cast for those congress members who voted in favor of the bailout - or sellout - including Pelosi, and BTW, Obama. by
Angelo (6 articles, 0 quicklinks, 7 diaries, 209 comments [1 recommended, 0 rejected]) on Tuesday, Dec 2, 2008 at 7:50:58 AM
Since 1913 and the creation of the FED, we have have lost 95% of the value of the dollar. Supposedly created to PRESERVE the value of the currency, obviously they are FAILING MISERABLY at the task. What we are seeing now is the UNRAVELING of the ponzi scheme known as fiat currency. These thieving, lying pieces of excrement are being exposed for what they really are. Many are fleeing to Israel with the hard-earned money of retirees as their schemes implode. Will this theft be allowed to continue? by
Roger Thomas (0 articles, 0 quicklinks, 0 diaries, 131 comments [10 recommended, 1 rejected]) on Monday, Dec 1, 2008 at 11:22:47 AM
Thank you Ellen, that was brilliant as usual. Hey, what's a few trillion amongst friends? It is the season of giving isn't it? And if I could mention to Roger, no one is listening. We can blog until the cows come home and nothing is going to "Change." It is up to "We the People", otherwise the pillaging continues and there's not a dam thing that can be done. We have no representation. Let's all call our members of Congress? Gee, that's a great idea, they'll listen to us. Or maybe we should call Elliot Ness? by
Munich (1 articles, 86 quicklinks, 14 diaries, 1125 comments [86 recommended, 1 rejected]) on Monday, Dec 1, 2008 at 2:34:31 PM
if the government just rendered every derivative null and void, what would happen? Would that solve the problem? by
Karen Fish (55 articles, 14 quicklinks, 41 diaries, 106 comments) on Monday, Dec 1, 2008 at 12:12:27 PM
Hi, I think that would work. Derivatives could be declared fraudulent contracts, since they were sold as reducing risk and they actually increased risk. Some investments would lose their triple A ratings without the derivatives, but they SHOULD lose them. Some people argue that some derivatives serve useful purposes, but at least those speculative derivatives that are engaged in only for money-making-money could be voided out as fraudulent. by
Ellen Brown (40 articles, 0 quicklinks, 3 diaries, 93 comments [11 recommended, 0 rejected]) on Monday, Dec 1, 2008 at 12:44:27 PM
Elen, Well done. As positive a move as folding The Fed first appears, it would pull the oversight into the fold of Congress which has demonstrated no propensity for effective oversight, or diligence. As much as this is a common sense suggestion, practice may be a just as messy proposition as the current state of affairs. It also difficult to fully comprehend the size, and nature, of the "private" debt making up the toxic assets. The most disquieting overhang on the burgeoning government debt is the amount committed to the Boomer generation as it heads into retirement, and demands increased health care. We should all tighten the belt. Every dollar saved may become critical for surviving tomorrow. This is not very likely just a temporary recession. We may be in for decade of shoveling. Unfortunately, Obama will do whatever the economists tell him to do. ... http://www.opednews.com/articles/Economists-Our-New-Philos-by-James-Raider-081129-469.html by
James Raider (41 articles, 0 quicklinks, 0 diaries, 106 comments [2 recommended, 1 rejected]) on Monday, Dec 1, 2008 at 3:01:56 PM
True, but it's not because Congress is more trustworthy than private bankers that a nationalized banking system would be an improvement. It's because, among other things, (a) the interest on the national credit card would go back to the nation rather than into private parasitical coffers; (b) civil servants could administer loans impartially, according to open and accountable rules, subject to litigation if not followed; (c) very low-interest loans could be made available to state and municipal governments and other creditable borrowers that are crippled today by very high interest rates due to no fault of their own; and (d) there would be no fear of your bank closing suddenly and taking your money with it -- the bank would be there as long as the government was. by
Ellen Brown (40 articles, 0 quicklinks, 3 diaries, 93 comments [11 recommended, 0 rejected]) on Monday, Dec 1, 2008 at 3:23:05 PM
Clearly, the debt can never be paid back, because it is now several times the world's GNP. What we are seeing is the attempt to keep the whole thing going just a while longer, just like the credit bubble was an attempt to keep the whole thing going longer. It is ridiculous to think that we can feed, clothe and house each other as long as there is a system of exchange, but not without it. If we can take care of everyone's needs with money, or credit, or fiat money, we can do it without. People have pointed this out since the 1800s. There are people who grow food, and people who are hungry, but if there's no money, the food rots. There are factories which can produce goods, and people who need goods, but if there's no money, the factories are shuttered. The Earth is a beautiful planet, with abundance for all, (although we do need to reduce population with voluntary means). This system we have, which leads to overfed humans and starving humans, to McMansions and cardboard boxes, to private jets and oxcarts, has got to be changed. by
wagelaborer (6 articles, 1 quicklinks, 9 diaries, 307 comments [34 recommended, 0 rejected]) on Monday, Dec 1, 2008 at 3:45:34 PM
I hear ya! And I invite you to visit my website at www.deadhorses.org and honor me with a Dead Horse posting on this or other areas of human dysfunction. Awareness is the first step towards change! Go for it! by
Abraham007 (6 articles, 36 quicklinks, 2 diaries, 54 comments) on Wednesday, Dec 3, 2008 at 5:15:23 AM
Well, the official national debt is just over $10 trillion, and Chairman Bernanke just announced that he plans to use Fed funds to buy up government securities. He's going to pay off the debt with money created with accounting entries! Not that that's a bad idea. It's the only possible way to pay it off. But it should be the government buying back its debt with dollars, not the Fed. If the Fed does it, they'll get to keep the bonds, and we'll still be 10 trill in debt! by
Ellen Brown (40 articles, 0 quicklinks, 3 diaries, 93 comments [11 recommended, 0 rejected]) on Tuesday, Dec 2, 2008 at 12:10:15 AM
There is a group called End the Fed That is getting traction. As for these clowns... at this moment Paulsen is over in China shoring up some bad investments that Goldman Sax in a Chinese Commercial bank.....investments Saks made like a failing golf course in Japan...... and a failing car company in Thailand. When did the Treasury Secretary become the bagman for the GOLDMAN SAKS MAFIA? As a tax payer don't I get Dinner first.....? by
gate keeper (0 articles, 0 quicklinks, 0 diaries, 2 comments) on Tuesday, Dec 2, 2008 at 8:59:00 PM
Thank you I hope your Article will be reviewed by some of the White House Top guys. by
Adam (0 articles, 0 quicklinks, 0 diaries, 2 comments) on Wednesday, Dec 3, 2008 at 11:24:25 AM
Dear Ellen, I write this as an admirer of your work and I have some questions and a few illustrations: 1. Why would it be better if the government creates the credit? What's the difference if the banks do it or the government does it - you're in debt either way. And the interest is unpayable either way! Banks only create principal when they make loans - everyone knows that. They never make a $100 loan and then run to the back door and toss a $10 bill into the alley, so that at least it exists somewhere in the economy so that the newly indebted can somehow capture it in commerce and pay his obligation ($100 loan + $10 interest). No. Interest is never created in this process. This institutionalizes corruption as it requires bankruptcies to make the money available to pay our interest (and identity theft, and counterfeiting etc...). Bankruptcies provide new money that flows into the economy, but is never taken out as a loan payment. Therefore, that money is now available for someone to get ahold of to pay their interest. 2. As for "unqualified borrowers", isn't that a matter of opinion? At least someone thought they WERE qualified - or they wouldn't have been lent the money. Of course, I understand that you should, at minimum have a source of "income" to pay back a loan and that the percentages to make that deal work, in terms of current debt load and cash flow, should be present. What I am saying is that credit "requirements" to determine whether a person is an "unqualified borrower" are arbitrary. For example: There are no credit requirements when they borrow for a "stimulus package" to be sent to the people. Even though the government (We the People) takes on the debt initially, the end user, the taxpayers, are going to make payment in the form of higher taxes - ultimately a loan with NO credit check. So the requirements for loaning nonexistent bank credit money are arbitrary and in any case this debt scheme, bank credit system, is a poor substitute for a wealth based money system. Apparently, what the new debt can be spent on is also arbitrary, as demonstrated by the use of the TARP money - the initial $700B - being shifted from toxic asset repurchase to direct cash infusion, through stock purchase, into troubled banks. Arbitrary. They make it up as they go. It's flimsy at best and many would say it's outright fraud and theft by deception. 3. What is a "modest interest rate"? At any interest rate, bank credit that's created on a computer keyboard that requires payment in real production, will tilt the economic equation in favor of the lender every single time - interest is caustic to a free people. For example: If you are cold and I am the only source of blankets, you might want to borrow one. But, if I charge you a "modest rate of interest", at 2 AM, I am liable to come take my blanket back in payment, plus a pillowcase in interest! And now, since you have no blanket, and you're still cold, you may want to borrow it again - so you do, after all you've always repaid, and you have "good credit" with me! At 3 AM I return for "my" blanket and take the sheets as interest. How long would I have to work this scheme on you, until I had everything in your room - and you still had no blanket! Weather the interest on bank credit loaned to "consumers" is nominal or confiscatory, makes no real difference to the outcome - only in the amount of time it takes for the lender to own everything of yours. The borrower is servant to the lender. 4. What do you mean "their books wiped clean"? If the banks books are "cleaned" then does the homeowner's "debt" get forgiven too? Or does just the bank benefit? If the homeowner's debt is forgiven too, then what happens to all of those "good" mortgages that have been packaged and sold as "securitized" debt? I suppose someone will want their payment somewhere down the line - how can it be "wiped" anywhere? It could be, and perhaps should be, but would you please detail that for me? 5. "Full Faith and Credit" - what happened to the money of the United States? Why don't we insist that our state and federal governments (We the People) stop paying everything with "credit" - stop this debt game and give the people a wealth based, debt free, interest free, inflation free, tax free money system? There is such a proposal in Minnesota that you have written about. The implications of this multi - trillion dollar solution are global, positive, forward thinking and pro American. The cost to implement is next to nothing. The impact would be immediate. The confidence restored in American money, at home and abroad, and American leadership would be tremendous. It's clear that there is a lot to do, in terms of educating decision makers. But first, we need to be clear on the problem. We cannot continue to allow entities to lend out "nothing", at interest, while we work hard to pay them back, and end up in worse shape than when we started. We need to dump this debt based money system and implement a wealth based money system. Find out how here: moneyaswealth.blogspot.com by
Money As Wealth moneyaswealth.blogspot.com (0 articles, 0 quicklinks, 0 diaries, 2 comments) on Thursday, Dec 4, 2008 at 4:02:47 PM
Hi, I agree we need some "real" money in the economy, but consider the American colonial fiat money systems: the New England colonies just spent and spent and didn't bring the money back to the government. The result was to create rampant inflation, prompting King George to ban the colonists from issuing their own money. In Pennsylvania, the provincial government owned its own bank. It printed the money and then LENT it to the farmers. The money came back at a modest interest. To cover the interest, the government issued a little extra for its budgetary needs, keeping the numbers balanced. Print $105, lend $100 at 5% interest, spend $5. It all comes back as principal and interest ($105), which can be lent and spent all over again, without ever increasing the money supply. No taxes, no inflation, no government debt. Credit is a good thing; it's what businesses run on. They have to pay their workers before they know what they're going to have in profits; this is done on credit. Credit means someone has to be in charge of lending. I say it should be the government, not private banks, because it isn't really "money" that is lent -- not pre-existing money -- it's just CREDIT. It's just an accounting entry. It's a legal agreement -- let me use the credit now and I'll pay you later from the proceeds. The judiciary is a branch of government, and it is in charge of overseeing legal agreements. by
Ellen Brown (40 articles, 0 quicklinks, 3 diaries, 93 comments [11 recommended, 0 rejected]) on Friday, Dec 5, 2008 at 2:14:05 AM
Dear Ellen, OK. I did consider, as you have asked, the Colonial money system, as well as your entire response. A few things: 1. A money system is not bad because it’s a fiat (by government decree) money system. It’s bad because it operates under bad principals. Even a system based on gold, if were used under destructive principals – like lending it at interest, would be a bad system. So, it’s not as much WHAT you use for money, but HOW you get the money into the system – there are only 3 ways: gift it in, loan it in or spend it in – and it matters!). I suppose that to one degree or another ALL money systems recognized by a government could be described as “fiat” systems. Gifting and lending money each carry with them their own set of destructive principals. Spending debt free, production based money, has none of those. a. Gifting dilutes the existing money and promotes an unmotivated workforce where innovation takes a backseat to ease – it’s something for nothing. It’s bad policy. b. Loaning at interest is caustic to a free people. The loan goes into the economy – but it all comes out and dragging a little interest with it. So, you are always in worse shape after the loan and the lender eventually owns everything. c. Spending new money into the system for infrastructure (so that everyone gets the benefit), debt free, interest free, inflation free and tax free, encourages innovation and work. We all get to live in a better society where jobs are plentiful, taxes are low, prices are stabile and money is permanent – it does not get “paid” back to the bank. Instead, it stays in the economy where we can use it – as it should! It should not go back to the government when the people worked for it. It’s the principal the money introduced with – debt or wealth – that makes all the difference. Wealth to the people is always better. 2. During a trip to England in 1763, Benjamin Franklin was asked if he could give account of the prosperity in the Colonies. He said, in effect: a. We issue our own money b. We call it Colonial Script c. We don’t have inflation d. We pay no interest King George and The Bank of England were not impressed. Some feel strongly that that was a major reason for The Revolution. 3. I seriously doubt that King George was concerned with how the colonies were affected by bouts of inflation. In fact, it was King George who would, eventually, printed volumes of counterfeit money – for the price of a ream of paper! His sale of this money, which did not represent production, to buyers in the Colonies – friend or foe - did cause inflation. It was an act of war. Later, with the British Parliament’s passage of the Currency Act of 1764, Colonial money was effectively made illegal and all taxes paid to King George were required to be paid in gold or silver. Care to guess who ended up with the gold on that deal? 4. “Credit” is a poor replacement for savings. Loaning at interest needs to be outlawed. If it is not, then every single line written on money reform and honest money, may be little more than small talk – because they will just do the same thing all over again. For example: if we went back to using gold and silver, and ANYONE, banks or government, were allowed to loan it at interest, then every single scrap of the gold and silver needs to be “repaid” and the people are still left with no money. If you add in the interest due – the people go bankrupt. The lender eventually gets all the money and all the property (refer to item #3 above). You wrote “It printed the money and then LENT it to the farmers. The money came back at a modest interest. To cover the interest, the government issued a little extra for its budgetary needs “ What’s wrong with the people having their own money that represents their own labor and production? “You do the work and you get paid” is better than “you do the work and you can afford to make your payments to the bank or the government”. Why does it always have to “go back” to someone who does not do the work? Answer: it does not have to go back. That represents the old way of thinking we were indoctrinated into, while living and working in this lend at interest system – our entire lives! Of course it has left it’s mark on us, and we need to be aware of what a lifetime of submersion in a broken system can do to how we view new systems, and really try not to taint the better with the bad. And why, if the government can issue “a little extra for it’s budgetary needs” does it not issue the entire amount for its infrastructure needs! Let’s skip past “a little extra” and get right down to it. Government can and should create ALL the money it needs for infrastructure and pay the people for their work. No borrowing, interest or taxes needed, and it’s non inflationary because it is directly tied to production. 5. You said, “Credit means that someone has to be in charge of lending”. May I say, that, credit means that someone has to be in debt. If there is, and I think there may have to be, a transition period, then the government, “We the People”, should be in control of the credit. However, we should be absolutely clear that the goal is a debt free, wealth based system. We need a new, more robust and rewarding monetary system, not just a revamped or modified lending system. Respectfully submitted. by
Money As Wealth moneyaswealth.blogspot.com (0 articles, 0 quicklinks, 0 diaries, 2 comments) on Friday, Dec 5, 2008 at 6:54:48 PM
‘ Spend’ it! Don’t ‘lend’ it! America doesn’t need to rely on bank loans to have money. We can have liquidity by creating money and ‘spending’ it into circulation rather than creating all money as loans and ‘lending’ it into circulation. We can ‘own’ our money rather than ‘owe’ our money. Our Treasury can simply create the book entry numbers or bills and spend them into circulation to pay for production that benefits all of society equally (perhaps public roads and bridges) in lieu of taxation or bonding (borrowing). ‘Spending’ newly created money into circulation rather than ‘lending’ it into circulation provides an immediate increase in liquidity and cash flow. Spending the new money into circulation increases the money supply with the increase in new production. No inflation! No new debt! No new Taxes! Tax reductions! Liquidity! Cash Flow! High-paying jobs! Commerce! Life! Let’s stop beating the ‘special interest debt horse’! It will not get up and run again. Loaning all new money into circulation and the resulting unpayable, compounding debt it creates has almost killed us. More borrowing, if more borrowers can be found, will only make our growing problem worse. Borrowing more money to pay last year’s debt plus the interest will not solve our debt problems. Money, produced as a debt-free representation of wealth to all of society, is the only workable, just and true solution. We gave our Congress the authority to “coin money” and to “provide post roads.” ‘ Spend’ it! Don’t ‘lend’ it! ‘Spending’ is only a problem when all money must be borrowed first! Our ‘financial crisis’ is the result of creating all new money as loans and lending the principal into circulation. The principal is uncreated when it is repaid. The process allows no means to create the interest that must also be paid. That is why the indebtedness and money shortages constantly grow. “The actual creation of money always involves the extension of credit by private commercial banks.” Source: Russell L. Munk, Assistant General Counsel International Affairs, Dept. of the Treasury. Money for paying interest on borrowed money “…comes from the same source that all other money comes from.” Source: Russell L. Munk, Assistant General Counsel International Affairs, Dept. of the Treasury. All new money must be ‘Spent’, NOT ‘Lent’ into circulation. *Barack Obama, Montana primary, June 3, 2008. ‘ Spend’ it! Don’t ‘lend’ it! by
Gregory K. Soderberg (0 articles, 0 quicklinks, 0 diaries, 1 comments) on Saturday, Dec 6, 2008 at 12:27:46 AM
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Health Insurance Exec Whistleblower Wendell Potter Testifies Before Congress by Wendell Potter Copyright © 2002-2009, OpEdNews
– Art Rolnick, Chief Economist for the Minneapolis Federal Reserve Bank
The $700 billion that was arm-twisted from Congress by Treasury Secretary Hank Paulson in October was evidently just the camel's nose under the tent. According to a November 24 Bloomberg report, the Paulson/Bernanke team is now prepared to pay $7.76 trillion to rescue the financial system. Prepared to pay how? Congress has not raised its debt ceiling to anywhere near that level; but the approval of Congress, which originally voted down the controversial $700 billion bailout, is apparently no longer necessary. The door has been opened, and the Treasury Secretary and Fed Chairman feel they can now pledge whatever they want. Perhaps they are inching up a zero at a time just to see what the public's tolerance is for unrepayable debt. The new sum – $7.76 trillion – represents $25,000 for every citizen in the country, or half the value of everything produced in the nation last year; yet it's not clear that a mere half of our net worth will rescue the financial system. One bankrupt bank after another has been bailed out with public money, in a futile effort to prevent a collapse of a massive multi-trillion dollar derivatives pyramid created by the banks. But according to the Comptroller of the Currency, U.S. commercial banks now carry over $180 trillion in derivatives on their books. The public is liable to be bankrupted before this mess is resolved.
On top of the $700 billion initially extorted from Congress, an additional $2 trillion in loans and commitments has already been made by the Federal Reserve and the Treasury. Yet that wall of money has not kept the imperiled banks from collapsing. Citigroup was one of the nine lucky recipients of Paulson's largesse in October, when he set out to recapitalize the banks by trading dollars for shares. The bank received $25 billion from the Treasury; yet this handout was insufficient to keep its stock from dropping below $4 a share. Citigroup was then bailed out by the Treasury to the tune of another $20 billion, along with a commitment to guarantee $306 billion in toxic assets on its books. That equals half the $700 billion bailout, just for one bank; yet Citigroup's books, which sport derivative bets of $37 trillion, won't look much better than before.
Meanwhile, commentators are scratching their heads over where the money is supposed to come from to pay for all this. Congress hasn't approved these multi-trillion dollar sums, and the Federal Reserve doesn't show them on its books. Some clues to this mystery came on November 25, when according to The New York Times:
"In the first of two new actions . . . , the Treasury and the Fed said they would create a $200 billion program to lend money against securities backed by car loans, student loans, credit card debt and even small-business loans. The Treasury would contribute $20 billion to the so-called Term Asset-Backed Securities Loan Facility and assume responsibility for any losses up to $20 billion. The Federal Reserve would lend the new entity as much as $180 billion. The new facility would then lend money at low rates to companies that post collateral based on securities backed by consumer debt or business loans."
It appears that the $20 billion in Treasury money will be serving as the "reserves" to create $200 billion in credit on the books of the Fed and its network of banks. Ten to one is the reserve requirement established by the Federal Reserve for private bank lending under the "fractional reserve" system. The New York Fed has now deleted its earlier discussion of this process from its website, but as it explained the money-creating process in 2004:
"Reserve requirements . . . are computed as percentages of deposits that banks must hold as vault cash or on deposit at a Federal Reserve Bank. . . . As of June 2004, the reserve requirement was 10% on transaction deposits [deposits immediately available to depositors]. . . . If the reserve requirement is 10%, for example, a bank that receives a $100 deposit may lend out $90 of that deposit. If the borrower then writes a check to someone who deposits the $90, the bank receiving that deposit can lend out $81. As the process continues, the banking system can expand the initial deposit of $100 into a maximum of $1,000 of money ($100+$90+81+$72.90+ . . . =$1,000)."

In a revealing booklet called "Modern Money Mechanics," the Chicago Federal Reserve detailed how fractional reserve lending allows money to "expand." The booklet is now out of print, perhaps because it revealed too much; but it is still available on the Internet. On page 11 of the booklet is a helpful chart showing that the original deposit is not actually "lent" but remains in the bank throughout the expansion process. What is lent is an additional sum created on the bank's books valued at 90 percent of the original deposit. Then another sum is lent that is 90 percent of the second deposit, and so forth, until the total sum generated is 10 times the original deposit, with tidy sums collected in interest at each step along the way.
The November 25 New York Times article continued:
"The Treasury secretary, Henry M. Paulson Jr., made it clear that the new lending facility was just a 'starting point' and could be expanded to many other kinds of debt, like commercial mortgage-backed securities. . . . It was the first time that the Fed and the Treasury have stepped in to finance consumer debt. The $200 billion program comes close to being a government bank."
A government bank that makes credit available to all qualified borrowers is not a bad idea. It would seem to be a more useful idea than manipulating interest rates, the conventional tool used by the Federal Reserve to regulate the money supply. When Paul Volcker raised interest rates to 20% in 1980, he bankrupted much of the Third World; and when Alan Greenspan lowered the short-term interest rate to 1% in 2001, he precipitated the housing and derivatives bubbles that are bankrupting the U.S. today. A government-owned bank that put credit into the economy in an open, accountable and impartial way could be just what the doctor ordered. The problem is, the Federal Reserve isn't government-owned (it is owned by a consortium of private banks ); and it is not distributing the public credit openly and impartially. The Fed has kept the recipients of its largesse largely secret (something Bloomberg News is currently suing about under the Freedom of Information Act ). However, it is clearly favoring its banking cronies over consumers.
Note that the "consumer debt" the Fed is now supposedly financing does not consist of loans directly to consumers. The loans are to lenders holding consumer debt ("companies that post collateral based on securities backed by consumer debt or business loans"). Like with subprime mortgages, lenders have pushed credit cards and student loans onto anyone who would take them, because the lenders had no intention of keeping those risky loans on their books. They intended to package them up as "securities" and sell them to investors. But the investors are catching onto this scam and are no longer buying; so the Fed is stepping in to underwrite the debt, advancing "credit" created on its books with accounting entries. When these loans are not paid back, we the taxpayers pick up the tab, either directly or through the "hidden tax" of inflation. The benefit goes to the lenders, who get off scot-free for their risky ventures, while the people bear the risk and pick up the losses.
If these investments are too risky for investors, they should also be too risky for the "government bank." We don't need more consumer debt to keep the economy going. We need more wages and salaries, and that means more jobs. Rather than propping up the "finance" industry (the business of money making money), the Fed should be furnishing low-interest loans directly to businesses, state and local governments and other qualified members of the producing economy.
Watching the Paulson/Bernanke bailout scenario unfold is a bit like watching the end of the Charlton Heston movie El Cid, where the Spaniards prop up their dead general on his horse and charge the Moors, giving the illusion that the champion is still alive and leading them. In this case, what they are propping up are not national heroes but banking pretenders who are not only unnecessary but have established their incompetence at managing the banking business. Congress could avoid this costly masquerade by either nationalizing the Federal Reserve or setting up its own publicly-owned lending facility, one that created credit on its books just as private banks do now and made it available openly, impartially, and at modest interest rates to all qualified borrowers. Unqualified borrowers should be denied, and that includes insolvent private banks, which should be put into FDIC receivership, had their books washed clean in bankruptcy, and reorganized as truly "national" banks advancing the "full faith and credit of the United States" for the benefit of the people of the United States.
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