Let us telescope our investigation into the sub-prime crisis and get a closer to where the real action takes place.
All of those infamous "sub-prime" mortgage loans that have been going belly-up during the ongoing economic crisis; all of these admittedly fraudulent loans were originally secured by the properties the borrowers were then purchasing (i.e. collateral on mortgage agreements), much like cars and businesses and other commercial loans are also secured by real assets--legal arrangements that supersede any borrower's ability to pay. It follows that if the borrower then fails to make good on the loan (a popular trend as of late), the bank can legally repossess the full value of the property (or collateral asset) that backed the original agreement.
Put in plain English, at all times with a fractional reserve system in place, real values are used as collateral for fictional values.
Which means that, even if a borrower makes good on the loan payments, the bank still collects compounding interest, which is its 'legal privilege' for lending money it never owned.
Again, we should remember that this is the system set up and executed by the Fed; or, rather, by a small group of private banks that control (and also directly profit from policies executed by) the Fed. And as the Fed is fronting for the largest, most powerful banks, these banks then benefit disproportionally from the rest in the system they regulate.
I will allow Former Federal Reserve Chairman Alan Greenspan to take it from here. As you listen to Greenspan hem and haw his way through an explanation of the sub-prime bubble, and how we should see it as "human nature" at work, let us instead try seeing his explanations as those coming from the public face of a secretive banking cartel. Ask yourself, how would the most powerful banks benefit from Greenspan's "authoritative" explanation of the sub-prime collapse? What would the bankers think the public needs to know?
And especially note his candid explanation (at 7:40) about how truly independent the Fed is.
Interest Rates and Sub-Prime Collapse
Before we get into a detailed analysis of Greenspan's comments, allow me to touch upon the Fed's other notable function, which is the manipulation of the central bank's interest rate to private member banks.
Why these interest rates are so important is, again, perfectly illustrated by the sub-prime collapse.
As Greenspan surreptitiously noted, the inflating housing market was a result of many (supposedly 'anarchic') market influences, one of which was outright fraud. Here we're in agreement. But what is important to not overlook here (and that which Greenspan won't dare dwell upon), is that none of these factors had any teeth without the influx of "easy money" into the economy as a consequence of the Fed's interest rate policy. Easy money is always what makes a bubble possible, as history illustrates time and again. Just as "tight money" is always the cause of economic collapse; both points of which Greenspan is well aware. Both easy and tight money are direct consequences of Fed policy, and are accomplished exclusively through their overnight lending rates to member banks.
Greenspan's blaming of the post-Cold War international market is only partially true, only to a point. What his words have done is paint a picture, an "historical drama," a play with chaos and greed and anarchy driving the plot. Yet somehow the main characters are missing from the stage. Is it any mistake that these same missing characters just so happen to be Greenspan's friends on Wall Street--namely, those same individuals that employed him at the Fed?
The dissolving Soviet Bloc did indeed create a massive power vacuum in Eastern Europe and Southern Russia, a reality which set the ravenous Anglo-American financiers in motion. As the heavy Russian blanket was pulled back, new opportunities were revealed; new markets for which to expand; and all of this happening at an unprecedented rate. Times like these are where the Fed's 'flexible' monetary policy comes in handy.
If these banks would have limited themselves to a sound and steady monetary policy, a sustainable monetary policy (by living within their means), the Anglo-American banking empire would have probably lost out on huge opportunities to expand their financial and commercial monopoly around the globe. In other words, they would have been forced to compete with other international aspirants in a real-world, and this they couldn't have. And so the U.S. financial system used Greenspan's "malleable" Federal Reserve interest rate policy, including assistance from government (defense, etc.), coordination with heavy industry and big oil; all providing a coordinated effort to help the Anglo-American finance have their way. What else can one expect from a financial system (and a government) that is coordinated and controlled by the banking system itself?
This is the murky reality that Greenspan sadly claimed was out of the Fed's control. These policies were to catch up with us soon enough. After years of "easy money" flooding the system, member banks could capitalize on national markets as well, expanding national commercial activity in unhealthy ways. Here we see the fraudulent sub-prime market joined up with other destabilizing factors, regulatory oversight, etc. All of which is to say that Greenspan's interest rates were the primary cause of the stone-cold reality we see today.
Remember how everybody could get money for homes, cars, business loans, lifestyle improvements, etc? The banks were operating in a lending environment where nobody could lose. Taking the fractional reserve advantages into account, these banks could cheaply pump up their balance sheets (using it as an expanding base to multiply by the hundreds)...and so why wouldn't banks loan to just about everybody? There was almost no risk!
Greenspan conveniently shifts blame from the Fed by attracting attention to "fraud." He alluded to the greediness of "human nature." I say to Mr. Greenspan, in this institutional environment of easy money and fractional reserve; in this environment of rewarding risk, and of punishing caution; so-called human natural becomes fraud.
All of those infamous "sub-prime" mortgage loans that have been going belly-up during the ongoing economic crisis; all of these admittedly fraudulent loans were originally secured by the properties the borrowers were then purchasing (i.e. collateral on mortgage agreements), much like cars and businesses and other commercial loans are also secured by real assets--legal arrangements that supersede any borrower's ability to pay. It follows that if the borrower then fails to make good on the loan (a popular trend as of late), the bank can legally repossess the full value of the property (or collateral asset) that backed the original agreement.
Put in plain English, at all times with a fractional reserve system in place, real values are used as collateral for fictional values.
Which means that, even if a borrower makes good on the loan payments, the bank still collects compounding interest, which is its 'legal privilege' for lending money it never owned.
I will allow Former Federal Reserve Chairman Alan Greenspan to take it from here. As you listen to Greenspan hem and haw his way through an explanation of the sub-prime bubble, and how we should see it as "human nature" at work, let us instead try seeing his explanations as those coming from the public face of a secretive banking cartel. Ask yourself, how would the most powerful banks benefit from Greenspan's "authoritative" explanation of the sub-prime collapse? What would the bankers think the public needs to know?
And especially note his candid explanation (at 7:40) about how truly independent the Fed is.
Interest Rates and Sub-Prime Collapse
Before we get into a detailed analysis of Greenspan's comments, allow me to touch upon the Fed's other notable function, which is the manipulation of the central bank's interest rate to private member banks.
Why these interest rates are so important is, again, perfectly illustrated by the sub-prime collapse.
As Greenspan surreptitiously noted, the inflating housing market was a result of many (supposedly 'anarchic') market influences, one of which was outright fraud. Here we're in agreement. But what is important to not overlook here (and that which Greenspan won't dare dwell upon), is that none of these factors had any teeth without the influx of "easy money" into the economy as a consequence of the Fed's interest rate policy. Easy money is always what makes a bubble possible, as history illustrates time and again. Just as "tight money" is always the cause of economic collapse; both points of which Greenspan is well aware. Both easy and tight money are direct consequences of Fed policy, and are accomplished exclusively through their overnight lending rates to member banks.
Greenspan's blaming of the post-Cold War international market is only partially true, only to a point. What his words have done is paint a picture, an "historical drama," a play with chaos and greed and anarchy driving the plot. Yet somehow the main characters are missing from the stage. Is it any mistake that these same missing characters just so happen to be Greenspan's friends on Wall Street--namely, those same individuals that employed him at the Fed?
The dissolving Soviet Bloc did indeed create a massive power vacuum in Eastern Europe and Southern Russia, a reality which set the ravenous Anglo-American financiers in motion. As the heavy Russian blanket was pulled back, new opportunities were revealed; new markets for which to expand; and all of this happening at an unprecedented rate. Times like these are where the Fed's 'flexible' monetary policy comes in handy.
If these banks would have limited themselves to a sound and steady monetary policy, a sustainable monetary policy (by living within their means), the Anglo-American banking empire would have probably lost out on huge opportunities to expand their financial and commercial monopoly around the globe. In other words, they would have been forced to compete with other international aspirants in a real-world, and this they couldn't have. And so the U.S. financial system used Greenspan's "malleable" Federal Reserve interest rate policy, including assistance from government (defense, etc.), coordination with heavy industry and big oil; all providing a coordinated effort to help the Anglo-American finance have their way. What else can one expect from a financial system (and a government) that is coordinated and controlled by the banking system itself?
This is the murky reality that Greenspan sadly claimed was out of the Fed's control. These policies were to catch up with us soon enough. After years of "easy money" flooding the system, member banks could capitalize on national markets as well, expanding national commercial activity in unhealthy ways. Here we see the fraudulent sub-prime market joined up with other destabilizing factors, regulatory oversight, etc. All of which is to say that Greenspan's interest rates were the primary cause of the stone-cold reality we see today.
Remember how everybody could get money for homes, cars, business loans, lifestyle improvements, etc? The banks were operating in a lending environment where nobody could lose. Taking the fractional reserve advantages into account, these banks could cheaply pump up their balance sheets (using it as an expanding base to multiply by the hundreds)...and so why wouldn't banks loan to just about everybody? There was almost no risk!
Greenspan conveniently shifts blame from the Fed by attracting attention to "fraud." He alluded to the greediness of "human nature." I say to Mr. Greenspan, in this institutional environment of easy money and fractional reserve; in this environment of rewarding risk, and of punishing caution; so-called human natural becomes fraud.
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