First, some excerpts from Mike Whitney's excellent article at http://informationclearinghouse.info/article23214.htm click click here
The Fed has complete control over monetary policy and, thus, the country's economic future. Bernanke doesn't even pretend to defer to Congress anymore. The $13 trillion the Fed has committed to the financial system since the beginning of the crisis -- via loans and outright purchases of mortgage-backed garbage and US sovereign debt -- was never authorized by Congress. In fact, the Fed stubbornly refuses to even identify which institutions got the "loans," how much the loans were worth, what kind of collateral was accepted for the loans, or when the loans have to be repaid.
In truth, the loans are not loans at all, but gifts to the industry to keep asset prices artificially high. Asset prices are kept artificially high so that the entire financial system does not come crashing down. To wit:
In an analysis written by economist Gary Gorton for the Federal Reserve Bank of Atlanta's 2009 Financial Markets Conference, he states:
"All told, more than $20 trillion in securitized debt was sold between 1997 and 2007."
$20 trillion! How much of that feces paper -- which is actually worth just pennies on the dollar -- is sitting on the balance sheets of banks and other financial institutions just waiting to blow up as soon as the Fed asks for its money back?
The Fed's lending facilities are designed to pump liquidity into the system and inflate another bubble by generating more debt. Unfortunately, most people accept Bernanke's feeble defense of these corporate-welfare programs and fail to see their real purpose. An example may help to explain how they really work:
Say you bought a house at the peak of the bubble in 2005 and paid $500,000. Then prices dropped 40% (as they have in Calif) and your house is now worth $300,000. If you only put 5% down ($25,000), then you are underwater by $175,000. Which means that you owe more on the mortgage than your house is currently worth.
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