A Day Late and a Dollar Short
Jenson Hagen
Wow, the biggest financial news story of my lifetime will probably be the bankruptcy of the Federal Reserve system. What the hell is Ben Bernanke doing? Can we get rid of these guys yet?
I already wanted to post something about the sheer stupidity of Fed actions over the last year, but this news story sums up the problem fairly well.
The Federal Reserve has been pretty much a self-sufficient entity that has brought in just enough money to cover administrative expenses. Therefore, any substantial losses--say from bad loans--cannot be absorbed. Back before the Great Depression, gold was used as collateral to protect against bad loans. In order to deal with the massive bank failures that arose in large part from interest-only mortgages, the Federal Reserve went off the gold standard and began accepting US Treasuries as collateral in the 1930's. With this type of system, the Fed could sell short-term Treasuries and recuperate losses without much problem. Short-term Treasuries have low duration and thus have a low sensitivity to interest rate changes, and make for great collateral. Perhaps even better than gold under current market conditions.
However, earlier this year the Fed introduced the Term Securities Lending Facility and the Primary Dealer Credit Facility. They are allowing non-Treasuries as collateral and if you read the article above, the Federal Reserve has gone gangbusters in trading out Treasuries for riskier assets. The Federal Reserve has little capacity to endure losses and a bailout will make the U.S. look extremely bad globally. Yes, the Federal government can bail out the Federal Reserve just like it did Fannie Mae and Freddie Mac, which weren't supposed to exist as government institutions, but the reputation of the American dollar and the American financial system sits with the Federal Reserve, not these other two. A bailout will be tragic for America's reputation.
Ben Bernanke was a Great Depression scholar and was probably chosen several years hence because even I could spot the problems back then. Still, what the hell is this man doing? Maybe people will trust me now when I say that the problems have only just begun and we really need to talk to our Oregon leadership about reigning in the Federal Reserve immediately, not when it's a day late and a dollar short.
Nov 17, '08
Wow. Something chewy and real and put that way. Respect. Anyway, consider that everything this administration is doing is linked to eastern Republican activity, back to the late 1950s. Your points are well taken. The behavior is insane and makes no sense. A big part of the calculation, though, has to be that no one is going to paint a broad enough panorama for anyone to recognize the scene. This is my take, as brief as I can make it. If I don't succeed in making my point, perhaps it will at least show why this isn't being discussed in depth.
Watergate was a cold coup d'etats attempt, with the intelligence community and the law enforcement agencies taking the role of the military. It was a very broad plan. It included a reorganization of the executive branch of the government and substantial changes to the banking system. George Bush Sr. lays out the scenario quite explicitly and has stated that Nixon's plan was to reorganize his cabinet around the idea of a "super cabinet" of top-level, inner cabinet ministers or "super secretaries" who would work closely with the White House while relegating the day-to-day functioning of their executive departments to sub-cabinet deputies.
Or maybe not so different. Depends on when you start the timeline. It's actually pretty traditional, if you see Watergate as a continuation of events around the JFK assasination. When Savings and Loan scandal whistleblower Stewart Webb was investigating Neil Bush's role in the Silverado Savings and Loan and Bank of Credit and Commerce International (BCCI) scandals, he interviewed a GOP dirty trickster named Frank Sturgis. Sturgis has been implicated in every conspiracy theory in the last 50 years, until he was poisoned just before the '92 election, I believe. Sturgis told Webb, “the reason we burglarized the Watergate was because Nixon was interested in stopping news leaking relating to the photos of our role in the assassination of President John Kennedy.” The photos involved Bush, Sr.
George Shultz, a Bechtel executive and future Reagan cabinet member, was tapped to be the super secretary of the Treasury and wanted to offer George Bush Sr. the post of undersecretary of the Treasury, which would amount to de facto administrative control over the department while Shultz concentrated on his projected super secretary policy functions. Bush was keen on the idea, but Nixon insisted that he run the RNC. He agreed, on condition that he be allowed to retain his cabinet functions. Under Nixon and later Ford, Bush tried to move into the financial and foreign policy areas, but was pushed into party and intelligence areas instead. He nevertheless remained close to those efforts. Though he testified to Congress that he was never involved with Oliver North, North's diary shows that Bush Sr. was present at an August 6, 1985 inaugural planning meeting. Direct Congressional testimony confirmed that a central area of concern for the Pointdexter team was the practical workings of the suspension of habeas corpus, posse commitatus and generally, the imposition of martial law during times of perceived stress. We would know far more if committee chair Daniel Inouye had not risen to silence his colleague with the admonition, "we're not going to discuss that". It is most likely that Bush's role involved the transfer and laundering of monies destined for the Contras.
The Watergate plan itself, the timing, exploited the perception of a collapsing international monetary system, given legitimacy by Nixon's austerity decrees imposing a wage and price freeze, August 15, 1971. The Nixon administration attempted to run the entire US economy top-down, directly implementing the policies of the Pay Board and the Price Commission. The situation was exacerbated by the artificial oil shortages orchestrated by big oil during late 1973 and 1974. Political destabilization was provided by the October 1973 Middle East War and the Arab oil boycott.
And the Patman subpoenas, during the Watergate hearings would have uncovered the links from CREEP back to the RNC and various plots during the 1960s. But it's the banking concerns- not JFK's murder, not CREEP, not domestic spying- that were the major consideration at the time. On Oct. 3, 1972, the House Banking and Currency Committee voted 20-15 against continuing chairman Wright Patman's investigation. The vote prevented the issuance of 23 subpoenas for CREEP officials to come testify to Congress. Six Democratic members of the Committee voted with the Republicans against chairman Patman. As CREEP chairman Maurice Stans put it, "There were...indirect approaches to Democratic [committee] members. An all-out campaign was conducted to see that the investigation was killed off, as it successfully was." Among those members were Banking Committee member Frank Brasco, a liberal Democratic Congressman from New York. Governor Nelson Rockefeller had arranged a meeting between Brasco and U.S. Attorney General John Mitchell who successfully warned Brasco not to back Patman.
In August, 1974, when Gerald Ford decided to make Nelson Rockefeller, and not George Bush, his vice-president designate, he was actively considering further executive orders to declare a new economic state of emergency. Right wing nut cases like Samuel Huntington had been successully advancing the idea that democracy was inherently untenable during an aggravated econmomic breakdown. Rockefeller could be trusted as a dictator, so the logic went, but George Bush was too wildly ambitious to be allowed to cook the country's books. If Sarah Jane Moore had been a better aim, the situation we find ourselves in might well have happpened 30 years ago. The difference is that when the Bush family does it, there's no veil of "done for America"; it's raw personal ambition and profit.
For 20 years now, there has been decent evidence- enough to care given the consequences- that a group of Texans, including Bush Sr, and Speaker of the Texas House Wagner Carr, had been instrumental in getting the mob and CIA together on the Kennedy assasination. The relevance for this thread, though, is that they were wildly ambitious and greedy men, even by the standards of their class and time. After the assasination, they took to the looting of Savings and Loans, such as the Sharpsville, Texas Savings and Loan Association which failed and went bankrupt at taxpayer expense. It's a very straight-forward con to take bad debt- which loans find a way back to your pocket- then, panic the public who demand a goverment bail-out. The bit that has to be paid back comes from the taxpayer. You keep the principal and get paid your bonus. The banking/politico strategies involved were used by Bush Sr. to disguise the Watergate slush fund, used by Neil Bush to raid Silverado Savings and Loan and the Bank of Credit and Commerce International, and are now being used by Shrub to liquidate the operation. The Bush crime family is cashing out.
But it's only the details in the middle that are complicated. The reality on the ground is simple. Ultimately it's about debt. When I moved to the Netherlands, I went into a coffeshop and tried to charge some week, which they thought was hillarious. Therapists will tell you how much carnage can be generated gambiling on credit. The point is, there are some things that people do that just should never be done on credit. Like waging war. Since the middle ages, international bankers have risen and gained power by letting sovreign individual/States go to war on credit. That established conflict/war/debt=control. Mayer Amschel Bauer, an early practictioner, said, "Permit me to issue and control the money of a nation and I care not who makes its laws." Most world leaders know that and have decided to take the same tact with the electorate. Debt=control. Credit exists so that you can do something that you can't afford to do. Obviously any effective use of credit has to look at the reinforcement contingencies very closely for the approach to be sound.
So, the solution's easy. Don't carry any debt. "But if I don't go into debt, I can't compete with...". From top to bottom the assumption is that you all can't imagine not playing the game. No individual, no country. Hopefully, the upshot of topics like this one, is that people will think seriously about gracefully, voluntarily giving up the game, rather than being thrown into life threatening trauma during a social crisis. And it probably wouldn't hurt to have a sock full of pre-1965 silver dollars.
Nov 17, '08
It's ironic that folks seem more interested in "now that we've won, what we gonna do with it" talk? You might not agree with a lot of this, but this topic raises the very serious and relevant question, "now that you've won, what can you do with it"?
Isn't it such a coincidence that the new administration's hands may be completely tied just when we elect an administration that really wants change. Maybe that's false hope, though. Maybe it's like "only Nixon can go to China". Maybe only a black man can actually get away with imposing martial law in an economic emergency.
Nov 17, '08
Unfortunately, I see the only solution is to "borrow and spend".
Nov 18, '08
Incredible that folks are more interested in the proper use of the term "douchebag". This is very esoteric and sounds like a conspiracy theory, so I'm going to take a stab at grand simplification.
You know the current banking debacle? Banks acquired bad debt, converted sound portfolios into risky ones and went bust. There's not enough money to go around for a bail-out, so the Congress has voted that you will gladly pay the diff. Current debate sees this as "yesterday's failed policies" and is concentrating on the bonuses those execs are still getting, and, if we're lucky, that those banks pass Fed rate cuts on to mortgage holders.
OK. So, imagine a bank, just beginning that tact since the crisis erupted in September of 2007. The exact same philosophy and portfolio decisions. That "bank" is the Federal Reserve, which, of course, isn't either, but that's an aside.
The topic point is that unbelievable as the current state of affairs is that Wachovia et al. find themselves in, that situation is being created, at the moment, within the Federal Reserve. Biggest story of our lives? Quite possibly, though the collapse of the global ecosystem will likely trump it. Climate change is a tough nut to crack. How about you concentrate on the equally devastating part, which is completely preventable.
A very relevant spin-off topic would be "just how much krap can this amdministration throw at the fan between now and January". The change at the Fed., begun at the nadir of the administration's power, shows they can still destroy the country, almost on a whim. Wake up. Do you know what time it is? Later than you think.
Nov 24, '08
People don't care about the Bush family, even if they eat their lunches! Their banality make them invisible. Really, think about it. At the end of the day Who cares what that unendicted felon, unrepentant war criminal, proselytizing, self-confessed dry drunk, son of a Bush does after the election?! If no one cared in '04...
Nov 24, '08
Shirley C: your desperate stab at "logic" escaped me. Could you please explain what the hell you are really saying? Sounded like some wierd blip of racism that worked its way to the surface like a bubble in the bathtub.
<h2>Try again: make some kind of sense this time if you can. And leave the dark shadows of bigotry out.</h2>