The Federal Reserve and the big banks fought for more than two years to keep details of the largest bailout in U.S. history a secret. Now, the rest of the world can see what it was missing.
The Fed didn’t tell anyone which banks were in trouble so deep they required a combined $1.2 trillion on Dec. 5, 2008, their single neediest day. Bankers didn’t mention that they took tens of billions of dollars in emergency loans at the same time they were assuring investors their firms were healthy. And no one calculated until now that banks reaped an estimated $13 billion of income by taking advantage of the Fed’s below-market rates, Bloomberg Markets magazine reports in its January issue.
Why did they have to "fight", and what were they "fighting"?
The rest of this article makes it sound like the government was interested in the little guy on the street, and Bloomberg fought the good fight with the government against those e-vile bastards at The Fed.
Nothing could be further from the truth.
Oh, it's true that Bloomberg sued. And it's true that they won.
But it's false to assert that government and The Fed are on opposite sides of this issue. They most-certainly are not.
“When you see the dollars the banks got, it’s hard to make the case these were successful institutions,” says Sherrod Brown, a Democratic Senator from Ohio who in 2010 introduced an unsuccessful bill to limit bank size. “This is an issue that can unite the Tea Party and Occupy Wall Street. There are lawmakers in both parties who would change their votes now.”
That's a lie.
The Fed and Congress are complicit. They're both in what would be called a "deadly embrace" if it was adversarial in some fashion but it is not. In point of fact The Fed is the sole enabler of Congressional and Executive overspending, which in turn allows pretending that our "economy" is somehow healthy or recovering and that the "programs" put forward by the Government have "helped" our economy.
The employment data says otherwise. Housing says otherwise. But The Fed continues to try to "protect" the bubble mentality it created along with Congress, to wit:
The biggest bond dealers in the U.S. say the Federal Reserve is poised to start a new round of stimulus, injecting more money into the economy by purchasing mortgage securities instead of Treasuries.
Fed Chairman Ben S. Bernanke and his fellow policy makers, who bought $2.3 trillion of Treasury and mortgage-related bonds between 2008 and June, will start another program next quarter, 16 of the 21 primary dealers of U.S. government securities that trade with the central bank said in a Bloomberg News survey last week. The Fed may buy about $545 billion in home-loan debt, based on the median of the 10 firms that provided estimates.
Remember folks where this came from. It's embedded in our psyche now, but it wasn't always this way. Go look in rural America or older near-urban places and you will see "shotgun" construction -- original buildings that were made with three load-bearing walls and two or three rooms (a place to live, a place to cook, and somewhere to sleep along with a small bathroom) with the rear wall designed to be knocked out.
Because those homes, inclusive of the land, were sold at 1x average incomes or less, and families added to the building as they grew -- often across generations.
Then came the 1920s. Balloon notes were the "preferred" means of financing, damnably like "Option ARMs" of today less the fancy computers. Home prices and real estate costs soared. And then, of course, crashed.
What was done then? FNMA happened -- in 1938. Now known as "Fannie Mae", its purpose was to provide a means of financializing homes. With it ended the practice of a young couple saving 10 or 20% of their incomes for five to ten years and purchasing their home outright for cash.
Suddenly it became "chic" to have more and better than you could afford right now, today. You couldn't buy it but we'll lend you the money -- you just need to pay a little interest.
There never was a future in this, because ultimately such a practice is nothing more than pulling forward into today that which you would have bought tomorrow, and the skimming that takes place through interest and fees means that your labor simply gets turned into a foil for slavery -- of you, to the banksters.
Has any of this changed since the crash? Oh hell no.
But while the Fed's wheel-spinning and desperation both within The Fed and Congress hasn't changed, it is changing among the population. The latest is the screed coming from colleges:
Even as college prices and average student loan debt rise, educators in some sectors of higher education report they're also seeing plenty of students like Yeh. After watching debt cause widespread damage in their families and communities, they're determined to avoid loans no matter what.
What's surprising is this: Educators aren't sure that's always such a good thing.
Of course they're not "sure" it's a good thing. Why their outsized salaries and pensions might be threatened, not to mention all the bond issues that were floated by colleges to build palaces that look more like a luxury hotel than an educational establishment and do exactly nothing to improve the quality of instruction in Calculus.
More to the point some of those "educators" might realize that education, like everything else, responds to supply and demand. If students are waking up to the idiocy of taking out $70,000 in debt to pursue a 4-year degree that earns $30,000/year then the price of that degree must come down -- a lot, by like more than half -- in order to meet the available supply of money!
But back to the central point: Congress enables The Fed's lawless behavior on purpose despite the absolute ability to stop it any time it wants. It does so because this is how Congress is able to promise you, dear reader, programs that they cannot pay for with current tax revenues.
The error is that Congress seems to think that this can go on basically forever. It cannot.
That's the lesson coming from Europe -- validation of my central thesis, that the math always wins and the longer you keep screwing around the worse the damage will be that you must absorb.
The only question is whether Congress will stop acting like a two-year old that wants another piece of candy before or after the entire economy and financial system melts into radioactive slag.
I'll take the under on that.
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