Something special happens with this bailout of the government. In March 2008 the Federal Reserve has extended a loan of 55 billion dollars to JPMorgan to "rescue" the investment bank Bear Stearns from bankruptcy, a highly controversial move that tests the limits of the Federal Reserve Act on 7 September 2008, the Government American seized private lending giants Fannie Mae and Freddie Mac and imposed a conservatorship, a form of bankruptcy, but it leaves bankruptcy court sortassets among creditors, the Treasury extended an unlimited credit to the insolvent company and said it was his authority to buy their stock should perform effectively nationalizing them. Now the Federal Reserve announced a loan of 85 billion dollars to allow American International Group (AIG), the largest insurer in the world, in exchange for a share of almost 80% insurer. . . .
Fed is buying an insurance policy? What is covered inFederal Reserve Act? Associated Press called it a "government takeover" but it is not your ordinary "nationalization" like the purchase of Fannie / Freddie stock by the Treasury. Federal Reserve has the power to print the national money supply, but is not actually a part of the Government of the United States. This is a private banking firm owned by a consortium of private banks. The banking industry has just bought the largest insurance company in the world, and they used federal money to do it.Yahoo Finance reported on 17 September;
"Treasury is setting up a temporary financing program at the request of the Fed. The program will auction Treasury bills to raise money for the use of Fed. The initiative aims to help its balance sheet after the Federal Reserve has kept the His efforts for liquidity in recent quarters. "
Treasury bonds are different from those of the federal government. We the taxpayers on the hook for the Fed "greater liquidity,"importance for the loans it has done everything in sight, bank or non-bank, exercising obscure provisions of the Federal Reserve Act, which may or may say they do. What's going on here? Why not let the free market work? Bankruptcy courts know how to sort the assets and reorganize companies so they can return to work. Why the extraordinary measures for Fannie, Freddie and AIG?
The answer may have less to do with saving the insurance, property or ChineseInvestors who pray for a rescue plan, though with the greatest Ponzi scheme in history is that the whole world of private banking. What should be saved at all costs was not housing or the dollar but the financial derivatives industry, and the abyss of what is to be saved was an event of "default", a bubble quadrillion U.S. derivatives dollar has had an accident could have broken together, can take the entire global banking system down with it.
AnatomyBUBBLE
Until recently, ever heard of most of those derivatives, but in terms of money traded, these investments represent the largest financial market in the world. Derivatives are financial instruments that have no value in itself, but get their value from something else. Basically just the games. You can cover the bet "that something that you will go to a bet that some will go." Hedge funds "hedge bets in the derivative. Bets can be placed onNothing in the price of tea in China for the movements of specific markets.
"The point that all wrong," wrote economist Robert Chapman a decade ago, "is that buying derivatives is not investing. The game, insurance and high risk Bookmaker Company. Derivatives create nothing." 1 they have not only no, but serve to enrich non-producers at the expense of people who create real goods and services. In Congress, hearings in the early 1990s, derivatives tradingChallenged as a form of gambling illegal. But the practice is justified by the fact that Federal Reserve Chairman Alan Greenspan, who not only provided legal support and regulatory framework for trade but actively promoted derivatives as a way to improve "risk management". First, it has been to improve the lighting and the profits of banks and large banks and dealers, it worked. But the cost was an increase in the risk of the financial system as a whole.2
Since then, the secondary traffic has grown exponentially, untilNow is bigger than the entire global economy. Bank for International Settlements recently reported that total derivatives of handling more than one quadrillion dollars – that is 1000 bilioner dollars.3 How is that figure even possible? The gross domestic product in all countries of the world, is only about 60 billion dollars. The answer is that players can bet all they want. They can bet money that is not, and this is the sharp increase in the risk of
CreditDefault swaps (CDS) is the most active form of credit derivatives. CDS is the commitment between the two parties to determine whether a company would send its tapes. In a typical default swap, the buyer "protection" a great reward from the seller "protection" if companies are not in a certain period, while the protection seller "collects periodic payments from the buyer" protection " to assume the risk of default. CDS thus resemble insurance policies, but thereThe requirement to actually hold any asset or suffer a loss, so CDS are widely only for profit by betting on changes in the market to grow. For example, in one of Blogger, a hedge fund is sitting back and collect $ 320,000 a year in premiums just for selling "protection" on a risky BBB junk bond. The premiums are "free" money – free until the bond actually goes into default when the hedge fund could be on the hook for $ 100 million in debt.
And there's the catch: what if the hedge fund does not100 million dollars? Bottom shell company or limited partnership called into bankruptcy, but both claim the derivative as an asset on their books, now have to write. Players who "covered bets" by betting both ways can collect their effort to win, and who can not afford to pay for their gamble did not lose because the other players by default on their bets.
Domino crash into a cascade of cross-defaults that infects the entirebank and give the overall pyramid. The potential for this type of nuclear reaction was what prompted billionaire Warren Buffett to call derivatives "weapons of financial mass destruction." It 'also why the banking system can not afford a large derivatives player go down, and the banking system that calls the shots. Federal Reserve is literally owned by a conglomerate of banks and Hank Paulson, who heads the U.S. Treasury Department, came to this position throughthe revolving door of investment bank Goldman Sachs, where he was previously CEO.
The best game in town
FinancialSense.com in an article on 9 September, said Daniel amerman that the acquisition of the state of Fannie Mae and Freddie Mac is not really a rescue plan for mortgage giants. It 'was a rescue plan for the financial derivatives industry, with 1.4 trillion U.S. dollars "event of default on" that could have bankrupted Wall Street and much of the rest of the financialworld. To explain the ponerer high risk amerman a scenario in which the reuse of connection is not saved by the government. When you default on the 5 trillion U.S. dollars in bonds and mortgage-backed securities they own or guarantee, settlements are immediately triggered at 1.4 trillion dollars of credit default swap entered into by major financial companies that have committed to do good on Fannie / Freddie bonds in default in exchange for lucrative fee income and multi-million euroBonus dollars. The value of the vulnerable bonds plunged by 70%, a $ 1 billion (70% to 1.4 billion U.S. dollars) to be due to buyers' protection. That there is more money, but if it's already pressed financial institutions have to sell. CDS sellers are highly age itself, which means that they are dependent on days of large-per-day lines of credit just to stay in the water. When they saw the trillion dollar hit coming creditors, they pull their financing, leaving the institutions associated withlarge portfolios of illiquid assets. The dreaded cascade of cross-defaults begins, until nearly all the major investment banks and commercial banks are able to fulfill its obligations. This force has a huge round of CDS events, going to 10 billion U.S. dollars by 20 bilioner dollars. The centers of financial insolvency, the markets closed, and when they open months later, the stock market has been crushed. The federal government and the financiers pulling the strings naturally feelforced to intervene to prevent such a disaster, even though this rewards the profligate speculators at the expense of the Fannie / Freddie shareholders be wiped out. Amerman concludes:
"[I] t is the best game in town. Take a large part of the risk, very well paid for it and if you screw up – you have absolute proof that the government will come to save at the expense of the rest of people (who do not share your profits in the firstposition). "4
Desperate MEASURES FOR THE TIMES
E 'was the best game in town until 14 September when the Finance Minister Paulson, Federal Reserve Chairman Ben Bernanke and New York Fed Head Tim Geithner closed the window to rescue Lehman Brothers, a 158-year-old Wall Street investment firm and a great player derivatives. Why? "There is no political will for a federal rescue plan," said Geithner. Rescue of Fannie and Freddie had created a furor of protest, and the taxpayer could not affordensure quadrillion derivatives bubble entire U.S. dollar. The line must be drawn somewhere, and it was not apparently.
Or was the Fed just saving its ammunition for AIG? Recent ratings downgrades meant that AIG's counterparties to its massive derivatives contracts could force it to rise to 10.5 billion dollars in additional capital reserves immediately or file for bankruptcy. Treasury Secretary Paulson resisted promoting taxpayers 'money', but on Monday, September 15 showswas ugly, with the S & P 500 registering the largest one-percent fall days of September 11, 2001. Alan Kohler wrote in the Australian Business Spectator:
"[I] t is unlikely that a slow motion train wreck this time. With Lehman in liquidation, and Washington Mutual and AIG on the edge, so that the credit market is likely to be closed entirely and interbank lending would cease." 5
Kohler quoted September 14 newsletter professor Nouriel Roubini, who has a popular website called GlobalEconoMonitor. Roubini warned:
"What we now find ourselves at the beginning of Unraveling and the collapse of the entire shadow financial system, a system of institutions (broker dealers, hedge funds, private equity funds, SIV, cables, etc.), similar to a bank ( as the loan the maps are very old and borrow and invest in a long, fluid) and thus is highly vulnerable to the bank to go, but unlike banks, are not properly regulated and controlled, have no access todeposit insurance and no access to the provider of last resort the central bank. "
The risk that the system was evidently too great. On September 16, while Barclay's Bank has offered to buy the banking divisions of Lehman Brothers, the Federal Reserve decided to rescue AIG in exchange for 80% of the stock. Because the Federal Reserve, instead of U.S. Treasury? Perhaps because the State would take too much heat for the company even more taxpayers 'money' in play. TheFederal Reserve could do it quietly through its "Open Market Operations," The trick, as the debt "of the government, transforming the Treasury (government various) Monetize U.S. dollar. Taxpayers have to select the card, but the Fed would have the 'approval of Congress is not in the first place.
Time for the 21st Century New Deal?
Another hole is placed in a boat very permeable, keeping it in water, another day, but for how long these temporary measures can be maintained?Professor Roubini maintains:
"A step by step, ad hoc and non-holistic approach of Fed and Treasury to crisis management is a failure …. [P] to keep and fill a gap in [a] time is useless when the entire system of tax in the financial perfect storm of the century. a much more radical and systematic holistic approach to crisis management is now necessary. "6
We may soon hear that "credit markets are frozen" – that there is no money to keep homeownersin their home, gainfully employed, or infrastructure maintained. But it is not true. The basic source of all the government money and credit – our public credit. Receive from the Chinese or the News or the private banks are not. The government may issue its own credit – the faith and full credit of the United States. " E 'was the model followed by the Pennsylvania colonists in the eighteenth century, and it worked very well. Before the provincial government has comewith this plan, the Pennsylvania economy languishing. There was not much gold to conduct trade, and the British bankers were charging interest of 8% to borrow what was available. The government has resolved the issue of credit through the issuance of loans and its paper bag. A bank-owned lent money to farmers at an interest rate of 5%. The money was returned to the government, preventing inflation and interest paid public spending, in lieu of taxes. During the period of the systemwas in progress, the economy prosper, prices have remained stable, and the Pennsylvania colonists paid no taxes. (For more information on this, see E. Brown, "Sustainable Energy Development: How Costs can be cut in half," webofdebt.com / articles, November 5, 2007.)
Today's credit crisis is very similar to the front of Herbert Hoover and Franklin Roosevelt in 1930. In 1932, when President Hoover created the Reconstruction Finance Corporation (RFC) as a federal bank, which would bail outcommercial banks by extending loans to them as much as the privately owned Federal Reserve is doing today. But like today, Hoover's work failed. Banks no longer need the loans, they were already drowning in debt. Their clients with money to spend and invest. President Roosevelt used Hoover's new government borrowing is to make loans where they were needed most – for housing, agriculture and industry. Many new federal agencies were created and funded by the RFC, includingHolec (Home Owners Loan Corporation) and Fannie Mae (Federal National Mortgage Association, which is state-owned agency). In 1940, the RFC was in overdrive funding the infrastructure necessary for the United States to attend the second World War, the development of the country with the necessary infrastructure to make the world industrial leader after the war.
RFC was a government-owned bank to ignore the Private Federal Reserve, but unlikeProvincial government of Pennsylvania, the money that Lent, the RFC had to borrow the money first. RFC is through the issuance of bonds and loan the proceeds funded. Then, as now, new funds in the money supply chiefly in the form of private bank loans. In a "fractional reserve" banking system, banks are allowed to lend their "reserves" many times, effectively multiplying the amount of money in circulation. Today is a system of public banks can be set tomodel of RFC to fund productive aspirations – industrial, residential agricultural, and energy – but we can always take a step beyond the RFC and give the power to create credit for the new public banks, the government does not like Pennsylvania and the private banks do now. At the rate that banks are bankrupt FDIC, the federal government will soon own a number of banks could also put to productive use. Establishing a new RFC might be an easier move politically than trying tonation normalize the Federal Reserve, but this is what should properly, always said. If we put taxpayers 'money' that the Fed same insurance company in the world's largest, We Own the Federal Reserve.
Proposals to reform the banking system is not even the first time today radarskerm of politics, but the current system breaks the fast train wreck, and "change," asked Washington, may soon be in an unknown direction of a few years. We muststop funding the culprits of this scandal, we are at our expense. We need a public banking system, which provides cost-effective credit mechanism available for homeowners who make, renewable energy and infrastructure, and the first step is to make it convenient to isolate the players gewemel, swindlers and speculators Time to play the system.