Mortgage Bankers Association

"Admit it, mes amis individualism were Hardy and savage capitalism that has made America the country cough unlimited possibilities through a half dozen short sellers in Greenwich, Conn., and FedExed to Washington DC to be spoon back to life by the President Fed's Ben Bernanke and Hank Paulson Finance. We are now no different from any of those Western European semi-socialist welfare states that we love to deride. "

-Bill Saporito, "How we did the United Statesin France, "Time (September 21, 2008)

Last night, presidential candidates had their last debate before the election. They talked of the baleful state of the economy and the stock market but omitted the group that actually caused the credit freeze, and whether banks should be nationalized as Finance Hank Paulson are now ready to do. The omission was probably excusable, since the financial landscape has changed so quickly that it is difficult to stop.A year ago the Dow Jones has broken with 14,000 for making a new high. Whoever therefore expect that a year later, the Dow Jones drops by almost half, and the State would move the nation to normalize the banks would have been regarded with amused disbelief. But this is where we today.1

Congress hastily voted to approve financing plans Hank Paulson $ 700 billion rescue for the bank's October 3, 2008, after a tumultuous weeks in which the Dow fell dangerously near the10,000-critical. The market has not been quenched. Dow has continued to break not only 10,000 but then 9000 and 8000, the last in 8451 on Friday, October 10th. The week was known as the worst in American stock market history.

On Monday, October 13 market staged a comeback the likes not seen since 1933, rose a full 11% in one day. E 'success after the government announced a plan to buy shares in major banks and partially nationalizing themFederal Reserve led a push to the global financial system with U.S. dollars flooding.

On the contrary, it was dramatic but short-lived. 15. October, the day of the presidential election debate, the Dow Jones fell 733 points, crash landing in 8578. Contrast appears more like a massive pump and dump scheme – artificially inflating the market so insiders can get out – a true economic rescue. The real problem is not in the much-discussed subprime market but is in the credit market, which is already dryon. The banking system has failed. As with bitter experiences during the Great Depression, taught me the economy can be saved only by reinforcing material to banks failed. The banking system itself will be reviewed.

A litany of rescue lost

Credit dried up because many banks can meet the 8% capital requirement that limits their ability to borrow. Capital of a bank – the money they receive from sales of stock or from profits – can be fed in more than 10 timesits value in credits, but this leverage also works the other way. While $ 80 in capital can produce $ 1000 in loans, a loss of $ 80 wipes by default on $ 80 in capital, reducing the amount of $ 1,000 can be borrowed. As the banks have had widespread loan defaults, their capital reduced accordingly.

The bailout of Bank announced on October 3 involved using taxpayer money to buy guides on securities by banks in difficulty. It is intended to reduceneed for new capital by reducing the amount of risky assets on the books of banks'. But banks 'risky assets' include derivatives – speculative bets on market changes – and derivative exposure for U.S. banks is now estimated at a breathtaking 180 bilioner dollars. This amount represents an impossible-to-black hole "for three times the GDP of all countries of the world together to overcome. As one critic of the Paulson rescue plan round," this seems designed to help HankFriends of downloading junk, as well as erase a block of the market. "2

Teen Thursday, October 9, Paulson himself evidently had doubts about his ability to sell the plan. He was not abandoning his old friends, but soft pedaled plan in favor of another option buried in the voluminous rescue package – using a part of the $ 700 billion to buy stock in banks directly. Plan B was a controversial move to nationalization, but it was an improvement over Plan A, which would stillreduced capital requirements only for the value of bad debts shifted to the books of the government. A Plan B, that the money in a bank stock to be used, the increase in banks 'capital' that we can be filled ten times the sum of the loans. The plan was an improvement, but the market was evidently not convinced, since the Dow proceeded to drop a thousand points to open next Thursday, Friday.

One problem with Plan B is not reallyproperty (the nationalization of the public and control of the participating banks). In reality it was closer to what is called "capitalism companion" or "corporate welfare". Bank stock purchased would be non-voting preferred shares, which means that the government would have no influence on how the bank is running. Treasury would only feed the bank money to do with as they should. Management can continue to collect enormous salaries while investing in companies that wild speculation with taxpayer's money '.Banks can not be forced to spend money to make much needed loans but could just use it to clean up their derivative-infested balance sheets. Ultimately, banks can go bankrupt, clearing the investment of the taxpayer completely. Although 700 billion dollars have been inflated in 7 trillion U.S. dollars, the amount is closer to eliminating $ 180 in derivatives bilioner liabilities of banks 'books'. Shifting the burden to the exchequer would be only an empty wallet, nofilling the derivative black hole.

Plan C, the plan du jour, make some restrictions on executive compensation to enforce. But most important element in the drawing for this week is the Fed's new Commercial Paper Funding Facility, which is scheduled for October 27, 2008. The plant will open the Fed's lending window for short-term commercial paper, companies need money to finance their day-to-day activities. The October 14 Federal Reserve Bank of New York entitledThis extraordinary expansion of its lending powers by stating:

"The CPFF is authorized under section 13 (3) of the Federal Reserve Act, which allows the Board in exceptional circumstances and emergencies, to authorize Federal Reserve Banks to extend credit to individuals, partnerships and companies can not be adequate credit accommodations ….

"The Treasury believes that this structure is necessary to avoid major disruptions in financial markets and the economy andA special deposit at the Fed of New York in support of this structure. '3

This means that the government and the Fed are committing even more public money and taking a risk even more public. Taxpayers have already taken, then the Treasury "special deposit" will no doubt come from U.S. bonds, ie more debt, the taxpayer must pay interest. The federal debt could rise so high, that runs right of the government for a score three times to lose. United States can be reducedthe Third World status, with "austerity" is used as a condition for further loans, and hyperinflation running the neglect of the dollar. Rather than solving the problem, rescue "plans seem destined for the worst.

The collapse of a 300 year Ponzi scheme

All the King's men could put the private banking system together again, not for the simple reason that it is a Ponzi scheme that has reached its mathematical limits. A Ponzi scheme is a kind of pyramidthat new investors must continually sucks the fund to support the investors at the top. In this case, new borrowers, sometimes in favor of creditors at the top gets sucked. The Wall Street Ponzi scheme is based on "fractional reserve" lending, that banks create "credit" (or "debt") with accounting entries. Banks are now allowed to borrow 10-30 times their "reserves," essentially counterfeiting the money borrowed. More than 97 percent of the money supply in the United States(M3), which banks are thus created. The problem is that only the major banks, not the interest rates needed to repay their loans title. Since bank lending is essentially the only source of new money into the system, someone somewhere must be kept constantly on new loans just to get enough "make money" (or "credit") to serve the old loan plan money supply. This spiraling interest problem and the need to find new debtors has gone on more than 300 years – fromestablishment of the Bank of England in 1694 – before the entire world is mired in debt to enrich the Bankers' private money monopoly. As British financial analyst Chris Cook observes:

"Exponential economic growth required the mathematics of compound interest on the money supply based on money, the debt must always run up eventually against the finite nature of Earth's resources." 4

The parasite has finally run its food source. But the crisis is not the economy itself,E 'fundamentally sound – or would, with proper credit system to oil the wheels of production. The crisis in the banking system, which can no longer cover the shell game that has played for three centuries with other people's money. Fortunately, we have seen the credit of private banks are not. A sovereign government can create your own.

New Deal Revisited

Today's credit crisis is very similar to the front of Franklin Roosevelt in 1930. In 1932, when President Hoover in SeptemberReconstruction Finance Corporation (RFC) as a federal bank that would bail out commercial banks by extending loans to them as much as the privately owned Federal Reserve is doing today. But like today, Hoover plan. Banks are no longer needed loans, were already drowning in debt. their clients for cash 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, including the Holco (Home Owners Loan Corporation) and Fannie Mae (Federal National Mortgage Association, which is a company owned by the government). 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 afterwar.

RFC was a government-owned bank to ignore the Private Federal Reserve, but unlike the private banks were competing RFC had money in hand before lending it is not. RFC is by issuing bonds (or other debt), and the loan proceeds financed. The result was further taxpayers in debt. This problem can be avoided, however, by updating the RFC model. A system of public banks can be developed in this directioncreate credit themselves, just as private banks do now. A public bank operating on a private bank model could fan $ 700 billion in capital reserves of 7 billion dollars in the field of public credit that was derivative-free, liability-free and easily accessible to all the things think of no money is not today, including the loans necessary to meet payrolls, fund mortgages, and sign the public infrastructure.

Credit as a public service

"Credit" can and must be a citizenutility, a public service by the government for the people who must produce. Many people are opposed to government involvement in the banking system, but the fact is that the government is already committed. Modern RFC would actually mean less government involvement and a more efficient use of already allocated 700 billion dollars that politicians now talk. The government must intervene in the private banking system able to carry on as before. TheTreasury will need to save the banks in the free market forces that have served so well until now could be back. If the banks are bankrupt, which could, in the FDIC receivership and nationalized done. The government would then have a number of banks that can be used for the service of deposit and credit needs of society. There would be no need to change the personnel or procedures of these newly nationalized banks. They could not engage in "fractional reserve" lendingjust as they do now. The only difference is that the interest on the loans will revert to the government to deal with personal taxes, and banks will begin a new series of books, so the $ 700 billion in startup capital could be fanned into 7 bilioner dollars new loans. E 'was the kind of banking system used in the colony of Benjamin Franklin in Pretoria, where he has worked incredibly well. The spiral problem of interest was the delay of more money to avoidand use them for the economy for public purposes. Over the decades the provincial bank operated, Pennsylvania colonists paid no taxes, no debt and inflation followed.

As the Bank in Pennsylvania, a modern banking system does not actually need federal "reserve" to everyone. It is the sovereign right of a government to print money for the rich. What sustains our money today is simply "the full faith and credit of the United States," somethingU.S. should be able to issue directly without having to resort to "reserve" of his credit limit. But if Congress is not willing to go that far would be a more efficient use of allocated 700 billion dollars will not save banks would be to designate the funds as "reserves" for a newly-reconstituted RFC.

Rather than a separate publication called RFC Banking Corporation, the nation's financial apparatus could be streamlined simply nationalize private propertyFederal Reserve, but again, Congress may be willing to go that far. Since there is already a precedent of success for creating an RFC in times like these, this model can serve as a non-controversial starting point for a new line of public credit. Promoters G7 finance meeting in Washington last weekend, seems willing to support the banking system enough debt-backed "liquidity" to produce what Jim Rogers calls "an inflationary holocaust." AsU.S. private banking system self Destruct, we must ensure that a public system of credit is in place and ready to meet the needs of citizens in its place.

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1 Michael Hiltzik, Ken Bens Inger, "bailout of the Bank of capitalism to the test," Los Angeles Times (October 12, 2008).

2 Ian Welsh, "Paulson use Fannie and Freddie as Conduit to save his friends," firedoglake.com (11 October 2008).

3"Commercial Paper Funding Facility: Frequently Asked Questions Frequently," newyorkfed.org (October 14.2007).

4 Chris Cook, "a new dawn for Iran," Asia Times (October 9, 2008).