Politics: Wall Street

[CowboyTutt]

This was sent to me by a friend. I have not been able to verify all of it, but I did find something at Truth or Fiction.com to support at least part of it.

http://www.youtube.com/watch?v=H5tZc8oH--o

and in support of it: http://www.truthorfiction.com/rumors/b/ ... ending.htm

Also, I deeply suspect the proposed financial "bail-out" of Wall Street is a HUGE mistake. Here is a good video on the subject:

http://www.youtube.com/watch?v=S27yitK32ds


-Tutt

[PaperPatch]

Also, I deeply suspect the proposed financial "bail-out" of Wall Street is a HUGE mistake.
-Tutt

darn right its a HUGE mistake!!!

Let poor business practitioners fail. The good ones will always prosper and succeed.

These bail-out shenanigans are bad for America...and Americans!

[Mike D.]

Where Wall St goes, so goes America. If they collapse, as they so deserve, our economy will soon follow. Very sad state of affairs that were precipitated by the Democrats, who allowed Fannie Mae and Freddie Mac to run amok, unrestricted. Where are the members of the SEC? Gone, that's where, with no one to answer for their failings.

[CowboyTutt]

Its come to my attention that the first YouTube link does not work as it has been removed because Warner Brothers apparently did not like him using their music. Essentially it stated that the banking meltdown is a result of Democratic legislation started by Carter (that was probably OK at the time) but was later embellished so that it created a mandate for banks to offer higher risk loans to low income families. This is not the sole cause of the crisis, but it is certainly a contributing factor.

I think the congresswoman in the second link really sees this situation for what it is: a proposal that benefits a wealthy few by passing their debt onto the rest of us for generations. The failed legislation also brings us that much closer to a nationalized and goverment controlled economy. Scary stuff to me.

-Tutt

[bunklocoempire]

Its come to my attention that the first YouTube link does not work as it has been removed because Warner Brothers apparently did not like him using their music. Essentially it stated that the banking meltdown is a result of Democratic legislation started by Carter (that was probably OK at the time) but was later embellished so that it created a mandate for banks to offer higher risk loans to low income families. This is not the sole cause of the crisis, but it is certainly a contributing factor.

I think the congresswoman in the second link really sees this situation for what it is: a proposal that benefits a wealthy few by passing their debt onto the rest of us for generations. The failed legislation also brings us that much closer to a nationalized and goverment controlled economy. Scary stuff to me.

-Tutt

I think the congresswoman in the second link really sees this situation for what it is: a proposal that benefits a wealthy few by passing their debt onto the rest of us for generations. The failed legislation also brings us that much closer to a nationalized and goverment controlled economy. Scary stuff to me.

Interesting the power grabs, by the left and right. Left wants socialism for the "common" folk, Right wants socialism for the "coporate" folk. We must watch them like hawks as they will "come together" again to "fix" a problem they created equally With the eager help of the Federal Reserve.

Paul brings up some very interesting points in his after vote commentary concerning why this panic was encouraged when the Federal Reserve already has the power to inject money and has been doing so. Worth a look.
Ron Paul on the bailout vote http://www.youtube.com/watch?v=-v6SGLKH1kc

I would bet it has exactly to do with the power grabs mentioned previously, create a panic and try to sell the public on more government control. Left and Right both pushing and grabbing.

Keep calling, keep writing.

Bunkloco

[FWiedner]

Yes indeed, a power grab.

It is intended to enslave the many, for the benefit of the few.

Call it what you want, but they know full well what they are doing.

[Ysabel Kid]

The Dem's have the votes to pass this puke of a bill, but know it is a crock, so want the GOP to sign on so they can share the blame. When the House GOP wouldn't do so, several in the Dem caucus went against their own. They probably hail from conservative-leaning districts and are in tight re-election battles.

I saw this video this morning and had intended on posting it as well. I sent it out to my work distribution list with the comment that people should take a look at it fast as Obama and the Dem's will pressure Youtube to take it down. They don't want the truth of the cause of the housing problems, and thus the cause of the financial meltdown, to get out to the general public. That was before a 777 point drop in the market today. The Dem's have to be sweating it big time - even Clinton came out today saying he tried to get more oversight through on Fannie Mae and Freddie Mac but the Dem's in Congress stopped him. Self-serving as ever - since his administration opened the flood gates on this subprime loans and pressured banks into making them - but he was right on the Dem's doing everything they could to force subprime loans down banks throats.

I am not a conspiracy-theorist, but I am starting to believe the Dem's planned this all along. Why? I don't think the Dem's are stupid - just evil. Well, most of the ones in charge aren't stupid - granted, a vast majority of the people voting them into office are historical and economic illiterates, as are many of those they elect, but that is another story. If you think it through, there is no way anyone supporting the issuing of subprime loans could not have anticipated what would happen. Nothing increases forever - including housing values. There have been many market corrections in the past in housing, and this was bound to happen sooner rather than later. I think they knew this and felt they were in a "no-lose" situation - they get to blame the "free market" (as Obama has done endlessly), get the government involved (growing Socialism), and appease their base before and after the crisis. Only way this could come back to bite them was if the truth gets out, but that is not likely with the MSM on their side. We can scream all we want, but half of the population is too dense to understand the issue, and of the remaining half, half of those will take the Dem and MSM story hook, line and sinker.

[Tennessee Hayre]

I was talking to my wife about this same thing. I thought it was very strange that after mcCain started pulling ahead of Obama with "Gov Palin" the news broke about all of this stuff. They knew about it months ago. Why now 30 some days before the election do they come clean with. I will always believe it was planned.

[Lefty Dude]

When a Goverment gets control of the money supply & economy, they can contol the serfs beholden to them.

The Founding Fathers would not allow this and a seperation has existed for well over 200 years.

If this so called bail-out happens, this Country is doomed.

[bunklocoempire]

When a Goverment gets control of the money supply & economy, they can contol the serfs beholden to them.

The Founding Fathers would not allow this and a seperation has existed for well over 200 years.

If this so called bail-out happens, this Country is doomed.

This bail out may not happen, but as long as the Federal Reserve continues to operate, and administrations and congress fail to budget, some sort of "bail out" continues.

Has anybodies taxes gone up substantially to pay for war, countless bail outs, social safety nets? No. The printing of money continues with nothing to back it. The fat cats get to use the "new" money first, by the time it gets around to us, the dollar loses it's value yet our taxes do not decrease. This is the "silent tax" brought about by any congress handing over it's responsibilities to private banking cartels -the Federal Reserve.

The "Central bank" has been abolished in the past, it can be abolished again, but only by leaders who call for it.

Keep calling and writing.

Bunkloco

[Ysabel Kid]

Bunkloco -

With half or more of the country now beholden to the government and paying little if any taxes, do you think we can ever get the federal beast back under control? I hope so, but I just don't see that kind of courage in most of our fellow citizens. Many would rather take from others than earn it themselves. Many would rather enjoy an unearned good life today and hand off the debt and problems to future generations.

I hope we can, but as optimistic as I try to be, I find it harder and harder each day to have faith in our fellow citizens. That is one of the reasons I spend time here on the forum - it certainly rejuvenates my soul to be among so many patriots...

[Old Ironsights]

By STANLEY KURTZ

Chutzpah: ACORN's drive to lower mortgage standards paved the way for the meltdown - yet last week, it was holding protests like this one in Florida, trying to get a cut of the financial-market-rescue bill.

Posted: 3:53 am
September 29, 2008

WHAT exactly does a "community organizer" do? Barack Obama's rise has left many Americans asking themselves that question. Here's a big part of the answer: Community organizers intimidate banks into making high-risk loans to customers with poor credit.

In the name of fairness to minorities, community organizers occupy private offices, chant inside bank lobbies, and confront executives at their homes - and thereby force financial institutions to direct hundreds of millions of dollars in mortgages to low-credit customers.

In other words, community organizers help to undermine the US economy by pushing the banking system into a sinkhole of bad loans. And Obama has spent years training and funding the organizers who do it.

THE seeds of today's financial meltdown lie in the Commu nity Reinvestment Act - a law passed in 1977 and made riskier by unwise amendments and regulatory rulings in later decades.

CRA was meant to encourage banks to make loans to high-risk borrowers, often minorities living in unstable neighborhoods. That has provided an opening to radical groups like ACORN (the Association of Community Organizations for Reform Now) to abuse the law by forcing banks to make hundreds of millions of dollars in "subprime" loans to often uncreditworthy poor and minority customers.

Any bank that wants to expand or merge with another has to show it has complied with CRA - and approval can be held up by complaints filed by groups like ACORN.

In fact, intimidation tactics, public charges of racism and threats to use CRA to block business expansion have enabled ACORN to extract hundreds of millions of dollars in loans and contributions from America's financial institutions.

Banks already overexposed by these shaky loans were pushed still further in the wrong direction when government-sponsored Fannie Mae and Freddie Mac began buying up their bad loans and offering them for sale on world markets.

Fannie and Freddie acted in response to Clinton administration pressure to boost homeownership rates among minorities and the poor. However compassionate the motive, the result of this systematic disregard for normal credit standards has been financial disaster.

ONE key pioneer of ACORN's subprime-loan shakedown racket was Madeline Talbott - an activist with extensive ties to Barack Obama. She was also in on the ground floor of the disastrous turn in Fannie Mae's mortgage policies.

Long the director of Chicago ACORN, Talbott is a specialist in "direct action" - organizers' term for their militant tactics of intimidation and disruption. Perhaps her most famous stunt was leading a group of ACORN protesters breaking into a meeting of the Chicago City Council to push for a "living wage" law, shouting in defiance as she was arrested for mob action and disorderly conduct. But her real legacy may be her drive to push banks into making risky mortgage loans.

In February 1990, Illinois regulators held what was believed to be the first-ever state hearing to consider blocking a thrift merger for lack of compliance with CRA. The challenge was filed by ACORN, led by Talbott. Officials of Bell Federal Savings and Loan Association, her target, complained that ACORN pressure was undermining its ability to meet strict financial requirements it was obligated to uphold and protested being boxed into an "affirmative-action lending policy." The following years saw Talbott featured in dozens of news stories about pressuring banks into higher-risk minority loans.

IN April 1992, Talbott filed an other precedent-setting com plaint using the "community support requirements" of the 1989 savings-and-loan bailout, this time against Avondale Federal Bank for Savings. Within a month, Chicago ACORN had organized its first "bank fair" at Malcolm X College and found 16 Chicago-area financial institutions willing to participate.

Two months later, aided by ACORN organizer Sandra Maxwell, Talbott announced plans to conduct demonstrations in the lobbies of area banks that refused to attend an ACORN-sponsored national bank "summit" in New York. She insisted that banks show a commitment to minority lending by lowering their standards on downpayments and underwriting - for example, by overlooking bad credit histories.

By September 1992, The Chicago Tribune was describing Talbott's program as "affirma- tive-action lending" and ACORN was issuing fact sheets bragging about relaxations of credit standards that it had won on behalf of minorities.

And Talbott continued her effort to, as she put it, drag banks "kicking and screaming" into high-risk loans. A September 1993 story in The Chicago Sun-Times presents her as the leader of an initiative in which five area financial institutions (including two of her former targets, now plainly cowed - Bell Federal Savings and Avondale Federal Savings) were "participating in a $55 million national pilot program with affordable-housing group ACORN to make mortgages for low- and moderate-income people with troubled credit histories."

What made this program different from others, the paper added, was the participation of Fannie Mae - which had agreed to buy up the loans. "If this pilot program works," crowed Talbott, "it will send a message to the lending community that it's OK to make these kind of loans."

Well, the pilot program "worked," and Fannie Mae's message that risky loans to minorities were "OK" was sent. The rest is financial-meltdown history.

IT would be tough to find an "on the ground" community organizer more closely tied to the subprime-mortgage fiasco than Madeline Talbott. And no one has been more supportive of Madeline Talbott than Barack Obama.

When Obama was just a budding community organizer in Chicago, Talbott was so impressed that she asked him to train her personal staff.

He returned to Chicago in the early '90s, just as Talbott was starting her pressure campaign on local banks. Chicago ACORN sought out Obama's legal services for a "motor voter" case and partnered with him on his 1992 "Project VOTE" registration drive.

In those years, he also conducted leadership-training seminars for ACORN's up-and-coming organizers. That is, Obama was training the army of ACORN organizers who participated in Madeline Talbott's drive against Chicago's banks.

More than that, Obama was funding them. As he rose to a leadership role at Chicago's Woods Fund, he became the most powerful voice on the foundation's board for supporting ACORN and other community organizers. In 1995, the Woods Fund substantially expanded its funding of community organizers - and Obama chaired the committee that urged and managed the shift.

That committee's report on strategies for funding groups like ACORN features all the key names in Obama's organizer network. The report quotes Talbott more than any other figure; Sandra Maxwell, Talbott's ACORN ally in the bank battle, was also among the organizers consulted.

MORE, the Obama-supervised Woods Fund report ac knowledges the problem of getting donors and foundations to contribute to radical groups like ACORN - whose confrontational tactics often scare off even liberal donors and foundations.

Indeed, the report brags about pulling the wool over the public's eye. The Woods Fund's claim to be "nonideological," it says, has "enabled the Trustees to make grants to organizations that use confrontational tactics against the business and government 'establishments' without undue risk of being criticized for partisanship."

Hmm. Radicalism disguised by a claim to be postideological. Sound familiar?

The Woods Fund report makes it clear Obama was fully aware of the intimidation tactics used by ACORN's Madeline Talbott in her pioneering efforts to force banks to suspend their usual credit standards. Yet he supported Talbott in every conceivable way. He trained her personal staff and other aspiring ACORN leaders, he consulted with her extensively, and he arranged a major boost in foundation funding for her efforts.

And, as the leader of another charity, the Chicago Annenberg Challenge, Obama channeled more funding Talbott's way - ostensibly for education projects but surely supportive of ACORN's overall efforts.

In return, Talbott proudly announced her support of Obama's first campaign for state Senate, saying, "We accept and respect him as a kindred spirit, a fellow organizer."

IN short, to understand the roots of the subprime-mort gage crisis, look to ACORN's Madeline Talbott. And to see how Talbott was able to work her mischief, look to Barack Obama.

Then you'll truly know what community organizers do.

Stanley Kurtz is a senior fellow with the Ethics and Public Policy Center in Washington, DC.

[Idahoser]

Where Wall St goes, so goes America. If they collapse, as they so deserve, our economy will soon follow.

None of which is improved by gov't taking more control.

[RSY]

Food for thought:

The Political Nature of the Economic Crisis
September 30, 2008


By George Friedman

Classical economists like Adam Smith and David Ricardo referred to their discipline as “political economy.” Smith’s great work, “The Wealth of Nations,” was written by the man who held the chair in moral philosophy at the University of Glasgow. This did not seem odd at the time and is not odd now. Economics is not a freestanding discipline, regardless of how it is regarded today. It is a discipline that can only be understood when linked to politics, since the wealth of a nation rests on both these foundations, and it can best be understood by someone who approaches it from a moral standpoint, since economics makes significant assumptions about both human nature and proper behavior.

The modern penchant to regard economics as a discrete science parallels the belief that economics is a distinct sphere of existence — at its best when it is divorced from political and even moral considerations. Our view has always been that the economy can only be understood and forecast in the context of politics, and that the desire to separate the two derives from a moral teaching that Smith would not embrace. Smith understood that the word “economy” without the adjective “political” did not describe reality. We need to bear Smith in mind when we try to understand the current crisis.

Societies have two sorts of financial crises. The first sort is so large it overwhelms a society’s ability to overcome it, and the society sinks deeper into dysfunction and poverty. In the second sort, the society has the resources to manage the situation — albeit at a collective price. Societies that can manage the crisis have two broad strategies. The first strategy is to allow the market to solve the problem over time. The second strategy is to have the state organize the resources of society to speed up the resolution. The market solution is more efficient over time, producing better outcomes and disciplining financial decision-making in the long run. But the market solution can create massive collateral damage, such as high unemployment, on the way to the superior resolution. The state-organized resolution creates inequities by not sufficiently punishing poor economic decisions, and creates long-term inefficiencies that are costly. But it has the virtue of being quicker and mitigating collateral damage.
Three Views of the Financial Crisis

There is a first group that argues the current financial crisis already has outstripped available social resources, so that there is no market or state solution. This group asserts that the imbalances created in the financial markets are so vast that the market solution must consist of an extended period of depression. Any attempt by the state to appropriate social resources to solve the financial imbalance not only will be ineffective, it will prolong the crisis even further, although perhaps buying some minor alleviation up front. The thinking goes that the financial crisis has been building for years and the economy can no longer be protected from it, and that therefore an extended period of discipline and austerity — beginning with severe economic dislocations — is inevitable. This is not a majority view, but it is widespread; it opposes governmen t action on the grounds that the government will make a terrible situation worse.

A second group argues that the financial crisis has not outstripped the ability of society — organized by the state — to manage, but that it has outstripped the market’s ability to manage it. The financial markets have been the problem, according to this view, and have created a massive liquidity crisis. The economy — as distinct from the financial markets — is relatively sound, but if the liquidity crisis is left unsolved, it will begin to affect the economy as a whole. Since the financial markets are unable to solve the problem in a time frame that will not dramatically affect the economy, the state must mobilize resources to impose a solution on the financial markets, introducing liquidity as the preface to any further solutions. This group believes, like the first group, that the financial crisis could have profound economic ramifications. But the second group also believes it is possible to contain the consequences. This is the view of th e Bush administration, the congressional leadership, the Federal Reserve Board and most economic leaders.

There is a third group that argues that the state mobilization of resources to save the financial system is in fact an attempt to save financial institutions, including many of those whose imprudence and avarice caused the current crisis. This group divides in two. The first subgroup agrees the current financial crisis could have profound economic consequences, but believes a solution exists that would bring liquidity to the financial markets without rescuing the culpable. The second subgroup argues that the threat to the economic system is overblown, and that the financial crisis will correct itself without major state intervention but with some limited implementation of new regulations.

The first group thus views the situation as beyond salvation, and certainly rejects any political solution as incapable of addressing the issues from the standpoint of magnitude or competence. This group is out of the political game by its own rules, since for it the situation is beyond the ability of politics to make a difference — except perhaps to make the situation worse.

The second group represents the establishment consensus, which is that the markets cannot solve the problem but the federal government can — provided it acts quickly and decisively enough.

The third group spoke Sept. 29, when a coalition of Democrats and Republicans defeated the establishment proposal. For a myriad of reasons, some contradictory, this group opposed the bailout. The reasons ranged from moral outrage at protecting the interests of the perpetrators of this crisis to distrust of a plan implemented by this presidential administration, from distrust of the amount of power ceded the Treasury Department of any administration to a feeling the problem could be managed. It was a diverse group that focused on one premise — namely, that delay would not lead to economic catastrophe.
From Economic to Political Problem

The problem ceased to be an economic problem months ago. More precisely, the economic problem has transformed into a political problem. Ever since the collapse of Bear Stearns, the primary actor in the drama has been the federal government and the Federal Reserve, with its powers increasing as the nature of potential market outcomes became more and more unsettling. At a certain point, the size of the problem outstripped the legislated resources of the Treasury and the Fed, so they went to Congress for more power and money. This time, they were blocked.

It is useful to reflect on the nature of the crisis. It is a tale that can be as complicated as you wish to make it, but it is in essence simple and elegant. As interest rates declined in recent years, investors — particularly conservative ones — sought to increase their return without giving up safety and liquidity. They wanted something for nothing, and the market obliged. They were given instruments ultimately based on mortgages on private homes. They therefore had a very real asset base — a house — and therefore had collateral. The value of homes historically had risen, and therefore the value of the assets appeared secured. Financial instruments of increasing complexity eventually were devised, which were bought by conservative investors. In due course, these instruments were bought by less conservative investors, who used them as collateral for borrowing money. They used this money to buy other instruments in a pyramiding scheme that rested on one premise: the existence of houses whose value remained stable or grew.

Unfortunately, housing prices declined. A period of uncertainty about the value of the paper based on home mortgages followed. People claimed to be confused as to what the real value of the paper was. In fact, they were not so much confused as deceptive. They didn’t want to reveal that the value of the paper had declined dramatically. At a certain point, the facts could no longer be hidden, and vast amounts of value evaporated — taking with them not only the vast pyramids of those who first created the instruments and then borrowed heavily against them, but also the more conservative investors trying to put their money in a secure space while squeezing out a few extra points of interest. The decline in housing prices triggered massive losses of money in the financial markets, as well as reluctance to lend based on uncertainty of values. The resu lt was a liquidity crisis, which simply meant that a lot of people had gone broke and that those who still had money weren’t lending it — certainly not to financial institutions.
The S&L Precedent

Such financial meltdowns based on shifts in real estate prices are not new. In the 1970s, regulations on savings and loans (S&Ls) had changed. Previously, S&Ls had been limited to lending in the consumer market, primarily in mortgages for homes. But the regulations shifted, and they became allowed to invest more broadly. The assets of these small banks, of which there were thousands, were attractive in that they were a pool of cash available for investment. The S&Ls subsequently went into commercial real estate, sometimes with their old management, sometimes with new management who had bought them, as their depositors no longer held them.

The infusion of money from the S&Ls drove up the price of commercial real estate, which the institutions regarded as stable and conservative investments, not unlike private homes. They did not take into account that their presence in the market was driving up the price of commercial real estate irrationally, however, or that commercial real estate prices fluctuate dramatically. As commercial real estate values started to fall, the assets of the S&Ls contracted until most failed. An entire sector of the financial system simply imploded, crushing shareholders and threatening a massive liquidity crisis. By the late 1980s, the entire sector had melted down, and in 1989 the federal government intervened.

The federal government intervened in that crisis as it had in several crises large and small since 1929. Using the resources at its disposal, the federal government took over failed S&Ls and their real estate investments, creating the Resolution Trust Corp. (RTC). The amount of assets acquired was about $394 billion dollars in 1989 — or 6.7 percent of gross domestic product (GDP) — making it larger than the $700 billion dollars — or 5 percent of GDP — being discussed now. Rather than flooding the markets with foreclosed commercial property, creating havoc in the market and further destroying assets, the RTC held the commercial properties off the market, maintaining their price artificially. They then sold off the foreclosed properties in a multiyear sequence that recovered much of what had been spent acquiring the properties. More important, it prevented the decline in commercial real estate from accelerating and creating liquidity crises throug hout the entire economy.

Many of those involved in S&Ls were ruined. Others managed to use the RTC system to recover real estate and to profit. Still others came in from the outside and used the RTC system to build fortunes. The RTC is not something to use as moral lesson for your children. But the RTC managed to prevent the transformation of a financial crisis into an economic meltdown. It disrupted market operations by introducing large amounts of federal money to bring liquidity to the system, then used the ability of the federal government — not shared by individuals — to hold on to properties. The disruption of the market’s normal operations was designed to avoid a market outcome. By holding on to the assets, the federal government was able to create an artificial market in real estate, one in which supply was constrained by the government to manage the value of commercial real estate. It did not work perfectly — far from it. But it managed to avoid the most feared outcome, which was a depression.

There have been many other federal interventions in the markets, such as the bailout of Chrysler in the 1970s or the intervention into failed Third World bonds in the 1980s. Political interventions in the American (or global) marketplace are hardly novel. They are used to control the consequences of bad decisions in the marketplace. Though they introduce inefficiencies and frequently reward foolish decisions, they achieve a single end: limiting the economic consequences of these decisions on the economy as a whole. Good idea or not, these interventions are institutionalized in American economic life and culture. The ability of Americans to be shocked at the thought of bailouts is interesting, since they are not all that rare, as judged historically.

The RTC showed the ability of federal resources — using taxpayer dollars — to control financial processes. In the end, the S&L story was simply one of bad decisions resulting in a shortage of dollars. On top of a vast economy, the U.S. government can mobilize large amounts of dollars as needed. It therefore can redefine the market for money. It did so in 1989 during the S&L crisis, and there was a general acceptance it would do so again Sept. 29.
The RTC Model and the Road Ahead

As discussed above, the first group argues the current crisis is so large that it is beyond the federal government’s ability to redefine. More precisely, it would argue that the attempt at intervention would unleash other consequences — such as weakening dollars and inflation — meaning the cure would be worse than the disease. That may be the case this time, but it is difficult to see why the consequences of this bailout would be profoundly different from the RTC bailout — namely, a normal recession that would probably happen anyway.

The debate between the political leadership and those opposing its plan is more interesting. The fundamental difference between the RTC and the current bailout was institutional. Congress created a semi-independent agency operating under guidelines to administer the S&L bailout. The proposal that was defeated Sept. 29 would have given the secretary of the Treasury extraordinary personal powers to dispense the money. Some also argued that the return on the federal investment was unclear, whereas in the RTC case it was fairly clear. In the end, all of this turned on the question of urgency. The establishment group argued that time was running out and the financial crisis was about to morph into an economic crisis. Those voting against the proposal argued there was enough time to have a more defined solution.

There was obviously a more direct political dimension to all this. Elections are just more than a month a way, and the seat of every U.S. representative is in contest. The public is deeply distrustful of the establishment, and particularly of the idea that the people who caused the crisis might benefit from the bailout. The congressional opponents of the plan needed to demonstrate sensitivity to public opinion. Having done so, if they force a redefinition of the bailout plan, an additional 13 votes can likely be found to pass the measure.

But the key issue is this: Are the resources of the United States sufficient to redefine financial markets in such a way as to manage the outcome of this crisis, or has the crisis become so large that even the resources of a $14 trillion economy mobilized by the state can’t do the job? If the latter is true, then all other discussions are irrelevant. Events will take their course, and nothing can be done. But if that is not true, that means that politics defines the crisis, as it has other crisis. In that case, the federal government can marshal the resources needed to redefine the markets and the key decision-makers are not on Wall Street, but in Washington. Thus, when the chips are down, the state trumps the markets.

All of this may not be desirable, efficient or wise, but as an empirical fact, it is the way American society works and has worked for a long time. We are seeing a case study in it — including the possibility the state will refuse to act, creating an interesting and profound situation. This would allow the market alone to define the outcome of the crisis. This has not been allowed in extreme crises in 75 years, and we suspect this tradition of intervention will not be broken now. The federal government will act in due course, and an institutional resolution taking power from the Treasury and placing it in the equivalent of the RTC will emerge. The question is how much time remains before massive damage is done to the economy.

Tell Stratfor What You Think

This report may be forwarded or republished on your website with attribution to http://www.stratfor.com

[bunklocoempire]

Good read RSY thanks.

I received this as e-mail.

Here's an analysis and solution offered by the Constitution Party, of course there is congressional responsibility to our Constitution involved, as well as faith in our Constitution. Nice to have a vice-presidential candidate actually spell out a plan. (or ANY candidate )




SOMETHING WICKED THIS WAY COMES

By Darrell L. Castle http://baldwin08.com/Darrell-Castle.cfm

Constitution Party 2008 Vice-Presidential Candidate



Crystal water turns to dark

Where ere it’s presence leaves it’s mark

And boiling currents pound like drums

When something wicked this way comes.

(Original poem by Ray Bradbury)



Laws, originally evolving out of the New Deal legislation written in response to the great depression, once protected the American financial system. Starting in the 1990’s, in response to intense lobbying efforts by the financial industry, those laws were stripped away. The most important one was Glass Steagall which separated commercial banking from the type of investment work of a stockbroker. Glass Steagall was signed out of existence in 1999 by President Clinton and less than 10 years later the entire financial system is bankrupt. Another law, known as The Uptick rule, prevented companies from crashing due to large scale shorting of company stock. A company’s stock could not be sold short as long as it was in continuous decline. Short sellers had to wait for an uptick in the stock before shorting. The Uptick Rule ended in 2007 just about one year ago.



The end of the laws protecting the American public from unscrupulous speculators disguised as bankers caused changes in the way our banks do business. The banks decided that simple banking, that is loaning money at interest, was not profitable enough so they began investing in risk paper. This changed them from banks into something akin to casinos. Now that the gamble has finally failed these new casinos are asking the American taxpayer to pick up the tab for their greed and excess.



Now all this risk paper, known in the financial world as “the derivatives market” is collapsing. Derivatives are not stocks or bonds or anything else substantial. They are simply paper derived from other paper such as futures and options. Futures and options are exchange traded derivatives, but the largest group of derivatives is not even traded on the exchanges. These are called “counterparty derivatives” and consist of such things as collateralized debt obligations, mortgage backed securities, and credit default swaps. It is estimated that total derivative exposure of the financial system is between one quadrillion and one and a half quadrillion. A quadrillion is 1000 trillion. To put that in perspective, the entire GDP of all the world’s countries in 2007 was approximately 60 trillion. GDP is basically everything that is produced for sale. The American people are now being asked to shoulder the risk of the entire derivatives market and if they do, 700 billion will prove to be a drop in the bucket.



The rapid increase in the price of fuel during the last year is a good example of the destructive nature of the derivative market. Much of the price increase was due to speculation in futures especially by Goldman Sachs (Henry Paulson’s company) and Morgan Stanley. These companies, it is believed, are responsible for about 50% of the speculative price of oil. What that means is that every time we buy gas we subsidize the parasites who feed off us so they can continue their existence. We are now being asked to accept increased taxes to cover their losses.



Now that this mess has been created, what should be done to resolve it with the least amount of pain for the American People?



1. All failed and at risk financial companies, not just those we constantly read about, should be seized by the F.D.I.C. (Federal Deposit Insurance Corporation) and put into involuntary Chapter 11 Bankruptcy. The money people have on deposit would carry the same FDIC guarantee as before so there would be no need for panic. The Chapter 11 trustee would examine the assets of these institutions and all derivative paper should be discharged in bankruptcy. The American people should not accept one penny of risk for derivative paper. The real assets such as mortgages on residential real estate should be separated and foreclosure should be indefinitely frozen. The at risk mortgages, whether subprime or not, could be written down to the current value of the property and re-amortized for a payment the homeowner could afford. The mortgage could then be returned to the bank for service or referred to Fannie and Freddie if the bank did not survive Chapter 11.



2. The Federal Reserve Banks should be seized by Congress under Article 1 Section 8 of the Constitution. The FED banks could survive as Clearinghouse banks but the Federal Reserve that has robbed the American people for 100 years would cease to exist. The debt owed by the American people to the FED banks would be discharged in bankruptcy. Congress would take monetary policy from the FED and would simply stand in place of the FED through a monetary board. The FED credit computers would be transferred to Congress who would issue new credit (money) because under our present system 97% of all money originates as credit. This new credit would keep the system going and prevent collapse. It could all be done without interest and without debt. The backs of the international banking cartel would be broken forever and the American people through their elected representatives would control monetary policy i.e. money in circulation, interest rates, and credit availability.



3. Glass Steagall and the Uptick Rule should be returned. Speculation in the futures markets of essentials such as fuel, food, and medicine should be banned or at least have a punitive tax say 50% attached.



4. The Chapter 11 Bankruptcy Trustee would immediately move to seize any assets taken by the CEO’s and Boards of Directors from the bankrupt companies during the prescribed time period. No bankruptcy system would allow the CEO of the bankrupt company to keep hundreds of millions as in some of these cases. At the same time, the U.S. Attorney should be directed to examine the process for criminal sanctions where laws have been violated.



In conclusion, this plan would return our monetary system to the American People and ignite a new wave of prosperity and liberty. Every crisis presents opportunities if we only look for them. This is an opportunity for the American people to throw off the yoke of debt bondage that has enslaved them for 100 years and gain direct control of monetary policy through representatives answerable directly to them. No particular philosophy has been respected or spared in this plan. I am more interested in saving the system for the American people than I am in respecting anyone’s philosophy of money or government. This is intended to be a simple, easy to understand, explanation of our banking crisis with a Consitutional solution.



Bunkloco

[RSY]

Sounds reasonable to me.

Although it doesn't account for the government's role in all this (pressuring lenders to loan to those who shouldn't be loaned to in the utopian name of everyone being a homeowner), "the Giant Pool of Money" is well worth the hour it'll take you to listen to it. Both entertaining and informative.

Just click on the orange "Full Episode" a little ways down the page, then put something under your jaw to catch it when it drops:

http://www.thislife.org/Radio_Episode.aspx?episode=355

[Cowboy1]

I don't know what you think of Steve Forbes, but I respect him. I heard him interviewed about this crisis on talk radio last week and believe me, this guy can explain a complex problem clearly. What Forbes said was sobering, and I believe he was right. Yes, the crisis is the result of bad judgment and irresponsible behavior, and a few at the top of certain organizations are escaping the country, ect. But the bottom line is that it is growing and will continue to grow if there isn't an emergency injection of money into the banking system. If this is NOT done, as happened in 1929, the effects will spread downward and outward to sectors of the economy that had nothing to do with creating or contributing to the mess. Right now even, small and medium sized businesses are unable to get the lines of credit they normally used with their banks to stay operational.

What resulted after 1929 was 50 years of socialism that was broken only by the election of Ronald Reagan in 1980. If we do nothing, we face the risk of another depression and deflation. And what will follow that will be more government takeover, less liberty. America cannot afford this.

The Arizona Cowboy

[RSY]

What resulted after 1929 was 50 years of socialism that was broken only by the election of Ronald Reagan in 1980. If we do nothing, we face the risk of another depression and deflation. And what will follow that will be more government takeover, less liberty. America cannot afford this.

A very, very, VERY good point.

Scott

[bunklocoempire]

I don't know what you think of Steve Forbes, but I respect him. I heard him interviewed about this crisis on talk radio last week and believe me, this guy can explain a complex problem clearly. What Forbes said was sobering, and I believe he was right. Yes, the crisis is the result of bad judgment and irresponsible behavior, and a few at the top of certain organizations are escaping the country, ect. But the bottom line is that it is growing and will continue to grow if there isn't an emergency injection of money into the banking system. If this is NOT done, as happened in 1929, the effects will spread downward and outward to sectors of the economy that had nothing to do with creating or contributing to the mess. Right now even, small and medium sized businesses are unable to get the lines of credit they normally used with their banks to stay operational.

What resulted after 1929 was 50 years of socialism that was broken only by the election of Ronald Reagan in 1980. If we do nothing, we face the risk of another depression and deflation. And what will follow that will be more government takeover, less liberty. America cannot afford this.

The Arizona Cowboy

America cannot afford this.

In terms of Liberty or dollars? I prefer Liberty. Read the bill.

Does not the Federal Reserve and a treasonous congress already have the power to inject money into the system? This is a power grab, read the bill.

Has government cut any taxes to "bolster" the economy? Cut spending? When my houshold can't afford something, we do without or cut spending in one area to afford in another.

Will injecting $700 billion ($700 is what they're saying, it's open ended) into the economy do anything except weaken the dollar? The more of something there is, the less it's worth. Expect prices to rise with another "injection".

Recession? Depression? It is needed. The Market is trying to correct itself. Liberty or "wealth"?

This is a power grab, please read the bill.


Bunkloco

[bunklocoempire]

Here is one citizens interpretation of the bill, someones paying attention! Not exactly good for U.S.Sovereignty. Scroll to bottom.

http://justgetthere.us/blog/archives/Hi ... erves.html


By OFALLONBRENT



Lion And Lamb Ministries | In yesterday’s Senate bailout bill, also known as the ‘‘Emergency Economic Stabilization Act of 2008’’ is the following, seemingly innocent section.

SEC. 128. ACCELERATION OF EFFECTIVE DATE.

Section 203 of the Financial Services Regulatory Relief Act of 2006 (12 U.S.C. 461 note) is amended by striking ‘‘October 1, 2011’’ and inserting ‘‘October 1, 2008’’.

So they moved the date of the Financial Services Regulatory Relief Act of 2006 up by 3 years. Big deal you say, and what the heck is the FSRRA of 2006? It was a series of amendments to 12 U.S.C. 461 of course! Well, okay, I don’t expect you to know what that is, so here it is (and the other related documents).

The bailout bill - http://money.cnn.com/2008...

Financial Services Regulatory Relief Act of 2006 - http://www.govtrack.us/co...

12 U.S.C. 461 - http://www.law.cornell.ed...


You may want to open those in new tabs, we’ll be bouncing around them a bit.

Okay, lets follow the trail…

They changed the effective date from 2011 to yesterday!

The Financial Services Regulatory Relief Act of 2006 made changes to the United States Code TITLE 12 - BANKS AND BANKING, CHAPTER 3 - FEDERAL RESERVE SYSTEM, SUBCHAPTER XIV - BANK RESERVES.

The changes do a few things…all, of course, BAD…

The changes eliminated the requirement for banks to keep reserves of cash on hand to cover deposits, they abolished the Federal Reserve’s Earnings Participation Account, they granted the ability for the Fed to create their own rules for distributing their earnings, and they granted the ability to make payments to foreign banks.

These things were not scheduled to go into effect for 3 more years. Unclear is why they needed these changes at all, the other is why they need them now.

Okay, you can stop now and have some disgust at the whole thing, or you can continue on and get really mad about how convoluted and cryptic things in Washington are.

Continue at your own risk…

Still here? You really are brave. Actually you probably have no idea the mess you are in for. Don’t say I didn’t warn you.


‘‘Emergency Economic Stabilization Act of 2008’’

SEC. 128. ACCELERATION OF EFFECTIVE DATE.

Section 203 of the Financial Services Regulatory Relief Act of 2006 (12 U.S.C. 461 note) is amended by striking ‘‘October 1, 2011’’ and inserting ‘‘October 1, 2008’’.

Okay, we know the date has moved. Let’s look at what moved. Section 203 is a part of the following Title. It states when the entire title goes into effect. So they made the entire Title go into effect yesterday.


TITLE II--MONETARY POLICY PROVISIONS


SEC. 201. AUTHORIZATION FOR THE FEDERAL RESERVE TO PAY INTEREST ON RESERVES.




(a) In General- Section 19(b) of the Federal Reserve Act (12 U.S.C. 461(b)) is amended by adding at the end the following:


`(12) EARNINGS ON BALANCES-


`(A) IN GENERAL- Balances maintained at a Federal Reserve bank by or on behalf of a depository institution may receive earnings to be paid by the Federal Reserve bank at least once each calendar quarter, at a rate or rates not to exceed the general level of short-term interest rates.

`(B) REGULATIONS RELATING TO PAYMENTS AND DISTRIBUTIONS- The Board may prescribe regulations concerning--

`(i) the payment of earnings in accordance with this paragraph;
`(ii) the distribution of such earnings to the depository institutions which maintain balances at such banks, or on whose behalf such balances are maintained; and
`(iii) the responsibilities of depository institutions, Federal Home Loan Banks, and the National Credit Union Administration Central Liquidity Facility with respect to the crediting and distribution of earnings attributable to balances maintained, in accordance with subsection (c)(1)(A), in a Federal Reserve bank by any such entity on behalf of depository institutions.

`(C) DEPOSITORY INSTITUTIONS DEFINED- For purposes of this paragraph, the term `depository institution', in addition to the institutions described in paragraph (1)(A), includes any trust company, corporation organized under section 25A or having an agreement with the Board under section 25, or any branch or agency of a foreign bank (as defined in section 1(b) of the International Banking Act of 1978).'.

(b) Conforming Amendment- Section 19 of the Federal Reserve Act (12 U.S.C. 461) is amended--

(1) in subsection (b)(4)--

(A) by striking subparagraph (C); and

(B) by redesignating subparagraphs (D) and (E) as subparagraphs (C) and (D), respectively; and
(2) in subsection (c)(1)(A), by striking `subsection (b)(4)(C)' and inserting `subsection (b)'.

SEC. 202. INCREASED FLEXIBILITY FOR THE FEDERAL RESERVE BOARD TO ESTABLISH RESERVE REQUIREMENTS.

Section 19(b)(2)(A) of the Federal Reserve Act (12 U.S.C. 461(b)(2)(A)) is amended--
(1) in clause (i), by striking `the ratio of 3 per centum' and inserting `a ratio of not greater than 3 percent (and which may be zero)'; and
(2) in clause (ii), by striking `and not less than 8 per centum,' and inserting `(and which may be zero),'.



SEC. 203. EFFECTIVE DATE.

The amendments made by this title shall take effect October 1, 2011.

Okay, so we can see here that 201 and 202 amend 12 U.S.C. 461. If we take 12 U.S.C. 461 section 19 (b) in the order of the amendments, the first is Section 19(b)(2)(A).



(2) (A) Each depository institution shall maintain reserves against its transaction accounts as the Board may prescribe by regulation solely for the purpose of implementing monetary policy—
(i) in the ratio of 3 per centum for that portion of its total transaction accounts of $25,000,000 or less, subject to subparagraph (C); and
(ii) in the ratio of 12 per centum, or in such other ratio as the Board may prescribe not greater than 14 per centum and not less than 8 per centum, for that portion of its total transaction accounts in excess of $25,000,000, subject to subparagraph (C).

this section is amended—
(1) in subsection (b)(2)(A), by striking “the ratio of 3 per centum” and inserting “a ratio of not greater than 3 percent (and which may be zero)” in clause (i) and by striking “and not less than 8 per centum,” and inserting “(and which may be zero),” in clause (ii);



Notice the change from a set percentage to a percentage “not greater than” and “which may be zero”. So depository institutions no longer have to maintain reserves against their transaction accounts. What is a depository institution? What is a transaction account?



(1) The following definitions and rules apply to this subsection, subsection (c) of this section, and
sections 248–1, 248a, 342, 360, and 412 of this title:

(A) The term “depository institution” means—

(i) any insured bank as defined in section 3 of the Federal Deposit Insurance Act [12 U.S.C. 1813] or any bank which is eligible to make application to become an insured bank under section 5 of such Act [12 U.S.C. 1815];
(ii) any mutual savings bank as defined in section 3 of the Federal Deposit Insurance Act or any bank which is eligible to make application to become an insured bank under section 5 of such Act;
(iii) any savings bank as defined in section 3 of the Federal Deposit Insurance Act or any bank which is eligible to make application to become an insured bank under section 5 of such Act;
(iv) any insured credit union as defined in section 1752 of this title or any credit union which is eligible to make application to become an insured credit union pursuant to section 1781 of this title;
(v) any member as defined in section 1422 of this title;
(vi) any savings association (as defined in section 3 of the Federal Deposit Insurance Act
[12 U.S.C. 1813]) which is an insured depository institution (as defined in such Act [12 U.S.C. 1811 et seq.]) or is eligible to apply to become an insured depository institution under the Federal Deposit Insurance Act; and (vii) for the purpose of sections 248–1, 342 to 347, 347c, 347d, and 372 of this title any association or entity which is wholly owned by or which consists only of institutions
referred to in clauses (i) through (vi).



So pretty much any place that handles deposits, most people just call them banks.

(C) The term “transaction account” means a deposit or account on which the depositor or account holder is permitted to make withdrawals by negotiable or transferable instrument, payment orders of withdrawal, telephone transfers, or other similar items for the purpose of making payments or transfers to third persons or others. Such term includes demand deposits, negotiable order of withdrawal accounts, savings deposits subject to automatic transfers, and share draft accounts.

This basically means bank accounts. So there it is, banks no longer have to keep even a small amount of peoples bank accounts available as cash. They don’t have to fail, they can just say they are out of cash today. Your money is still there, FDIC does not kick in, but they just stop giving out money.

Okay, what else does the date change put into effect 3 years early?

(2) in subsection (b)(4), by striking subparagraph (C) and redesignating subparagraphs (D) and (E) as subparagraphs (C) and (D), respectively



What was subparagraph (C)? In order to understand subparagraph (C) we need to see the whole paragraph (4).



(4) (A) The Board may, upon the affirmative vote of not less than 5 members, impose a supplemental reserve requirement on every depository institution of not more than 4 percentum of its total transaction accounts. Such supplemental reserve requirement may be imposed only if—

(i) the sole purpose of such requirement is to increase the amount of reserves maintained to a level essential for the conduct of monetary policy;
(ii) such requirement is not imposed for the purpose of reducing the cost burdens resulting from the imposition of the reserve requirements pursuant to paragraph (2);
(iii) such requirement is not imposed for the purpose of increasing the amount of balances needed for clearing purposes; and
(iv) on the date on which the supplemental reserve requirement is imposed, except as provided in paragraph (11), the total amount of reserves required pursuant to paragraph
(2) is not less than the amount of reserves that would be required if the initial ratios specified in paragraph (2) were in effect.

(B) The Board may require the supplemental reserve authorized under subparagraph (A) only after consultation with the Board of Directors of the Federal Deposit Insurance Corporation,
the Director of the Office of Thrift Supervision, and the National Credit Union Administration Board. The Board shall promptly transmit to the Congress a report with respect to any exercise
of its authority to require supplemental reserves under subparagraph (A) and such report shall state the basis for the determination to exercise such authority.

(C) The supplemental reserve authorized under subparagraph (A) shall be maintained by the Federal Reserve banks in an Earnings Participation Account. Except as provided in subsection (c)(1)(A)(ii) of this section, such Earnings Participation Account shall receive earnings to be paid by the Federal Reserve banks during each calendar quarter at a rate not more than the rate earned on the securities portfolio of the Federal Reserve System during the previous calendar quarter. The Board may prescribe rules and regulations concerning the payment of earnings on Earnings Participation Accounts by Federal Reserve banks under this paragraph.

(D) If a supplemental reserve under subparagraph (A) has been required of depository institutions for a period of one year or more, the Board shall review and determine the need for continued maintenance of supplemental reserves and shall transmit annual reports to the Congress regarding the need, if any, for continuing the supplemental reserve.

(E) Any supplemental reserve imposed under subparagraph (A) shall terminate at the close of the first 90-day period after such requirement is imposed during which the average amount of reserves required under paragraph (2) are less than the amount of reserves which would be required during such period if the initial ratios specified in paragraph (2) were in effect.



So they make every bank pay into a reserve fund. It is maintained in an Earnings Participation Account. By deleting subparagraph (C) they abolished that account. They no longer have to maintain the account or pay the earnings. They can still impose a supplemental reserve requirement, they just don’t have to pay any earnings. I wonder what happened to the funds in that account. Remember, this went into effect yesterday.



Okay, what’s next? Ah yes, they added a whole new paragraph 12!





“(12) Earnings on balances.—
“(A) In general.—Balances maintained at a Federal Reserve bank by or on behalf of a depository institution may receive earnings to be paid by the Federal Reserve bank at least once each calendar quarter, at a rate or rates not to exceed the general level of short-term interest rates.

“(B) Regulations relating to payments and distributions.—The Board may prescribe regulations concerning—

“(i) the payment of earnings in accordance with this paragraph;
“(ii) the distribution of such earnings to the depository institutions which maintain balances at such banks, or on whose
behalf such balances are maintained; and
“(iii) the responsibilities of depository institutions, Federal Home Loan Banks, and the National Credit Union Administration Central Liquidity Facility with respect to the crediting and distribution of earnings attributable to balances maintained, in accordance with subsection (c)(1)(A), in a Federal Reserve bank by any such entity on behalf of depository institutions.

“(C) Depository institutions defined.—For purposes of this paragraph, the term ‘depository institution’, in addition to
the institutions described in paragraph (1)(A), includes any trust company, corporation organized under section 25A
[12 U.S.C. 611 et seq.] or having an agreement with the Board under section 25 [12 U.S.C. 601 et seq.], or any branch
or agency of a foreign bank (as defined in section 3101 of this title).”;
(4) in subsection (c)(1)(A), by striking “subsection (b)(4)(C)” and inserting “subsection (b)”.



So paragraph 12 deals with earnings on balances. So basically any money the Federal Reserve bank has from other banks can make earnings and the Fed can decide how and if those earnings are paid out. Remember the definition of depository institutions? Of course you do, but we have an additional definition just for this paragraph, everything you already know with the addition of foreign banks.

So what you ask, if they deposit money in the Fed bank, shouldn’t they make money.

Well, maybe, but yesterday they did not.

Remember, this entire paragraph 12 was not supposed to go into effect until 2011.

Foreign banks were not in the definition of depository institutions until they changed the effective date from October1, 2011 to October 1, 2008.

If we rewrite the opening of the paragraph to use the words “foreign banks” it reads…:

Balances maintained at a Federal Reserve bank by or on behalf of a foreign banks may receive earnings to be paid by the Federal Reserve bank at least once each calendar quarter, at a rate or rates not to exceed the general level of short-term interest rates.

So, to summarize, by changing the effective date the following is now in effect:

Banks don’t have to have cash on hand.

The Fed does not have to maintain an Earnings Protection account for the supplemental reserve fees they charge banks which means they don’t have to give any of the money back to those banks. They now include foreign banks as institutions they can pay earnings to. Let’s not forget, earnings is really just more American debt. Federal Reserve Notes are really debt, but that’s a topic for another monster blog entry.

Anyway, all of this from one puny and innocuous section in the ‘‘Emergency Economic Stabilization Act of 2008’’. If you read this whole thing you deserve a gold star.

So There You Have it!
------------------------------------------------------------------------------------------------


Liberty or "wealth".

Bunkloco