jg – May 13, 2010
Guest Post: The King George "Decoupling" Revisited
Submitted by Tyler Durden on 05/13/2010 08:34 -0500
Submitted by Chindit 13
Congress, always wont to congratulate itself for a job barely done, applauded itself for passage of the one-time audit of the Federal Reserve. Once is not enough. That this issue gets so little press owes as much to public misunderstanding as it does the vaunted secrecy the Fed coverts dearly enough to spend taxpayer money lobbying to keep those same taxpayers from having a window into its workings.
In a country that claims to be a democracy, this is a travesty on par with the grievances that prompted our Founding Fathers to seek independence from King George.
Little known to the average taxpayer, the Fed is a public-private entity that not only issues the nation’s currency, but sets interest rate policy and has supervisory authority over the banking system.
Its private owners, who are anything but neutral, number the largest banking and finance institutions in the country, the so-called Too Big to Fail banks.
Along with Treasury, the Fed has been instrumental in what SIGTARP Chief Barofsky has estimated has been $23 trillion of bailouts, loans, backstops and guarantees, since the financial crisis struck two years ago. To put that number in perspective, it represents almost twice the US GDP and 40% of World GDP. It also represents $75,000 for every man, woman, and child in the US.
Although not all of that money has been created or spent, much has, which means the US taxpayer now carries the responsibility for paying it back. Oddly, one might even say immorally, the Fed goes out of its way to prevent even the democratically elected representatives of the people from seeing the inner workings of that entity. The Fed---with help from the Obama White House---has lobbied to block access to information about what the taxpayer has bought, though the taxpayer is still required to pay for it, either directly in taxes or through inflation and a depreciating currency. If this is not the definition of “Taxation without Representation”, I do not know what is.
In the last two years, from what little we can gather, the Fed has lowered interest rates to zero in order to help the banks (who are its private shareholders), thereby rewarding the reckless and profligate and punishing the saver and the prudent. The Fed has increased its balance sheet from a few hundred billion dollars to nearly two and a half trillion dollars over that time, handing out money to bad banks, overpaying for both Treasury issuances and toxic mortgage backed securities, and effectively monitizing the debt of Treasury, which by its charter it is proscribed from doing. The Fed has also provided more than $2 trillion to certain unnamed banks to shore up the balance sheets, that they themselves destroyed (this is the subject of an FOIA request by Bloomberg News which the Fed is currently appealing).
Apparently it was not enough to bail out American banks only. Now the Fed is bailing out both European banks and sovereign states such as Greece via an unlimited foreign exchange swap facility whose primary goal is to further weaken the dollar and promote enough domestic inflation so as to make debt repayment easier for the spendthrifts.
What has America received in return for the Fed’s furtive efforts?
Unemployment stands at 10% and underemployment at 17%. Savers have been punished and encouraged to seek risk rather than security. Major banks have absolutely no incentive whatsoever to lend because they can borrow from the Fed at virtually zero percent, then lend the same money back to Treasury by buying somewhere along the yield curve, where the spread allows them to cover their operating costs with no risk. Banks have also used that 0% Fed money to speculate in the stock market, where a low volume rally has carried prices to levels hardly justified by economic fundamentals. It is no wonder why bank lending is still falling. Why should they bother lending, when they can profit without risk by simply taking free money and playing the yield curve?
In the last week it was reported that three major banks---Goldman Sachs, JPMorgan, and Bank of America---all had 100% winning days in Quarter 1 on their Proprietary Trading Desks or prop desks. Nobody is that good, and such results could not be achieved unless the desks had access to information and funding which is unavailable to mere mortals. The odds of achieving this feat are as great as a baseball player hitting 1.000 for the first two months of the season; it could not be done even if the player was allowed to use his own batting practice pitcher. Prop desks are where the banks use your money to trade for their account. In no way whatsoever do these proprietary activities serve society or the taxpayer. For these banks there is absolutely no risk, while the gains---as evidenced by record Wall Street bonuses in 2009---all accrue to the banks. As we learned in the last two years, if banks happened to lose money, both the Fed and the Treasury will make sure they are made whole again with US Taxpayer funds. For the Too Big to Fail banks, this is not only the best of times, but the financial crisis has proven to be the best thing that ever happened to them. For the rest of America not working on Wall Street and not with an ownership position in the Fed, times are not quite so rosy.
Why is it that a combination of the Fed, Treasury, major banks and the White House have decided that the American people have no right to know all of the things the people are responsible for through the machinations and activities of the Federal Reserve? Is America not a democracy? Have we reverted to colonial times, and instead of being beholden to a foreign monarch, we are now beholden to a domestic monarchy in the form of the Federal Reserve and the Too Big to Fail banks?
Those in Congress and the Administration, as well as the Fed and Wall Street, would do well to remember what happened last time the people had to pay without any say. [emphasis added]