Looking into the derivatives crisis and major players that manufactured the economic crisis, anything short of killing the ‘Creature from Jekyll Island’ would be unjust.
26 Oct 09 | InfoShop News
The global financial crisis is not rooted in a philosophical blunder spread through classrooms and speeches that preceded the collapse of the financial system. The financial system was globalized to defer the negative consequences of a manufactured, inevitable economic pandemic onto the global plantation by the forceful gun of government.
Wall Street greed fueled its invasion of Washington, but without understanding how and why, the parasitic bankster cartel will orchestrate another crisis because the tools for them to do so—will not only remain in existence but, worse—remain in their sheds.
The Treasury Department has compiled a section of the Financial Regulatory Reform bill recommending the regulation of over-the-counter (O.T.C.) derivatives [.pdf] be executed by the Commodity Futures Trading Commission (CFTC). The word—“regulation”— has become a word without meaning in the discourse since the Great Recession began. It implies that the measures needed to seriously say, “Never again!” require more government agencies of appointees doing a bunch of stuff too complicated for the People to be well-informed enough to hold accountable.
Were the all local rape crimes federalized, the People would not support investigation and analysis of allegations be conducted by a group of sex offenders appointed by the president. The crimes would be investigated by the Federal Bureau of Investigation. The findings of those investigations would not go to Congressional committee, let alone another federal agency of other sex offenders appointed by the president. The findings would go to the Department of Justice (DoJ) to be prosecuted by the attorney general in a criminal court. Because rape is a violent crime.
More foxes guarding the henhouse aside, seeking out regulatory agencies to regulate Wall Street—as if the People have any clue what “regulate” means—is a clever way for Wall Street’s cronies in Washington to manufacture a diversion from the 500 lb. gorilla in the room: O.T.C. derivatives are fraudulent theft.
In the 90’s, Congress broke down the wall between commercial and investment banks allowing for them to collateralize the money in depositors’ accounts. The inherent nature of banking is in lending amounts which exceed the collateral by about eight to nine times. After the repeal of the Glass-Stegall Act, the banks could insure each others’ risk O.T.C. from insuring other financial institutions—hedge funds, etc.—The banks would insure the insurers. Then, insure each other. Next, seek out insurance for that insurance and so on. The derived assets fully insured were the insurance policies which exceeded the insurance policies which exceeded the insurance policies which exceeding the lending eight to nine times the real assets. By September of 2008, banks with a U.S. Monetary base of slightly under a trillion dollars was liable for upwards of around $531 trillion in O.T.C. Derivatives. The recklessness of the predatory $13 trillion mortgage crisis dwarfs in comparison.
After Bill Clinton was elected president in 1992, he interviewed Brooksley Born to head the DoJ as the country’s attorney general in his coming administration. Ms. Born was an accomplished derivatives lawyer passed on by the transitional team, instead appointed to head the CFTC—the federal agency which monitors options and futures trading. Shortly after the repeal of Glass-Stegall, in 1995, former Goldman Sachs Vice Chairman Robert Rubin was appointed to head the Treasury Department.
Among Mr. Rubin’s responsibilities of head the government’s financial agency is serving as the president’s chief financial adviser. This is job is to be distinguished from that of the man who headed the Federal Reserve Bank, Alan Greenspan. Mr. Greenspan’s job as chairman of the central bank—theoretically, the lender of last resort—was that of any bank: lend money at interest. The money lent are Federal Reserve Notes—commonly referred to as ‘dollars’ or ‘greenbacks’ because it’s backed by nothing more than the green ink on the paper upon which it’s printed. A note is not really money; it’s a debt slip.
The Fed’s role as the lender where all U.S. dollars derive makes it the controller of its value. In short, the more abundant, the lesser the value; the more scarce, the higher the value. The bank’s control of the money supply makes it the tool for the creation and destruction of wealth in the U.S. As a bank, it doesn’t only print the money in circulation, but also credits “good faith” in quantity to lenders in the commercial banking sector. Just as any lender, the Fed needs to be aware of the assets and liabilities of its borrowers to correctly set interest rates—-margin of error on payback—and what institutions can be responsibly lent what amount of money and issued what amount of credit, or guarantees, in “good faith”.
When Ms. Born had her first meeting with Mr. Greenspan, she warned him of lending to Wall Street institutions trading O.T.C. derivatives—derivatives being investments in future returns—being fraudulent in that the zero-sum nature of the game yields no expectation for the profit on which they’re leveraged. His response, her aides have publicly said, was: the Fed will not monitor fraud. Defenders of Mr. Greenspan were possessed by political ambition, but that set aside, Mr. Greenspan’s blind eye toward fraud while the protector of all Americans’ assets led to fraudulent practices by Mr. Greenspan, himself, in his conduct as chairman at the Fed. He issued “good faith” in the direction of blatant fraud.
Ms. Born didn’t stop at the Fed. In 1997, she wrote recommendations to the appropriate committees at Congress to shed light on the fact that secretive derivatives trading “threaten our regulated markets or, indeed, our economy without any federal agency knowing about it”and was promptly phoned by Larry Summers, Mr. Rubin’s then-deputy secretary. He told her he had 15 bankers in his office boasting of multiple lobbyists per Congressman and threatening to blow up the financial system if she got what she wanted.
Mr. Greenspan—the nation’s top banker—with Mr. Rubin, Mr. Summers and a myriad of lobbyists persuaded Congressmen and then-chairman of the Securities and Exchange Commission, Arthur Levitt—most of whom, including Mr. Levitt, admittedly had no idea what O.T.C. derivatives were—to shoot down Ms. Born’s assessment of the inevitable bust of the phony financial system. In 1999, she resigned from her post. As early as September of 2008, Mr. Levitt has repeatedly voiced his regret, saying that he would have advocated differently were he educated.
Many Democrats and Progressives read this story in The New York Times, as reported by Peter Goodman—and maybe saw the excellent episode of Frontline on PBS this past week titled, “The Warning”—chronicling Ms. Born calling out the Naked Emperors and casually accept the Obama Administration Treasury Department’s recommendation in the Financial Regulatory Reform bill to have the CFTC regulate O.T.C. derivatives trading. But—“after heavy lobbying from the banking industry and corporate America”—the two bills from the Administration and Congress”are weak and unlikely to prevent another fiasco,” according to The New York Times Sunday editorial, October 25. “The supposed logic is that corporate derivative users did not cause the crisis.”
The current secretary of the treasury is Mr. Rubin’s protégé, Timothy Geithner, and Mr. Summers is assistant to the president for economic policy as director of the National Economic Council. Mr. Rubin went on to work for Citigroup, a financial institution that has been bailed out for hundreds of billions of dollars after a collapse due to its involvement in the derivatives market, rose to become its C.E.O. and is currently an economic adviser in the Obama Administration. These are the men recommending the CFTC regulate derivatives.
A repeat of Ms. Born’s recommendation in 1997? Not exactly.
Reform: The Wolf in Sheep’s Clothing
Gary Gensler, the current head of the CFTC isn’t a derivatives lawyer who would correctly report the criminal activity of the O.T.C. derivatives market to DoJ. Mr. Gensler was Mr. Rubin’s assistant at the treasury from 1997-99 and “had worked with Sen. Phil Gramm and Alan Greenspan to exempt credit default swaps from regulation, which led to the collapse of A.I.G. and has resulted in the largest taxpayer bailout in U.S. History” allowing the Fed to turn banks into institutions perceived “too big to fail”, as Sen. Bernie Sanders (I-VT) stated in his attempt to block the appointment.
The regulation report is a reform effort as in it only serves to change signs on doors while attempting to codify into law that the details of criminally fraudulent banking go from being completely secret to remaining in-house. Other recommendations include the Fed as the chief regulators of the financial system, though it is not a government agency accountable to the People, but the primary banking institution in the U.S.
Rep. Ron Paul (R-TX) has introduced House Resolution 1207 to audit the secretive Fed for the first time since its conception in 1914 after the act passed the year before. The cause to abolish the central bank has been a high one in libertarian advocacy, most notably since the days of the late-market anarchist scholar, Murray Rothbard. Opponents of this cause cite the need for “Fed independence” from the political Congress.
The cause has been taken up by Mr. Sanders—a self-proclaimed democratic socialist—and all of the Republicans and well over a 100 Democrat congressmen in the House of Representatives. Most, simply disgusted with the secrecy and fixating on a relatively minuscule $2 trillion recently reported as unaccounted for, but most co-sponsors with understanding of the Fed seek to nationalize it away from its de facto place in the private sector. With all due respect to those with such courage to take on the ‘creature from Jekyll Island’ to this extent, such efforts are ignorant to the fact that the problem isn’t the Fed’s conduct, but its existence. Anything short of abolition will be the result of naivete taking over where Ms. Born’s efforts left off in 1999.
To audit the Fed in order to cynically score political points, one-up a conflicting ideology or jump on a bandwagon of ‘transparency’ as if it’s a virtue in itself undermine the sole reason of scrutinizing power; not to simply have something to criticize, but to properly apply justice—or else the effort is futile. The Michael Moore’s of the world offering no viable approaches or basic principles to be consistently applied but a meaningless statement that he’s a “Christian for democracy” or Arianna Huffington regurgitating platitudes without substance are either publicity stunts, lazy ignorance or a clear-cut case of being uselessly weak to pull the trigger. The already misinformed population bombarded with political propaganda from the Beltway and Madison Avenue are benefited more by them shutting up and staying home to read up on monetary policy until they have a clue what they’re talking about.
Supporting simply ‘regulating’ the activities of derivatives traders on Wall Street displays one has no clue what they’re talking about. If they did, they would support nothing less than criminal prosecution and the thorough liquidation of assets or they would support no action at all. You don’t ‘regulate’ crime. In anything near a just society, criminals on such a massive scale like a $592 trillion derivatives market are held liable for their fraud.
That said, an audit of the Fed is a fine start as it will expose—in meticulous detail—why the Fed ought to be abolished. Thomas E. Woods, author of The New York Times’ bestseller Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse, testified on the Hill at a hearing on Dr. Paul’s bill. Prior to, he wrote the bill “seeks nothing more than to open the Fed’s books to public scrutiny”, adding: “If there is any truth to the idea of Fed independence, it lay in precisely this: the Fed may reward favored friends and constituencies with trillions of dollars in various kinds of assistance, while keeping the public completely in the dark. If that is the independence we’re talking about, no self-respecting American would hesitate for a moment to challenge it….
“The Fed enjoys a government-granted monopoly on the creation of legal-tender money. It is not an unreasonable imposition for Americans to demand to know about the activities of such an institution. It is common sense.”
It doesn’t take much to see that the same rationale behind auditing the Fed is what makes it obvious the Fed shouldn’t exist to Dr. Paul, who’s most recent book is titled, End the Fed. Jim Grant, editor of Grant’s Interest Rate Observer, told CNBC in June that the Fed would be shut down were H.R. 1207 to pass and be executed.
“If the Fed examiners were set upon the Fed’s own documents—unlabeled documents—to pass judgment on the Fed’s capacity to survive the difficulties it faces in credit, it would shut this institution down,” he said. “The Fed is undercapitalized in a way that Citicorp is undercapitalized.”
Mike Shedlock, investment adviser representative for SitkaPacific Capital Management, wrote of the Fed’s fraudulent nature: “Credit extended via [fractional-reserve lending] is backed by nothing more than thin air and promises. Those promises are currently worth pennies on the dollar, and the entire global banking system is insolvent as a result.”
On the claim that such lending practices is legally permitted by law and accepted by the Treasury Department, Mr. Shedlock replies that that doesn’t mean they aren’t fraudulent just as slavery’s legality didn’t make it right, “government decree alone cannot change the fact that fractional reserve lending is fraudulent”.
“An audit could only erode trust if the Fed had in fact been up to no good,” Dr. Paul wrote at Politico this week. “If the Fed acts in good faith and with the interest of the American people in mind, it should have nothing to fear from enhanced transparency.”
The Washington Post has stepped up as the primary shills for “Fed independence” in the intellectual class to manufacture consent to it continuing its secrecy and cronyist fraudulent existence. What cannot be argued in its editorial against Dr. Paul’s bill is the thesis: “There wouldn’t be much point in having a central bank if its every technical decision about the money supply were subject to short-term political debate.” Exactly.
Professor Noam Chomsky, in a 1999 lecture, spoke of so-called “capitalism” not existing today as a free market and claims of its existence as such are “fantasies” because it’s the “Nanny-State” which “transfers wealth to the wealthy” not by inaction, but actions and privileges granted to “private tyrannies” who invest in the empowerment of the “Nanny-State” because “the Nanny-State has to be very powerful in order to bail out the rich…. This is really existing free-market theory that’s being applied at home—meaning ‘nuanced’; powerful government to protect the rich and market-discipline and tough love for everyone else.”
In his 1994 book, The Case Against the Fed, Prof. Rothbard proves “the very purpose of its existence [is] to cartelize the private commercial banks, and to help them inflate money and credit together, pumping in reserves to the banks, and bailing them out if they get into trouble”.
What proponents of the illusion of ‘good governance’ among the Democratic Party and Progressives lose in their support for H.R. 1207—with continued ignorance of the Fed’s reality and calls for the Fed to simply be ‘reformed’—is that a central bank cannot provide a service to the people while holding a government-enforced monopoly. The fraudulent practices will continue to plunder the global plantation behind closed doors without an audit or lose its status as the domestic population withdraws consent and global finance oligarchs can no longer abuse it after the audit exposes “the very purpose of its existence”.
The Fed’s inflationary measures are systematic wealth transfers to the super-rich. It’s a de facto tax on the poor and working class to subsidize the banksters’ fraudulent lending practices that should be abolished from public policy, criminalized, and prosecuted; not ‘reformed’. “Reform is a word you gotta’ watch out for,” Prof. Chomsky continued later. “If you hear the word—‘reform’—you kinda’ have to reach for your wallet and see who’s lifting it.”
Like any other criminal enterprise, the reserves and property ought to be liquidated, repossessed and distributed directly to the victimized population. The fraudulent mortgages held by the financial institutions who collaborate with the Fed should be discarded as null and void—homeownership fully granted to the occupants without any debt—all odious debt inflicted on the population via the State voided, as well. Business owners—manufacturers, distributors, providers of services—continuing to hold their justly acquired property to control, use and exchange. If the reserves are held by the Treasury, it’s only just to allow for people to exchange their dollars for their shares. That’s if any reserves exist at all. For the U.S. Government to hold the American people accountable for odious debt would be in violation of international law.
The solution to the problem of Fed tyranny is to expose it, abolish it and back the greenback with commodities along with a basket of new, alternative regional domestic currencies. These alternatives will best serve the people who participate in the process of creating and enriching them. The alternatives are not on Wall Street, the oval office or the halls of Congress. The alternatives toward a new order of real socio-economic justice is in the activism, objective education, creativity, production, labor and other values we can share with one another—using mutually beneficial mediums of exchange where appropriate—away from the gun of the State.
When in the pursuit of justice, an inherently tyrannical institution stands in the way, you don’t ‘reform’ it. You get rid of it.