week ago, on the day President Bush disavowed government intervention
in financial markets, the Federal Reserve announced the fruit
of its weekend labor: essentially guaranteeing hundreds of billions
in toxic financial derivatives owned by banks. Money laundering
has become the de facto standard of Federal Reserve policy.
press has been filled with praise for the US government rescue
of Bear Stearns, one of the worst offenders of reason and logic
in the issuance of securitized mortgage debt. You have to turn
to blogs to get a sense of the malfeasance.
the Hussman Funds' Weekly Market Comment (3/24/08) regarding the
Fed's involvement on JPMorgan's (JPM) deal to buy out Bear Stearns
the Federal Reserve decided last week to overstep its legal boundaries
going beyond providing liquidity to the banking system and attempting
to ensure the solvency of a non-bank entity. Specifically, the
Fed agreed to provide a US$30 billion "non-recourse loan" to J.P.
Morgan, secured only by the worst tranche of Bear Stearns' mortgage
debt. But the bank J.P. Morgan was in no financial trouble. Instead,
it was effectively offered a subsidy by the Fed at public expense.
Rick Santelli of CNBC is exactly right. If this is how the U.S.
government is going to operate in a democratic, free-market society,
"we might as well put a hammer and sickle on the flag."
coordinated release of quarterly reports whose numbers ever
so slightly "exceeded expectations" was enough justification
- along with massive buying by US government operations
that can only be faintly glimpsed - to send world stock
markets back upwards.
is a "non-recourse loan"? Put simply, if the homeowners underlying
that weak tranche of debt go into foreclosure, they will lose
their homes, and the public will lose as well. But J.P. Morgan
will not lose, nor will Bear Stearns' bondholders. This will be
an outrageous outcome if it is allowed to stand.
a picnic for insiders, bought and paid for through the abuse of
public funds by government officials too unprincipled even to
recognize the abuse. The only good thing about this deal is that
it buys time while principled ways of busting and restructuring
it can be settled.
At a moment
in history when the US treasury is hemorrhaging ($5,000 per second
in Iraq), the Bush White House is setting up to do something that
can be understood only through a corrective lens that takes every
sighting and reverses it: the party of laissez faire, free markets
and minimal regulation supports the costliest nationalization
of industry in US economic history.
week, in addition to rescuing Bear Stearns, the shadow financial
system intervened in metals and commodity markets - beating down
anxiety indexes more sharply than at any time in the past half
century. At the same time, the coordinated release of quarterly
reports whose numbers ever so slightly "exceeded expectations"
was enough justification - along with massive buying by US government
operations that can only be faintly glimpsed - to send world stock
markets back upwards.
have been used to describe US government intervention in the markets,
like band-aid solutions to cure a gaping wound. In fact, the US
government's attempts to calm investor anxiety at the observable
financial disarray is like using chemical foam at the surface
to kill a deep-burning coal fire.
purchasing some of the US$6 trillion mortgage securities
outstanding would take problem debt off the balance sheets
of banks and alleviate the cause of the credit crunch, it
would put taxpayers at risk."
was more micromanaging of the news cycle by the money launderers
24 (Bloomberg) - Forget lower interest rates. For the Federal
Reserve to keep the financial markets from imploding it needs
to buy troubled mortgage bonds from banks and securities firms,
say the world's biggest Treasury investors.
cutting rates by 3 percentage points since September, expanding
the range of securities it accepts as collateral for loans and
giving dealers access to its discount window, the Fed has been
unable to promote confidence. The difference between what the
government and banks pay for three-month loans doubled in the
past month to 1.92 percentage points.
only tool left may be for the Fed to help facilitate a Resolution
Trust Corp.-type agency that would buy bonds backed by home loans,
said Bill Gross, manager of the world's biggest bond fund at Pacific
Investment Management Co. While purchasing some of the $6 trillion
mortgage securities outstanding would take problem debt off the
balance sheets of banks and alleviate the cause of the credit
crunch, it would put taxpayers at risk.
US taxpayer is about to be force fed bad mortgage debt, that
honest people didn't ask for - created by Wall Street where incomes
average $387,000 (NY Times, March 24, 2008 "With Economy Tied
to Wall St. New York Braces for Job Cuts") and fostered by a culture
of corruption rippling all the way down through mortgage brokers,
appraisers, and local zoning officials for whom the hard currency
of fraud is as likely Bahamian poker chips as dollars.
Alan Farago of Coral Gables, who writes about the environment
and the politics of South Florida, can be reached at [email protected].
Visit his website at alanfarago.wordpress.com.
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