“The central bank is an institution of the most deadly hostility existing against the Principles and form of our Constitutions…If the American people allow private banks to control the issuance of their currency, first by inflation and then by deflation, the bank and corporations that will grow up around them will deprive the People of all their property until their children will wake up homeless on the continent their fathers conquered.” -Thomas Jefferson
On March 16, the Federal Reserve sent out a press release that contained some information that did not get much attention. Two of the items that were in the release that did receive press coverage were the Bear Stearns and JP Morgan Chase deal and the lowering primary credit rate cut. The Market bounced over 400 points on that news. The third part of the release is the most troublesome and that is that the Fed opened up its Primary Dealer Credit Facility and its discount window to investment banks that had not had this option before. This basically allows investment banks to get loans on the cheap or as they call it, “At a discount”. Usually only commercial banks are allowed to make this move and only if they are desperate. The Fed wants to change the idea that these loans are only to be used as desperate measures and wants to prevent future meltdowns like Bear Stearns meltdown last week. So should we be happy that firms have another source of funding or should this scare the Hell out of us?
Goldman, Sachs, Morgan Stanley and Lehman Brothers decided to give it a “test” run. I think by “test” they mean they wanted to see if they could bilk the system. Let me remind you that Goldman, Sachs and Lehman Brothers are two of the twelve firms that own the Federal Reserve. So they are basically loaning money from the central bank to themselves from money they print out of thin air.
“The issuing power should be taken from the banks and restored to the people to who it properly belongs.” – Thomas Jefferson
I went to the site http://frbdiscountwindow.org to see what types of collateral are required to take out these disount loans and here are the top four assets:
Obligations of US Treasury
Obligations of US government agencies and government sponsored enterprises
Obligations of states or political subdivisions of the US
Collateralized mortgage obligations (I think there might be a few of these out there.)
Excuse me, but aren’t these all debt? The rest of this list covers other loans such as consumer loans. Okay, I’m not an economist, but when I look at this I see debt securing debt. For example, Lehman Brothers took out a $2 billion loan and secured that loan at a discounted rate at the discount window. I assume they used debt that is owed them as collateral. I guess that means if Lehman Brothers doesn’t pay up, the Fed can go after those that owe Lehman Brothers money. Do you see where this could possibly lead? Just look at the mortgage crisis for instance. Let’s say Countrywide realizes they are in big trouble and goes to the discount window for help. They can get a short-term loan for cheap to carry them for a bit until people make their mortgage payments, but those mortgage payments default instead. Then the Fed can now reasonably go after the collateralized homes and then own them. I believe this is an example of what Jefferson was warning us about. This flies under the radar. We see Countrywide in trouble, but have no idea what that truly means. I mean after all, only commercial banks with their little loans can do this – until now.
“We must not let our rulers load us with perpetual debt…And the fore-horse of this frightful team is public debt. Taxation follows that, and in its train wretchedness and oppression.” -Thomas Jefferson
The Federal Reserve website says, “The Federal Reserve, the central bank of the United States, provides the nation with a safe, flexible and stable monetary and financial system.” What exactly has been stable about either our money or the financial system? All the little band-aids they put on the gaping wound cannot cover the problem. The question then becomes, “Does the Fed really want to make our system stable?” The instability of the financial system has brought down many an empire. The American people are so dumb when it comes to money that they are playing into the Feds hand. They fell into the traps set, quite handily, in the house financing system. They continue to use credit cards with rising interests rates. They buy things they cannot and may never be able to afford. The idea of a possible future debtors prison should scare the crap out of them. And don’t think it could never happen.
One of the Feds stated goals is to make money more electronic. The Reserve Banks, which are divided into twelve districts, will reduce the number of full-service check processing locations from 45 in 2003 to 4 in 2011. I wonder where we would keep this electronic record of our money – in a chip on a card that everyone is required to have? I wonder…