Bank

Trillions In Secret Fed Bailouts For Global Corporations And Foreign Banks – Has The Federal Reserve Become A Completely Unaccountable Global Bailout Machine?

Has the Federal Reserve become the Central Bank of the World?  That is what some members of Congress are asking after the Federal Reserve revealed the details of 21,000 transactions stretching from December 2007 to July 2010 that totaled more than $3 trillion on Wednesday.  Most of these transactions involved giant loans that were nearly interest-free from the Federal Reserve to some of the largest banks, financial institutions and corporations all over the world.  In fact, it turns out that foreign banks and foreign corporations received a very large share of these bailouts.  So has the Federal Reserve now become a completely unaccountable global bailout machine?  Sadly, the truth is that we would have never learned the details of these bailouts if Congress had not forced this information out of the Fed.  So what other kinds of jaw-dropping details would be revealed by a full audit of the Federal Reserve?

It is important to try to understand exactly what went on here.  Banks and corporations from all over the globe were allowed to borrow gigantic piles of money essentially for free.  Yes, when you are getting interest rates such as 0.25 percent, the money is essentially free.  These loans were not available to everyone.  You or I could not have run over to the Federal Reserve and walked away with tens of billions of dollars in loans that were nearly interest-free.  Rather, it was only the megabanks and megacorporations that are friendly with the Federal Reserve that were able to take advantage of these bailouts.

In this way, the Federal Reserve is now essentially acting like some kind of financial god.  They decide who survives and who fails.  Dozens and dozens and dozens of small to mid-size U.S. banks are failing, but the Federal Reserve does not seem to have much compassion for them.  It is only when the “too big to fail” establishment banks are in trouble that the Federal Reserve starts handing out gigantic sacks of nearly interest-free cash.

Just think about it.  Which financial institution do you think is in a better competitive position – one that must survive on its own, or one that has a “safety net” of nearly unlimited free loans from the Federal Reserve?

Now that is oversimplifying the situation, certainly, but the truth is that the Federal Reserve had fundamentally altered the financial marketplace and is significantly influencing who wins and who loses.

But even more disturbing is what the Federal Reserve is turning into.  This is an institution that is “independent” of the U.S. government, that does not answer to the American people, that controls our money supply and that is just tossing tens of billions of dollars to foreign banks and to foreign corporations whenever it wants to.

In fact, if Congress had not forced the Fed to tell us what was going on with these bailouts we would have never even found out.

The truth is that the Fed is taking incredible risks with “our money” and yet they want to continue to exist in a cloak of almost total secrecy.

In a recent article in the Washington Post, Dallas Federal Reserve President Richard Fisher acknowledged that the Federal Reserve played fast and loose with trillions of dollars of our money….

“We took an enormous amount of risk with the people’s money.”

Are you deeply disturbed by that quote?

Well, if not, you should be.

The American people became so infuriated about the bailouts and stimulus packages passed by Congress, but it turns out that they were nothing compared to these Federal Reserve bailouts.

U.S. Senator Bernie Sanders is one of the members of Congress that is now expressing extreme outrage about what the Federal Reserve has done….

“The $700 billion Wall Street bailout turned out to be pocket change compared to trillions and trillions of dollars in near zero interest loans and other financial arrangements that the Federal Reserve doled out to every major financial institution.”

In fact, Senator Sanders was so disgusted by how much of the money went overseas that he was led to make the following remark….

“Has the Federal Reserve become the central bank of the world? I think that is a question that needs to be examined.”

Advocates for the Federal Reserve insist that if all of these foreign banks and foreign corporations were not bailed out the financial crisis would have been much worse.  In fact, they say we should be thankful that the Federal Reserve prevented a total financial collapse.

Well boo-hoo!

If our financial institutions are so fragile that a stiff wind will knock half of them over maybe they need to just fail.

You know what, life is tough.  Nobody is going to cry most of us a river of tears if we lose our jobs.  Most of us have learned to scratch and claw to survive with no safety net underneath us.

So maybe it is time for these big financial institutions to start playing by the same rules the rest of us are playing by.

No, when these “too big to fail” financial institutions get into a little trouble they start whining like a bunch of little babies.

“Give us some big sacks of cash!”

“Waaaaaaah!”

Well guess what?  Most of the rest of us are just not going to have too much sympathy for these big banks from now on.

The following is a list of just a few of the banks, financial institutions and global corporations that received nearly interest-free loans from the Federal Reserve during the financial crisis…..

Big U.S. Banks And Financial Institutions

Goldman Sachs
Citibank
JP Morgan Chase
Morgan Stanley
Merrill Lynch
Bank of America
Bear Stearns
Pacific Investment Management Co. (PIMCO)

Big Global Corporations

General Electric
Caterpillar
Harley-Davidson
Verizon
McDonald’s
BMW
Toyota

Canadian Banks

Royal Bank of Canada
Toronto-Dominion Bank
Scotiabank

European And Asian Banks

Barclays Capital
Bank of Scotland
Deutsche Bank
Credit Suisse
BNP Paribas
Societe Generale
UBS
Dexia
Bayerische Landesbank
Dresdner Bank
Commerzbank
The Korean Development Bank (South Korea)

But those defending the Federal Reserve will insist that the financial world as we know it would have ended if the Fed had done nothing.

That may well be true.

The entire financial system might have gone down in flames.

But that just proves the main point that this column has been trying to make for months.

An economic collapse is coming.

The Federal Reserve can desperately try to keep all of the balls in the air for as long as it can, but eventually it is inevitable that this entire thing is going to come crashing down.

The fact that the Federal Reserve had to resort to such extreme measures to “save” the financial system just shows how desperate things really are.

We really have reached a “tipping point” for the world financial system.  There is going to be crisis after crisis after crisis and even bigger bailouts are going to be required in the future.

The world financial system is a house of cards built on a foundation of sand.  The Federal Reserve can keep throwing around gigantic sacks of “our money” as much as it wants, but in the end there is nothing that can be done to prevent the inevitable collapse that is coming.

Debt = Money, Money = Debt

Where does money come from?  You would think that question should be so simple that any 10-year-old child could answer it, but that is not the case.  You see, the truth is that the vast majority of American adults cannot even answer that question.  Yet we all use money every day.  Without money our lives would fall apart fairly quickly.  But most of us never stop to think about how it comes into existence.  The truth is that bankers are the source of all money in the United States.  Either the Federal Reserve bankers create it, or individual bankers create it through the mechanism of fractional reserve banking.  In both cases, it is bankers that are creating the money.  In our financial system, the U.S. government cannot print money and no individual citizens are allowed to create money.  Rather, it is the bankers who have a complete and total monopoly on the creation of money in the United States.

Most of the time, any money that is created comes into existence as debt.  Either the U.S. government goes into more debt when it gets more dollars from the Federal Reserve or individual Americans go into more debt when they take out loans from individual banks.

First, let’s examine what happens when the U.S. government gets more money from the Federal Reserve.

Under our current system (which is fundamentally flawed), the U.S. government cannot just fire up the printing presses and print a bunch of dollars if it decides that more money needs to be produced.

Rather, if the U.S. government needs more money it asks the Federal Reserve for it.

So who is the Federal Reserve?  Well, they are actually not part of the U.S. government.  In fact, the Federal Reserve is about as “federal” as Federal Express is.

The Federal Reserve is actually a privately-owned central bank that has been given authority by the U.S. Congress to issues our currency, set our interest rates and essentially run our economy.

All U.S. government debt is created through the Federal Reserve system.

When the government wants more money, the U.S. government swaps U.S. Treasury bonds for “Federal Reserve notes”, thus creating more government debt.  Usually the money isn’t even printed up – most of the time it is just electronically credited to the government.  The Federal Reserve creates these “Federal Reserve notes” out of thin air.  These Federal Reserve notes are backed by nothing and have no intrinsic value of their own.

The Federal Reserve then sells these U.S. Treasury bonds to investors, other nations (such as China) or sometimes they “sell” them back to themselves.  In fact, the Federal Reserve has been gobbling up a whole lot of U.S. Treasuries lately.  Some refer to this as “monetizing the debt”, but that is not quite an accurate statement.

When the Federal Reserve creates money this way, it does not also create the money to pay the interest on the debt that has been created.  Eventually this puts pressure on the U.S. government to borrow even more money to keep the game going.  So what this creates is a spiral where the U.S. government must keep borrowing increasingly larger amounts of money, where the money supply is endlessly expanding and where the value of the U.S. dollar is destined to continue going down forever.

Do you think it is some big mystery why the value of the U.S. dollar has declined over 95 percent since the Federal Reserve was created in 1913?  Just look at what our national debt has been doing over the last 40 years.  It just continues to go up and up and up….

As long as the Federal Reserve system exists, the national debt will keep going up, the money supply will keep going up and the U.S. dollar will continue to decline in value.

This is not because of some big mistake.  This is what the Federal Reserve system was designed to do.  It was designed to trap the U.S. federal government (and by extension all of us) in perpetual debt.

If the U.S. government really wanted to get out of debt it would take back control of our currency from the bankers and would start issuing debt-free money.  But don’t expect that to happen any time soon.

In fact, the Federal Reserve is just getting more powerful and becoming more out of control.  According to data released on Wednesday, over $9 trillion in overnight loans were made by the Federal Reserve to major banks and large financial institutions during the financial crisis in 2008 and 2009.

Now, the truth is that this number is inflated because each time one of these loans was “rolled over” it was counted as a new loan by the Fed.  So don’t get too excited about the $9 trillion figure.  But still, the amount of money that the Federal Reserve just whipped up out of thin air and lent out to its friends at extremely low interest rates is absolutely mind blowing.

In 2010, the Federal Reserve has initiated a massive new round of “quantitative easing“, and it is yet another example of how out of control the Federal Reserve is becoming.  So exactly what is quantitative easing?  Well, essentially what happens is the Federal Reserve conjures up gigantic amounts of money out of thin air and uses it to buy up things like U.S. Treasury bonds and mortgage-backed securities.  The Fed hopes that by injecting hundreds of billions into the system it will “stimulate” the economy.

Prior to 2008, the Federal Reserve had never been so bold as to print up hundreds of billions of dollars whenever it wants.  But now it seems as though the Federal Reserve is just going to zap hundreds of billions of dollars into existence whenever their friends are in trouble or whenever they feel the economy needs a little “stimulus”.

So can you or I “zap” money into existence?  No, if we print money we go to jail.

Can the U.S. government “zap” money into existence?  No, only the Federal Reserve is allowed to do that.

But most Americans will never understand how this system works.

The second primary way that our money comes into existence is through fractional reserve banking.

According to the New York Federal Reserve Bank, fractional reserve banking can be explained this way….

“If the reserve requirement is 10%, for example, a bank that receives a $100 deposit may lend out $90 of that deposit. If the borrower then writes a check to someone who deposits the $90, the bank receiving that deposit can lend out $81. As the process continues, the banking system can expand the initial deposit of $100 into a maximum of $1,000 of money ($100+$90+81+$72.90+…=$1,000).”

This is actually an oversimplification, but let’s roll with it.  Many Americans would be shocked to learn that if we all went down to the bank today and wanted to take our money out, the bank would only be able to satisfy a small fraction of our requests.

The bank does not keep all of your money in the bank.  It lends most of it out.

In fact, any bank can loan out as much money as it wants as long as it keeps enough in reserve to satisfy legal requirements.

Each time a loan is made by a bank, more money is created and more debt is created.

Isn’t this kind of insane?

Well, yes, but at least banks have to maintain a certain amount of discipline by keeping some money in reserve.

Unfortunately, Federal Reserve Chairman Ben Bernanke is on the record as saying that he wants to completely remove all reserve requirements for banks.

Keep in mind that Bernanke is in charge of “running” our economy.

There are a few members of Congress such as Rep. Ron Paul that have tried to hold the Federal Reserve accountable.  The following is an excerpt from remarks that Ron Paul made to Bernanke during a congressional hearing a while back….

“The Federal Reserve in collaboration with the giant banks has created the greatest financial crisis the world has ever seen. The foolish notion that unlimited amounts of money and credit created out of thin air can provide sustainable economic growth has delivered this crisis to us. Instead of economic growth and stable prices, (The Fed) has given us a system of government and finance that now threatens the world financial and political institutions. Pursuing the same policy of excessive spending, debt expansion and monetary inflation can only compound the problems that prevent the required corrections. Doubling the money supply didn’t work, quadrupling it won’t work either.”

Unfortunately, Ron Paul is vastly outnumbered by members of Congress who seem to believe that the Federal Reserve is doing a great job.  In fact, a bill that would have provided for a one-time audit of the Federal Reserve got shot down.  Apparently members of Congress did not think it was a good idea for the American people to be able to get a peek inside the institution that issues our money and runs our economy.

It is time for the American people to wake up.  The borrower always ends up the servant of the lender.  In America today, virtually all of our money comes into existence as debt, nearly all of our major purchases are made with debt, the popping of debt bubbles has caused almost every major financial crisis we have had, our state and local governments are drowning in a sea of debt, and our federal government has piled up the biggest mountain of debt in the history of the world.

Any economic system that is based on debt is destined to fail – including ours.  Isn’t it about time to start asking ourselves how we got into this gigantic mess in the first place?

Unfortunately, Americans have been so dumbed-down by our pathetic education system and are so busy gorging themselves on endless amounts of entertainment that they literally have no idea how our system works.

Most people will never wake up until a complete and total economic collapse happens.  By then, it will be far too late.

Federal Reserve Officials: Americans Are Saving Too Much Money So We Need To Purposely Generate More Inflation To Get Them Spending Again

Some top Federal Reserve officials have come up with a really bizarre proposal for stimulating the U.S. economy.  As unbelievable as it sounds, what they actually propose to do is to purposely raise the rate of inflation so that Americans will stop saving so much money and will start spending wildly again.  The idea behind it is that if inflation rises a couple of percentage points, but consumers are only earning half a percent (or less) on their savings accounts, then there will be an incentive for consumers to spend that money as the value of it deteriorates sitting in the bank.  Yes, that is how bizarre things have gotten.  It is not as if U.S. consumers are even saving that much money.  Several decades ago, Americans typically saved between 8 and 12 percent of their incomes, but over this past decade the personal saving rate got down near zero a number of times as Americans were living far beyond their means.  Once the recession hit, Americans very wisely started saving more money, and so now the personal saving rate has been hovering around the 5 to 7 percent range.  This is well below historical levels, but the folks at the Fed apparently are eager for Americans to pull that money out and start spending it again.

In an article entitled “Fed Officials Mull Inflation as a Fix“, Wall Street Journal columnist Sudeep Reddy described this bizarre new economic approach that some over at the Federal Reserve are now advocating….   

“But as the U.S. economy struggles and flirts with the prospect of deflation, some central bank officials are publicly broaching a controversial idea: lifting inflation above the Fed’s informal target.”

Does increasing inflation as a way to stimulate the economy sound like a good idea to any of you?

These are supposed to be some of the brightest economic minds that our nation has produced.

Unfortunately, it is becoming increasingly apparent that the folks running the Federal Reserve do not have a clue about sound economic policy.

Anyone who lived through the “stagflation” days of the 1970s should know that inflation does not spur economic growth.

But now some of the most prominent Fed officials are publicly proposing that we should purposely generate more inflation so that “real interest rates” (interest rates with inflation factored in) will go down.

For example, during a recent interview the president of the Federal Reserve Bank of Chicago, Charles Evans, made the following statement….

“It seems to me if we could somehow get lower real interest rates so that the amount of excess savings that is taking place relative to investment needs is lowered, that would be one channel for stimulating the economy.”

If you truly grasp what Evans is proposing here, your jaw should be dropping.

He is basically coming right out and saying, “Hey, let’s go out and crank up the inflation rate so that American consumers will start recklessly spending their money again.”

So are Americans really saving too much money?

Of course not.

Just take a look at the chart below.

Americans are actually still saving far, far less than they used to.  As you can see from the chart, in the 1960s and 1970s Americans would usually save somewhere between 8 to 12 percent of their incomes.

Today, we are still well below that level.  But we have made some progress from the reckless days of five to ten years ago when Americans were living far, far, far beyond their means and basically saving next to nothing….

So now some top Fed officials want to undo all that.  They apparently want Americans to grab their credit cards and to run out to the stores and spend wildly like they did a few years ago.

But spending recklessly is not going to repair our economy.  In order to have a healthy, balanced economy you need to have a healthy personal saving rate.  Encouraging Americans to spend every last nickel they have may boost economic figures in the short-term, but it will make our long-term problems even worse.

But it is not just Federal Reserve officials that are advocating this kind of nonsense.  Just a few months ago, IMF chief economist Olivier Blanchard suggested that it might be a good thing if western nations doubled their inflation targets from two percent to four percent. 

It seems like almost everyone is in an inflationary mood these days.

The Federal Reserve keep dropping hints that it is ready to print lots more money and unleash another huge round of quantitative easing.

Just this past week, the Bank of Japan shocked world financial markets by cutting interest rates even closer to zero and by setting up a 5 trillion yen quantitative easing fund.

In fact, nations all over the world have become increasingly eager to devalue their national currencies in an attempt to gain an edge in international trade.

So after years of relatively low inflation, it looks like our leaders are almost eager to tangle with the inflation tiger once again.

But it might not be so easy to tame the next time.

Once a really bad inflation spiral gets going it is really hard to stop.

But in the end, it is not going to be Barack Obama or the U.S. Congress that is going to decide if we pursue these inflationary policies or not. 

Ultimately, these decisions are in the hands of the unelected, unaccountable Federal Reserve.

If you don’t like it, too bad.  When was the last time a U.S. president or the U.S. Congress really stood up to the Federal Reserve?  It just doesn’t seem to happen.

The Federal Reserve is going to do what the Federal Reserve wants to do, and the rest of us are going to have to live with it.

Of course we could all try to elect candidates who would demand more accountability from the Federal Reserve this fall, but unfortunately those kind of candidates are few and far between.

The sad reality is that at this point, the Federal Reserve is pretty much completely and totally out of control.  The U.S. dollar has already lost over 95 percent of its value since 1913, and now the Federal Reserve is giving every indication that inflation is going to get even worse in the years to come.

But flooding the system with more paper money is not going to solve anything.  Instead, it is just going to make it even harder for average American families to buy milk and bread and to put gas in the car.

Inflation is a hidden tax on every single dollar that we already own.  It is a destroyer of wealth and a wrecker of currencies. 

But now some of the top officials at the Fed see inflation as a key tool in creating “economic growth”. 

With such a clueless collection of idiots running our economy (and the Federal Reserve does run our economy) do any of you actually believe that there is hope for the U.S. economic system in the long run?

103 U.S. Banks Have Collapsed So Far In 2010 – Do You Know If Your Bank Will Survive?

Have you ever noticed how almost all U.S. bank closings are now announced over the weekend?  It is almost as if someone wants to keep the increasing number of bank closures out of the news cycle as much as possible.  The Obama administration continues to use phrases like “green shoots” and “economic recovery”, but the truth is that the U.S. banking system is in the middle of a meltdown.  On Friday, federal regulators shut down 7 more banks.  That means that the total number of U.S. bank failures has reached 103 for 2010 so far.  Last year (which was a really bad year for bank closings), we did not break 100 until October.  Of course federal officials promise that “the worst is almost over”, but can we really trust anything that they tell us at this point?

When it comes to the health of the U.S. banking system, the statistical trends certainly do not look promising. 

At the end of 2008, there were 252 U.S. banks on the FDIC’s problem list.

At the end of 2009, there were 702 U.S. banks on the FDIC’s problem list.

About halfway through 2010, FDIC Chairman Sheila Bair said that 775 banks (approximately 10% of all U.S. banks) were on the problem list.

Does anyone else notice a trend developing?

It is time for everyone in the financial world to admit that the U.S. banking system is dying.

Do you know if your bank if on the problem list?

You might want to go check.

Not that your money is going to suddenly disappear.

Even if your local bank fails, the FDIC will guarantee your bank account, right?

Yes, it will.

But the FDIC is far from healthy at this point.

The FDIC is backing approximately 8,000 U.S. banks that have a total of about $13 trillion in assets with a deposit insurance fund that is pretty close to empty.

Well, actually “empty” is not quite the right word.

It was recently reported that the FDIC’s deposit insurance fund is sitting at negative 20.7 billion dollars.

And the FDIC estimates that the seven bank failures on Friday will reduce the fund by another $431 million.

Ouch.

The truth is that the FDIC is rapidly turning into a gigantic financial black hole.

The red ink just seems to be endless.

The FDIC now estimates that their funds will experience a $60 billion reduction due to additional bank closings between now and 2014.

And to be honest, that figure is way too optimistic.

So who is going to bail the FDIC out?

The same source that bails everyone out.

The U.S. taxpayers.

But isn’t that bad?

Yes, all of these bailouts are going to cause the U.S. national debt to continue to explode, but what else can we do?

Are we just going to shut down the FDIC?

That wouldn’t go over too well with anyone.

No, the truth is that this is the system that we have built.

All the crap flows downhill and ultimately ends up in the laps of U.S. taxpayers.

The bad news is that it looks like large numbers of banks are going to continue to fail.

You see, right now the American people are simply not doing a very good job of paying their bills.

During the first quarter of 2010, the total number of loans at U.S. banks that were at least three months past due increased for the 16th consecutive quarter.

Just think about that for a moment.

Would you consider 16 in a row to be a trend?

In an economic system built on credit, it is absolutely imperative that most people pay their debts or the whole thing will come crashing down very quickly.

And right now it is undeniable that things are unraveling at a staggering pace.

So who is benefiting from all this?

Well, there is one segment of the banking industry that is actually performing quite nicely in the midst of all of this chaos.

Many of the largest banks in the U.S. have been reporting very large profits as they gobble up larger and larger shares of the U.S. banking market.

In a previous article entitled “Are We About To Witness The Greatest Banking Consolidation In U.S. History?”, we noted the rapidly growing power of America’s megabanks….

Back in 2000, the “Big Four” U.S. banks – Citigroup, JPMorgan Chase, Bank of America and Wells Fargo – held approximately 22 percent of all deposits in FDIC-insured institutions.  As of June 30th of last year that figure was up to 39 percent.

The Founding Fathers of this country warned us of the danger of big banks getting too much power, but we have not listened to their warnings.

Now we have monolithic global banks that are so immense in size that we seem almost powerless to control them.

In fact, the six biggest banks in the United States (Goldman Sachs, Morgan Stanley, JPMorgan Chase, Citigroup, Bank of America, and Wells Fargo) now possess assets equivalent to 60 percent of America’s gross national product.

The truth is that these sharks aren’t shedding any tears when your local banks die off.

Why?

Because they know that many of the customers from the banks that have died will soon come their way.

The reality is that all of the legislation and regulations implemented during the past 30 or 40 years have rigged the game massively in favor of the big global banks.

So dozens upon dozens of smaller banks are going to continue to die and the megabanks are going to continue to eat up increasingly larger portions of market share.

So if you still have money in a small local bank, enjoy it while you can.

From now on, the small bank in America is an endangered species.

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