The Weiner Component Vol.2 #8 – Part 5: Alan Greenspan & the Federal Reserve

Former Chairman of the Federal Reserve Alan Gr...

Former Chairman of the Federal Reserve Alan Greenspan, receiving a Presidential Medal of Freedom in 2005 (Photo credit: Wikipedia)

In 1935, Cret designed the Seal of the Board o...

In 1935, Cret designed the Seal of the Board of Governors of the Federal Reserve System. (Photo credit: Wikipedia)

On August 11, 1987, Alan Greenspan became the Chairman of the Federal Reserve. He was appointed by President Ronald Reagan and served until January 31, 2006, when he retired from that office. There was a rumor that he had lobbied for the position.

 

After four years in office he was reappointed by President George H. W. Bush who later claimed he lost his reelection bid because of Greenspan’s Monetary Policy. Bill Clinton also reappointed him and so did George W. Bush.

 

Greenspan was a Republican conservative with a classical education in economics, who got his P.H.D. from N.Y.U. He supported privatizing Social Security and tax cuts which, according to the Democrats, would increase the deficit. In fact it has been suggested that the easy money policies of the Fed during Greenspan’s tenure there was a leading cause of the subprime mortgage crisis that occurred in 2008, after he left the Federal Reserve as Chairman.

 

Alan Greenspan was nominated by President Reagan on June 2, 1987 and was confirmed by the Senate on August 11 of that year. To Congress he quickly assumed the role of a seer, generally when he was questioned by Republican members of either House of Congress, they spoke to him with a large degree of reverence, as though his answers to their questions were the absolute ones. He was considered the maestro of economics; his words being gems of economic wisdom. This occurred throughout his entire term as Chairman of the Federal Reserve.

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The issue that Greenspan did not deal with, which, in fact, he stated that the Fed could not control or even really deal with was the amount of money in the National Cash Flow. His successor, Ben Bernanke did not have this problem and he both increased the amount available for over a two year period and solved an economic quagmire that the banks had created in 2008 following Greenspan’s easy money policy.

 

According to the late economist Paul Samuelson the process of splitting mortgages began during the late 1970s. For innumerable reasons banks had traditionally allowed people to take out second mortgages on their homes charging them slightly more in interest than they were paying on their first mortgage. Occasionally the banks would sell these mortgages to individuals in order to get their money back for a more profitable use. In the late 1970s many banks broke these mortgages up into large pieces in order to sell them and sold each one to a multitude of Hedge Funds who then used them as securities.

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In 1981 Ronald Reagan became President of the United States. He and his aids believed in a totally free Market where all economic decisions were made by the Market. The basis by which the Market operated was the profit motive. It had been explained by Adam Smith in his preindustrial revolution book that he published in 1776. The Reagan Administration did away with virtually all government regulation that controlled the form and actions of the banks, giving them a complete free hand in dealing with the public; but they kept the FDIC in which the Federal Government insured all bank deposits up to ½ million dollars.

 

Regulations limiting the form and actions of banks were brought in during and after the Great Depression. Among other things many bankers had abused their positions and used depositor’s money to make individual profits for their executives. When the stock market crashed in 1929 so did numerous banks and multitudes of depositors lost their savings. The Roosevelt Administration from 1933 on brought about legislation to stop this from occurring again. Apparently the Reagan Administration in 1981 on believed this was no longer a problem.

 

During the Reagan Administration the major banking houses in the United States like J. P. Morgan-Chase, Bank of America, Wells Fargo, and others decided to break up the mortgages into fractional shares, split the shares among Hedge Funds, and sell shares in the Hedge Funds. This included both first and second mortgages.

 

This was a good bet since people valued their homes. What happened was that the banks encouraged people to use the equity in their houses as bank accounts, mortgaging and remortgaging their homes. With the constant action, following the economic laws of supply and demand, the value of properties continued to rise like hot air balloons. The value of the homes kept growing, allowing people to take more and more money out of their homes to buy anything they desired. By this action the banks created trillions of dollars of new money and presumably everyone prospered.

 

On the one hand Greenspan stated he could not control the amount of money in circulation but on the other hand the Fed’s low interest rates encouraged this behavior. What the banks did was to issue and reissue mortgages which they, in turn, split into hundreds of pieces, placing them into different Hedge Funds from which these funds paid the banks endless service charges. The banks then used the money for new mortgages but serviced the accounts, charging fees for each action.

 

In essence the banks lent the initial funds, sold the mortgages to innumerable Hedge Funds, got their initial investment back, and lent it out again, endlessly repeating the process and endlessly charging innumerable fees for the continuing processing. Many banks also owned many of the Hedge Funds.

 

The bank and everyone in the bank involved in this process did well financially. As home prices rose the homeowners kept getting their equity back and could afford to remortgage their homes. It seemed like an endless Christmas!

 

Ordinarily every change in any property has to be registered in the city or county where it occurs. This is a fairly slow system. The banks were able to set up their own record keeping agency that they could use quickly. The problem here was that there was endless amounts of information. This system made innumerable errors in their bookkeeping. In 2008, when the system crashed, the records were worthless. There was no reliable information on all the transactions.

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By 2007 it was fairly obvious that the system was tottering and could fail. For the last quarter of a century this had been going on. It spanned the entire career of most bankers. They were in a state of denial that the housing bubble could burst. Some banks offered loans of 125 percent of the appraised value of homes.

 

The Housing Bubble burst late in 2008 while George W. Bush was still President of the United States. Suddenly many banks were on the verge of bankruptcy. President Bush and his Secretary of the Treasury lent some of the banks enough money to keep them solvent.

 

The new Chairman of the Federal Reserve, Ben Bernanke, authorized a loan to AIG, the leading insurance company in the United States. It seems they felt left out of all the money making and wanted their share. They insured a number of loans for high premiums. Their actuaries underestimated the risk involved. When the collapse came they didn’t have the funds to pay off the claims and without additional funds would have gone under costing a large percentage of the American public both the premiums they had paid and the protection these premiums bought.

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It is important to note that the flow of money in the United States and the rest of the industrial world, whether credit or cash, is through the banking system. If the major banks were to go under the flow of currency would be a dribble. In addition every bank account is insured up to ½ million dollars by the Federal Government.  The banks paying a small premium to the Federal Deposit Insurance Corporation (FDIC). If the banks go bankrupt the Government is still liable for those monies.

 

In addition AIG (American International Group) is the major insurance company in the nation, insuring, among many other things, millions of insurance policies throughout the nation. If it were to go under billions in premiums paid for years by countless Americans would suddenly be lost. It would be a major negative catastrophe in the country. AIG was literally too big to fail.

 

The failure of both the banks and the insurance company could easily bring down the economy of the United States. These concerns are necessary for the United States to function. They are not only too big to fail but also too important, in relation to the country.

 

This is the position in which President George W. Bush and Chairman Ben Bernanke found themselves in toward the end of 2008. And this is the position that Barack H. Obama inherited when he became President of the United States on January 20, 2009.

 

As Chairman of the Federal Reserve Alan Greenspan had supported an easy money policy. He retired shortly before the results of this policy exploded. Did he foresee the occurrence?   Was he responsible for it?

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From the 1980s on the American economy needed a greater Cash Flow. There literally wasn’t enough money available throughout the economy. Historically the Federal Reserve had never directly supplied money to the overall country. In fact up until 1933 all monies were comprised of gold and silver. All gold mines in the United States were required to sell all the gold they mined to the Federal Government for $16 an ounce. It was then minted into gold coins. Paper money could be issued: ones and five dollar bills were silver certificates and technically could be exchanged for silver coins at any time. Tens, twenties, fifties, and hundred dollar bills, and higher denominations could be exchanged for gold coins. From 1933 on gold disappeared and from ten dollar bills up money became Federal Reserve Notes. Later the five would also become a Federal Reserve Note. Thereafter the gold was stored in depositories and presumably stood behind the dollar.

 

In 1933 Roosevelt raised the value of money by law from $16 an ounce for gold to $32 an ounce. By doing this he doubled the available money in the United States and easily paid for the New Deal.

 

Consequently from that time on gold being behind the dollar was a fiction. Theoretically any Federal Reserve Chairman and his Board thereafter could have added money to easily to the National Cash Flow. But none did. During World War II the Federal Government spent a lot more than it took in in taxes. But it never just added money to the economy. In fact it used various devices such as War Bonds to attempt to limit the amount of money people could spend.

 

From what he has said and written Alan Greenspan did not believe that the government could just add money to the economy. That power was reserved to banks who could do so through their lending policies. Greenspan tended to understand economics as it was and had been. He ran the Federal Reserve on that basis. He lacked the imagination to do things any other way.

 

Possibly he suspected a crash in 2008 and so he retired before it came. Possibly he did not and felt he had been in that office long enough. Only he can answer that question.

The Weiner Component #143 – President Obama & the Republicans

With his family by his side, Barack Obama is s...

With his family by his side, Barack Obama is sworn in as the 44th president of the United States by Chief Justice of the United States John G. Roberts, Jr. in Washington, D.C., Jan. 20, 2009. More than 5,000 men and women in uniform are providing military ceremonial support to the presidential inauguration, a tradition dating back to George Washington’s 1789 inauguration. VIRIN: 090120-F-3961R-919 (Photo credit: Wikipedia)

During the Republican Presidential Debates, which are being held nearly a year before the next Presidential Election, one of the constantly recurring themes that a number of the Republican Presidential candidates continually bring up is that the current President, Barack Obama, is a failed president, not capable of running the country.  Of course if he’s that bad one would expect a movement to impeach him.  But I haven’t heard of that happening.  So what we have is an interpretation by the prospective Republican candidates who of late have tied Hillary Rodham Clinton to President Obama as a failed Secretary of State.  I suppose the more they denounce him the greater they feel they themselves are.

 

Also after denouncing President Obama and Clinton the Republican candidates announce generally what they will do, the results from their handling of specific problems.  How they will solve military issues by sending in American troops, create a no-fly zone over Syria, create increased employment by getting rid of the Environmental Protection Agency (EPA).  But more pollution will not necessarily produce more jobs.  It will successfully, however, shorten a number of lives.  It must be wonderful to be that sure of oneself.

 

In essence most of the potential candidates are blowing in the wind!  Most, if not all, that they say they will do requires either an act of Congress or an Amendment to the Constitution.  According to what Donald Trump says as to what he will do would need a new document of government to drastically increase the powers of the president and limit Congress’ powers.  In the case of Carley Fiona I keep remembering that after she became CEO of Hewlett Packard the stock dropped to half its original value and she argued that she was a positive force even though she lied to her employees to get them to reduce their wages and thus reduce company costs.  She left the company or was fired by the Board of Directors not too long after with a buy-out package worth about 15 million dollars.  She has also lied or fabricated in her public announcements as a Presidential candidate.  Ted Cruz, it seems to me from much of what he has said, would like to become leader or fuhrer of the United States rather than just President.  He seems to have some of the elements of the late Senator Joseph McCarthy.

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I have often wondered what would have happened if in 2008 Senator John McCain had become President of the United States.  First off, he would have inherited a full-fledged Great Recession or potential Great Depression from former President, George W. Bush.  While Bush had temporarily initially bailed out many of the banks at the end of his presidency the question that arises is would McCain have continued the process?  According to the current Republican Presidential candidates no business is too big to fail.  The indication is that McCain would probably not have bailed out the banks.  The result would have been that the major banks in the United States would have gone under.  The movement of money through the economy would have slowed to a trickle and the country would have gone into a major depression that would make the Great Depression of 1929, which did not end until 1939 with the outbreak of World War II, look like a mild recession.  We would still today be feeling its strong negative effects.

 

In addition since the FDIC (Federal Deposit Insurance Corporation) insured every bank account up to a half million dollars the Federal Government would have had to pay out all the accounts of the bankrupt banks or take over and continue to operate those banks.  Either solution would have disrupted the dollar internationally and brought about major depressions in all the major industrial nations.

 

Unemployment in most if not all of these nations would have dropped to over 75%.  It was only 50% at the depth of the Great Depression.

 

In addition there would have been no bail out of the automobile industry and all the American car producing companies would have gone under in the U.S.  Mitt Romney distinctly made the point in 2012 when he ran for the Presidency, as the Republican candidate, that the auto companies should have been allowed to have gone through bankruptcy.  His point there is that in a bankruptcy the court generally declares the stock worthless.  The judge uses the value of the stock to pay off the company’s debt.  The same management that initially made the decisions that caused the bankruptcy stays in control of the company.

 

Way to go Mitt!  Your group stays in control of the company and the stockholders who trusted your leadership all get screwed.  It sounds very much like what Donald Trump did with his casinos in New Jersey.

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Barak Obama, in 2008, ran for President on a platform of change.  And it was indeed time for a change after the disasters brought about by the George Bush Jr. administration.  Presumably Bush had declared war against Iraq because they had secreted away weapons of mass destruction.  Actually he had the military invade the country because its leader, Saddam Hussein, had attempted to have his father, former President Bush Sr., assassinated and he was also acting as Sheriff of the Middle East, bringing American Democracy to Iraq.  The CIA was amazed when they heard his reasons for the act.  The United Nations, at the time, was legally searching Iraq for weapons of mass destruction.  Bush ended that with the U.S. invasion.

 

President Obama inherited a country ready to slip into total disaster.  Employment was rapidly dropping.  Property values were falling like a major landslide.  While he had been elected to bring about change his immediate problem was literally keeping the society functional.  He had to return to normality before he could inaugurate any real changes.  The fact that he also inaugurated Universal Health Care at this time is a demonstration of his level of competence.

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In periods of economic recession the government has two major weapons to fight the economic down-flow.  One is Monetary Policy which is controlled by the Federal Reserve (FED).  Here the FED can increase the amount and movement of currency in the general society by lowering the interest rates it charges banks.  This, in turn, forces the banks to lower their interest rates on the monies they lend out.  The effect of this is to loosen up the flow of currency through the economy, making the cost of borrowing cheaper, and thus encouraging growth or economic expansion.  Will this always happen?  The answer is generally; there are occasionally other variables which can hinder growth.

 

Under normal conditions there will be economic expansion and the GDP (Gross Domestic Product) would increase helping to end or counter-act the recession.  Going along with this is an increase in employment.

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The FED, which has twelve distinct branches throughout the fifty states, constantly monitors the entire economy.  It’s as though it has a thermometer throughout the nation and can interpret what’s happening in every part of the country.  Its main function is to keep the economy as healthy as possible.

 

Another tool the FED has is its control of how much money banks can led out.  This amount can be raised or lowered.  Every commercial bank or credit union has to keep a small percentage of every loan it makes.  The average is about 5% of all the monies it lends out.  For every $100.00 the bank lends out it has to keep $5.00 in cash.  If that is deposited in the bank then it has to keep 5% of that and so on until it has a $100.00 in cash.  By that time the bank has lent out $1,000.  If this amount is raised by the FED to 10% it then lowers the amount that can be lent out by 50%.  If it is lowered to 2 ½ % it increases the amount to $2,000.00 for every hundred dollars deposited into the bank.

 

The FED also controls the money flow in the U.S. by using the National Debt as a tool, buying and selling government bonds.  When the FED buys back government bonds and does not issue as much in new bonds it can increase the amount of money in circulation.  Doing the reverse of this decreases the amount of money available.  It can also, as it did after 2011, just issue currency to the National Cash Flow.  All this would be done with the concurrence of the President.  During Jimmy Carter’s four year administration he had the FED reverse its policy because of its adverse effect upon a segment of the population.

 

All of these are powerful tools for regulating the economy.  But in some instances they are not enough to bring about the needed positive change.  Such an instance was the 2008 Real Estate Crash.  At that time what was also needed was the other major Federal Government weapon that could help regulate the economy and that was Fiscal Policy.  Fiscal Policy would be one or more laws authorizing government spending passed by Congress and signed by the President.

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From 2009 through 2010, during President Obama’s first two years in office, he worked upon limiting the effects of the Great Recession.  This was done through an intensive use of fiscal policy with a Democratic Congress, continuing the bank bailouts and also bailing out the American automobile industry, among numerous other things.  During this period the Affordable Health Care Bill was passed.  This was the major visible change; the others, keeping the economy from crashing, were mainly invisible.  To many people who voted for him in 2008, the changes he had promised did not come about.

 

In the year 2010 the Midterm Election was held.  A large number of people who had supported President Obama in the Election of 2008 apparently were disgusted with him for not bringing about enough visible change in the society and stayed at home, not voting in the election; this resulted in the Republicans gaining control of the House of Representatives.

 

2010 was a census year in which the population of the country was counted so that the seats in the House of Representatives which are fixed in number could be properly reapportioned.  That year Republicans also won control of a number of states.  Those states and other Republican controlled states were then gerrymandered with new Voting Districts that would give Republicans an advantage in the future elections.

 

The new House of Representatives met as a caucus and took an oath not to cooperate with President Obama in anything.  The former minority Party in the House of Representatives, where the Democrats had had a majority, had taken the same oath two years earlier.  The Republicans had wanted to make him a one term president.  The new House of Representatives would not pass any Fiscal Policy laws.  When presented with a plan by President Obama they totally ignored his recommendations.  In fact they all opposed Obamacare and swore to rescind the Affordable Health Care law and passed such bills over 50 times from 2011 to 2014.  All these bills were ignored by the Senate.

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Because of the nature of what President Obama and his administration were doing there was very little publicity given to most of the changes they were bringing about, keeping the country from falling into a major depression and slowly bringing about recovery from the Housing Crash.  Visibly the President and the Democratic Congress seemed to be doing very little.  The one thing that emerged from that two year period was the Affordable Health Care Law, which was loudly denounced by the Republicans and passed strictly on a political party basis.  All Republicans voting against it and all Democrats, who had the majority in both Houses, voting for it.

 

As a note of irony the Affordable Health Care Bill (Obamacare) was modeled upon a Republican plan developed by a Republican Think Tank and originally applied in the state of Massachusetts by its then governor, Mitt Romney.  The plan, rather than have a single insurer, the Federal Government, relied on private enterprise, the many insurance companies across the country, in order to be put into operation.  It was a means of increasing the amount of business that the insurance companies did with some patient protective limitations.

 

To get Republican support on this bill President Obama and the Democrats had bent backwards to give the Republicans something they could easily support.  The Republicans have continued up until the present to oppose and denounce this law.  Ted Cruz has sworn to end this program when he becomes President.  The term Obamacare was originally stated as a put-down.

 

With the 2011 Midterm Election the Republicans were able to achieve a majority in the House of Representatives.  The voter turnout was very low.  A number of people who had voted for Obama in 2008, particularly among the Hispanics stayed at home and didn’t bother voting.  Thereafter virtually nothing President Obama supported was passed in the House of Representatives.

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One of the major problems within the United States has to do with its infrastructure.  The National Highway System was built in the 1950s during the Eisenhower administration.  Most of the ports are too small to allow the new giant container ships to use them.  Many if not most of the bridges built in the U.S. were done in the early part of the 20th Century if not earlier.  The majority of airports are inadequate in dealing with all the air traffic.  The electric grid throughout the United States is totally dated and in winter parts of it have stopped functioning by freezing up and parts of the country has lost electric power.  Most of the utility companies don’t have the resources to fix this problem, leaving it to the Federal Government.  These are just some of the infrastructure problems, there are many more.  Ultimately most of these come down to the Federal Government as the only source that has the resources to really upgrade the nation.

 

Most of these repairs would in a relatively short period of time pay for themselves by increasing the GDP and significantly increase the tax base on all levels of government.  With one exception, and that is renewing a functioning plan that already existed, both the House and the Senate have ignored these problems.  Ultimately a total upgrade would cost trillions of dollars.  And at some point it will have to be begun and ultimately done.

 

President Obama presented Congress with a detailed plan that would at the same time have begun work on the infrastructure and ended all the effects of the 2008 Real Estate Crash by totally ending unemployment in the country.  The plan would have reduced unemployment to about 2% which is the rate of people changing jobs.

 

The House of Representatives totally ignored the plan and did not even consider it.  To them spending government money they didn’t have to would be anathema; their basic problem was that they could only understand the present which meant that they would be spending additional funds.  The fact that the nation would get that money back with interest in the next decade or so was out of their realm of comprehension.

 

In fact what the Republicans have done in passing legislation in the House of Representatives and in the Senate has been to increase unemployment in the United States.  Using economy or reduced government spending as their excuse they have forced through bills that significantly reduce government spending.  Their final and most important cut was Sequestration which was passed when they could get no agreement with the Democrats in Congress to cut anything else.  This law automatically cuts by a specific percentage every year from just about every program unless a law is pass to stop a section of it from happening.

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The President requires the “advice and consent” of the Senate on most of his appointments of officials to government jobs; particularly supervisory positions such as judges, heads of government departments, etc.  There are more open judgeships now or unappointed heads of departments that at any other time in the history of the United States.

 

An individual that comes to mind is someone that both the Democrats and Republicans approve of whose expertise deals with a phase of banking wherein he can trace the movement of currency through terrorist organizations like ISIS and interrupt that movement.  The current Senate, that has a slight Republican majority, has refused to bring his name up for a vote.  Apparently they don’t want President Obama to have any successes regardless of the cost to the country.

 

However, even though the media just mentioned a small number of these incidents, U.S. explosive drones have killed most of al-Qaeda leaders as was Osama bin Laden in a military raid in Pakistan. They are no longer the military terrorist force they were when they blew up the Twin Towers during the Bush Republican administration.

 

President Obama has just signed a 1.15 billion dollar compromise with the Republican Congress that will keep the Federal Government going and achieve a number of Democratic programs.  It was a compromise bill and will also achieve a number of Republican goals.

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If we examine the achievements of the last dozen or so Presidents, Barak Obama emerges as one of our top leaders.  This is amazing in the respect that for the last five of his eight years in office Congress has consistently worked to keep him from achieving anything.  He emerges as a man among men who has achieved much regardless of the limitations continually set for him by the Republicans in Congress.

 

During most of his administration he has bent backwards to get the cooperation of the Republicans in Congress.  It hasn’t happened.  I suspect that by this time he had had it and will only accept positive results from Congress as he did with the 1.15 trillion dollar budget compromise.

 

In this bill the Republicans have added significantly to the National Debt, a principle they supposedly oppose.  They spent almost as much in 2014 with their last minute bill then to finance the Federal Government through 2015.  They achieved a number of their objectives but they did not defund Planned Parenthood or keep Syrians from immigrating to the United States.  They did however keep Planned Parenthood from getting an increase in funding from the government.

 

Personally I am glad that Barak Obama is President of the United States.  I would hate to think of what might have happened if John McCain or Mitt Romney had won.  President Obama has carried the United States through a very difficult time in our history.

The Weiner Component #124 – Justice in America Part3: The Big Banks & the Federal Reserve

The big banking houses, like Wells Fargo, Bank of America, and J.P Morgan-Chase to name a few, that have member banks throughout the United States, seemingly are sacrosanct, they can be fined for illegal or immoral actions but no perpetrator ever goes to prison.  Presumably the reason for this is that currently the country is dependent upon them for the movement of money throughout the national economy.  It is felt that if anything were to happen to them then the nation would go into a serious depression. Since they are presumably indispensable they can and do generally get away with actions that would cause people ordinarily to be sent to prison,

This condition exists because people are afraid of change; they are used to what they have and see anything different as too big a risk.

The banks exist in a free market economy as entities that persist for profit using money, people’s deposits, the safety of which the Federal Government guarantees, for their own general speculations.  In point of fact they are an oligarchy, which under the late 19th Century Sherman Anti-Trust Act is an illegal combination in restraint of trade.  It’s a no lose situation for the banks whose management have no morals in the use of the people’s money

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Following is an edited version of The Weiner Component #57D -The Federal Reserve,

It became obvious during the Panic of 1907 that the Federal Government had no controls over banking practices in the United States.  The Panic was caused by speculators attempting to corner the market on United Copper Company stock.  Failure to do this led to the collapse of the Knickerbockers Trust Company, New York City’s third largest trust.  The failure spread fear throughout the City’s Trusts.  Panic extended across the nation as large numbers of people withdrew their deposits from regional banks.  At the time the United States did not have a central bank to inject liquidity back into the market.  The following year a Senate commission investigated the crisis and proposed future solutions, leading to the creation of the Federal Reserve System in 1913.

The Federal Reserve (FED) is the central banking system of the United States.  It was created in December of 1913 by the passing of the Federal Reserve Act.  This was largely in response to a series of financial panics, particularly the Panic of 1907.  The Federal Reserve consists of twelve regional Banks located throughout the United States, with the main branch in Washington, D.C.  The chairman of the Federal Reserve heads this bank.  Over time the roles and responsibilities of the FED have expanded and its structure has evolved.  It is still in this process of evolution as new financial crises occur.

It was through the Federal Reserve and the Treasury, with the compliance of Presidents Bush and Obama that the nation was saved from total economic disaster caused by the Real Estate Debacle of 2008 that was brought about by the Financial Institutions within the United States.  The assorted banking houses had been bundling and selling mortgages for about the last thirty years; maintaining control over these mortgages with no cash investment in them and then continually using the funds from the sales to issue new mortgages.  The banks made fat profits from continually handling all this paper.

There had been a need for more funds in the National Cash Flow and, in this manner, the banks kept adding money to the economy.  By 2007 the level of money creation reach a point of insanity with a larger and larger percentage going to the banks.  At this point most bankers were in denial that the system could crash and the insanity continued until the crash came toward the end of 2008.

The problem that existed from the 1970s on was a great need for a continual increase in currency in the National Cash Flow to keep up with needed economic growth.  The FED was not in a position to fulfill this need; the banks did so by inflating the value of property, particularly owned homes; and the process became a way of life until it was abused and over-abused and the bubble burst to the point of destroying the economy, if the Federal Government had not interceded and saved it.

Paul Volcker headed a committee that proposed new laws that would reign in bank excesses and put the country on a solid financial footing again but bank lobbyists got these proposals watered down and since 2009 the major banking houses have again endangered the economy by their excesses.  This does not even consider the damage that has been done to a multitude of individual households where, in many cases, the homeowners have lost their homes through bank foreclosures, a number of which were illegal, mainly because the banks did not own the mortgages.  The Federal Government has responded with massive fines for malfeasance but with no criminal cases against any banks or individuals who have brought these abuses into being.  It is time for a change in the situation.  For one or many forms of reform to bring these banks into line with the needs of the American public.

In 2014 Senator Elizabeth Warren made a public statement which was that the big banking conglomerates should be broken up.  A similar situation had occurred at the beginning of the 20th Century when President Theodore Roosevelt had gone after a number of monopolies and caused them to break up.  John D. Rockefeller’s Standard Oil, among others, had been broken up into a number of companies, all with the title of Standard Oil of a particular state.  Each controlled by John D. Rockefeller.

The only way this process can be successfully done and end the irresponsible banking oligarchy in the United States is to upgrade the powers of the Federal Reserve so they can fully and effectively carry out their function of keeping the public safe from the excesses of the financial institutions and also keep the economy at a healthy level.

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How can this be done?  The major banking houses must once again become institutions that deal specifically with people and businesses.  They must become either commercial banks or investment banks; they can no longer be both.  And if some or many continue as investment banks then the FDIC (Federal Deposit Insurance Corporation) must no longer insure their deposits.

Also the Federal Reserve must have its power extended to be able to instantly add or subtract currency from or to the National Cash Flow.  Ben Bernanke did this as the FED chairman.  But he did it in a very interesting or sneaky fashion.  He added 45 billion dollars a month to the National Cash Flow by buying up mortgage paper within the 50 states and then ignoring the paper because they were fractional bits of mortgages which didn’t give the FED control of any of the properties. Instead they also solved the housing crisis mess that the banks created and put money in the pockets of a number of homeowners who had stopped paying their mortgages.  These people suddenly had money to spend.

In addition Congress needs to take a revolutionary step, it has to increase the power of the FED so that it is able to lend money directly to homeowners and small businesses. Each of the Twelve Federal Reserve Banks must also get the power to set up their own lending banks within each of the Twelve FED Zones.

After the 2008 & 2009 Bailouts the banks did not function as they had before the crash. They hoarded their funds and looked for investments that would give them large returns; these were largely in the futures market.  In essence from 2009 on the major banks, which had been saved by the Federal Government and indirectly the taxpayers, found ways to exploit the general public for their own benefit.  They actually worked against economic recovery.  The contention at that point in 2009 that once the Financial Institutions were saved they would return to their traditional roll was a myth since the large banks were solely motivated by the profit motif and could care less about the welfare of the individual worker and homeowner, or for that matter, the welfare of the country.

Since private enterprise, particularly private enterprise backed economically by the Federal Government cannot be trusted with the welfare of the nation it has become necessary for the Government to insure that welfare and that can only be done by the Government taking over the financial structure of the nation in the name of the “People” for the “Common Good” and not for profit.

There will be problems in establishing this system but they can gradually be resolved. There are the smaller banking houses and the Credit Unions that have generally functioned for the welfare of the general public.  Should they continue to be part of the system?  Do they continue to have FDIC insurance?  These questions will be answered as we go along.

The major banks in the United States, JP Morgan Chase, the Bank of America, Wells Fargo, to cite a few examples, have grown in size since the 2008 Disaster.  They are today too big to fail.  Their demise could bring down the economy of the United States and possibly also some of the European nations.  In essence they hold the world prisoner while they act making all sort of economic decisions for their own benefits using public funds.

We need, at this point, to take a closer look at the banks and their ownership and control.  The stockholders obviously own the financial institutions but the people who control these companies and make all the decisions would be the CEO and all the upper management.  The actual owners of the banking concerns have almost no say in what happens in these companies.

The compensation packages of the upper echelon runs into the multi-millions of dollars. The stock dividends of a company like the Bank of America runs into the pennies. The Bank of America pays one cent per share per quarter or four cents per share of stock each year, actually within the last year or so B of A raised its dividend 2 cents a year; it now pays 6 cents a year per share.  One hundred shares of stock that cost anything from $14 to $17 per share pays 6 dollars a year.  For an investment of approximately $1,500 the shareholder earns $6.00 per year.  So much for owning stock in The Bank of America!  The other major banks pay more but not significantly more in dividends.

What happens to all the fabulous profits that the Bank of America makes?  Most of it goes to management as salaries, compensation, and bonuses.  If the Bank of America is a true example of American banking then the financial institutions are making money for the sake of making money.

It is a sad commentary if one remembers President Franklin D. Roosevelt’s comment that he made once during the Great Depression and again later during World War II that an individual can only spend so much during a year, that to earn far more is a total waste in terms of society and that this excess should be taxed, which currently it is as an unbelievably low rate.

The heads of the various banks earn more, in many cases, in one year than they can reasonably spend in a lifetime.  Jamie Dimon, the CEO of JP Morgan Chase had his yearly compensation package cut, after bank losses, from 22 million to only 11 million a year.  This, then, becomes the function of banks in the United States and beyond. It is a silly or stupid reason for running the finances of a nation.

The American economy deals with the needs of over 350 million people.  This is a complex issue.  The large banking houses have failed the public.  To what extent should they be allowed to continue to exploit them?  Or should these major Financial Institutions go off on their own in a Free Market System, functioning within the law and succeeding or failing without protection from the Federal Government and the taxpayers?

Taken together all the games, illegal and otherwise, that the banks have played have been in the trillions of dollars, the fines that the banks have paid have been in the billions of dollars.  How many trillions have the banks extorted; how many average Americans have the banks ruined; and how many additional trillions will they extort before this current system is changed?  Even with new Volcker rules the current system is bankrupt, incapable of working for the welfare of the people.

It is time for a basic, realistic change in the way finance works within the nation.  The needs of the people are far more important than the quirks of the modern day bankers.

As a footnote: considering the blog before this one, the teachers who were found guilty of the RICO Act and given jail sentences and fines for cheating on their student’s tests were guilty of far less criminal acts than these bankers.  If any of the bankers were tried under the same RICO Law they would all get far greater sentences and fines than were given to the teachers.  It would seem that this is an excellent example of Justice in America.

 

 

Logo of the United States Federal Deposit Insu...

 

Description: Newspaper clipping USA, Woodrow W...

Description: Newspaper clipping USA, Woodrow Wilson signs creation of the Federal Reserve. Source: Date: 24 December 1913 (Photo credit: Wikipedia)

 

English: A map of the 12 districts of the Unit...

English: A map of the 12 districts of the United States Federal Reserve system. (Photo credit: Wikipedia)

 

The Weiner Component #57D – The Federal Reserve (Part 5 of 5)

English: A map of the 12 districts of the Unit...

English: A map of the 12 districts of the United States Federal Reserve system. (Photo credit: Wikipedia)

It became obvious during the Panic of 1907 that the Federal Government had no controls over banking practices in the United States.  The Panic was caused by speculators attempting to corner the market on United Copper Company stock.  Failure to do this led to the collapse of the Knickerbockers Trust Company, New York City’s third largest trust.  The failure spread fear throughout the City’s Trusts.  Panic extended across the nation as large numbers of people withdrew their deposits from regional banks.  At the time the United States did not have a central bank to inject liquidity back into the market.  The following year a Senate commission investigated the crisis and proposed future solutions, leading to the creation of the Federal Reserve System in 1913.

The Federal Reserve (FED) is the central banking system of the United States.  It was created in December of 1913 by the passing of the Federal Reserve Act.  This was largely in response to a series of financial panics, particularly the Panic of 1907.  It consists of twelve regional Federal Reserve Banks located throughout the United States, with the main branch in Washington, D.C.  The chairman of the Federal Reserve heads this bank.  Over time the roles and responsibilities of the FED have expanded and its structure has evolved.  It is still in this process of evolution as new financial crises occur.

It was through the Federal Reserve and the Treasury, with the compliance of Presidents Bush and Obama that the nation was saved from total economic disaster caused by the Real Estate Debacle of 2008 that was brought about by the Financial Institutions within the United States.  The assorted banking houses had been bundling and selling mortgages for about the last thirty years; maintaining control over these mortgages with no cash investment in them and then continually using the funds from the sales to issue new mortgages. The banks made fat profits from continually handling all this paper.

There had been a need for more funds in the National Cash Flow and, in this manner; the banks kept adding money to the economy.  By 2007 the level of money creation reach a point of insanity with a larger and larger percentage going to the banks.  At this point most bankers were in denial that the system could crash and the insanity continued until the crash came toward the end of 2008.

The problem that existed from the 1970s on was a great need for a continual increase in currency in the National Cash Flow to keep up with needed economic growth.  The FED was not in a position to fulfill this need; the banks did so; and the process became a way of life until it was abused and over-abused and the bubble burst to the point of destroying the economy, if the Federal Government had not interceded and saved it.

Paul Volcker headed a committee that proposed new laws that would reign in bank excesses and put the country on a solid financial footing again but bank lobbyists got these proposals watered down and since 2009 the major banking houses have again endangered the economy by their excesses.  This does not even consider the damage that has been done to a multitude of individual households where, in many cases, the homeowners have lost their homes through bank foreclosures, a number of which were illegal.  The Federal Government has responded with massive fines for malfeasance but with no criminal cases against any banks or individuals who have brought these abuses into being.  It is time for a change in the situation. For one or many forms of reform to bring these banks into line with the needs of the American public.

The only way this can be done is to upgrade the powers of the Federal Reserve so they can fully and effectively carry out their function of keeping the public safe from the excesses of the financial institutions and also keep the economy at a healthy level.

How can this be done?  The major banking houses must once again become institutions that deal specifically with people and businesses.  They must become either commercial banks or investment banks; they can no longer be both.  And if some or many continue as investment banks then the FDIC (Federal Deposit Insurance Corporation) must no longer insure their deposits.

Also the Federal Reserve must have its power extended to be able to instantly add or subtract currency from or to the National Cash Flow.  In addition Congress needs to take a revolutionary step, it has to increase the power of the FED so that it is able to lend money directly to homeowners and small businesses.  Each of the Twelve Federal Reserve Banks must also get the power to set up their own lending banks within each of the Twelve FED Zones.

After the 2008 & 2009 Bailouts the banks did not function as they had before the crash.  They hoarded their funds and looked for investments that would give them large returns; these were largely in the futures market.  In essence from 2009 on the major banks, which had been saved by the Federal Government and indirectly the taxpayers, found ways to exploit the general public for their own benefit.  They actually worked against economic recovery.  The contention at that point in 2009 that once the Financial  Institutions were saved they would return to their traditional roll was a myth since the large banks were solely motivated by the profit motif and could care less about the welfare of the individual worker and homeowner, or for that matter, the welfare of the country.

Since private enterprise, particularly private enterprise backed economically by the Federal Government cannot be trusted with the welfare of the nation it has become necessary for the Government to insure that welfare and that can only be done by the Government taking over the financial structure of the nation in the name of the “People” for the “Common Good” and not for profit.

There will be problems in establishing this system but they can gradually be resolved.  There are the smaller banking houses and the Credit Unions that have generally functioned for the welfare of the general public.  Should they continue to be part of the system?  Do they continue to have FDIC insurance?  These questions will be answered as we go along.

The major banks in the United States, JP Morgan Chase, the Bank of America, Wells Fargo, to cite a few examples, have grown in size since the 2008 Disaster.  They are today too big to fail.  Their demise could bring down the economy of the United States and possibly also some of the European nations.  In essence they hold the world prisoner while they act making all sort of economic decisions for their own benefits using public funds.

We need, at this point, to take a closer look at the banks and their ownership and control.  The stockholders obviously own the financial institutions but the people who control these companies and make all the decisions would be the CEO and all the upper management.  The actual owners of the banking concerns have almost no say in what happens in these companies.

The compensation packages of the upper echelon runs into the multi-millions of dollars. The stock dividends of a company like the Bank of America runs into the pennies.  The Bank of America pays one cent per share per quarter or four cents per share of stock each year.  One hundred shares of stock that cost anything from $14 to $17 per share pay four dollars a year.  For an investment of $1,500 the shareholder earns $4.00 per year.  For an investment of $15,000 he earns $40.00 a year.  That is a return of .0027%, twenty-seven thousands of one percent.  By putting that much money in a commercial bank the return is at least one tenth of one percent.  So much for owning stock in The Bank of America!  The other major banks pay more but not significantly more in dividends.

What happens to all the fabulous profits that the Bank of America makes?  Most of it goes to management as salaries, compensation, and bonuses.  If the Bank of America is a true example of American banking then the financial institutions are making money for the sake of making money.

It is a sad commentary if one remembers President Franklin D. Roosevelt’s comment that he made once during the Great Depression and again later during World War II that an individual can only spend so much during a year, that to earn far more is a total waste in terms of society and that this excess should be taxed.

The heads of the various banks earn more, in many cases, in one year than they can reasonably spend in a lifetime.  Jamie Dimon, the CEO of JP Morgan Chase had his yearly compensation package cut, after bank losses, from 22 million to only 11 million a year.  This, then, becomes the function of banks in the United States and beyond.  It is a silly or stupid reason for running the finances of a nation.

The American economy deals with the needs of over 350 million people.  This is a complex issue.  The large banking houses have failed the public.  To what extent should they be allowed to continue to exploit them?  Or should these major Financial Institutions go off on their own in a Free Market System, functioning within the law and succeeding or failing without protection from the Federal Government and the taxpayers?

Taken together all the games, illegal and otherwise, that the banks have played have been in the trillions of dollars, the fines that the banks have paid have been in the billions of dollars.  How many trillions have the banks extorted; how many average Americans have the banks ruined; and how many additional trillions will they extort before this current system is changed?  Even with new Volcker rules the current system is bankrupt, incapable of working for the welfare of the people.

It is time for a basic, realistic change in the way finance works within the nation.  The needs of the people are far more important than the quirks of the modern day bankers.

 

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The Weiner Component #57A – The Rapacious Banks (Part 1 of 5)

Photo of Bank of America ATM Machine by Brian ...

Perhaps the most predatory group of institutions within the United States are the major banking houses.  They are rapacious, grasping, taking, plundering and in many cases outright dishonest.  These financial institutions place themselves between the general public and all the goods and services they need to live, using the money put into the banks by businesses and the general public to game the public and force up the prices of all the goods and services they need.  When caught in illegal acts by the government these banks pay large fines that represent a small percentage of what they have made from these activities.

We have in earlier articles discussed the Great Depression of 1929 and the Real Estate Debacle of 2008.  To review briefly prior to 1929 the banks created hundreds of billions of dollars through the use of ten percent margin stock purchases, that continually kept inflating the stock market over a period of many years, until through exaggerated excess it crashed and over a relatively short period of time the overall value of all stocks dropped from about 86 billion to about 19 billion dollars, and the entire economy collapsed, reaching about 25% unemployment.  (Keep in mind that gold, which was money at the time, was worth $16 an ounce in 1929.)

The major banks that had been bundling mortgages for decades also brought about the Real Estate Debacle of 2008, selling the bundles, and reinvesting the original funds into new mortgages, which were subsequently bundled and sold again.  This process continued infinitely creating multi-trillions of dollars in new revenue, a good percentage of which went to the banks as profits and fees.  The process continued until the bubble burst toward the end of 2008.  If not for government bailouts the entire economy would have collapsed.  With the bailouts unemployment hit about 12%.  Here in late 2013 we still have only partial recovery with both the Republicans in Congress and the Republican dominated states holding it back.  Unemployment is currently hovering at about 7%.

Since the bank bailouts these institutions have looked for and found innumerable other ways to up their profits and compensation packages.  None of these methods have had anything to do with serving the general public, whose insured money they use for their machinations.

As a footnote, consider that if the banks had been allowed to fail in 2008 the Federal Government through the Federal Insurance Deposit Corporation (FDIC) would have been responsible for paying all deposits in these banks up to $250,000, a quarter of a million dollars.  The money the government spent on the bailout was probably less than this amount would have been and it has since been paid back with interest.

Banking foreclosures from 2009 on, after the Real Estate Bubble burst, and housing prices dropping rapidly and significantly caused a large number of homeowners to be far underwater on the amount of money they owed on their property.  The banks had encouraged them to use their homes as bank accounts and continually refinance, even toward the end refinancing in many cases up to 125 percent of the appraised value of the property.

As we’ve seen the banks did not hold the mortgages on a large number of these properties.  The paper had been divided into fractional pieces and become part of innumerable hedge funds.  The banks had formerly issued and sold the paper but still serviced these loans.  Non-ownership of these mortgages did not stop many of the large banking houses from foreclosing on these properties they did not own.  Any money they made on the foreclosure was pure profit.

The banks computers generated the papers they needed for foreclosures and they used robo-signers to foreclose on these properties.  Interestingly for a while the courts considered the bank’s papers and efforts sacrosanct, even to the point of holding many attorneys, who represented homeowners, in contempt for questioning bank documents.  Eventually the evidence came out about the false documentation and the robo-signing of multi-thousands of these foreclosures.  At this point virtually all the major banking houses stopped foreclosing.  The banks were fined in the millions of dollars but these amounts were a fraction of what they had made from their illegal activities.  No one in the banking industry went to jail for any of the illegal activities they committed.  Eventually the Federal Government began buying up the mortgage paper.

Under the Obama Administration the main executives of the banks that accepted bailout money could not receive multi-million dollar compensation packages.  The CEO from the Bank of America complained about this and stated that the B of A would pay off its loan as quickly as possible so they could resume proper pay packages.

After the bailout the banks became very cautious with their funds.  It became difficult for ordinary consumers to receive loans.  In order to purchase a house they had to have a significant down payment.  Small business entrepreneurs found it impossible to borrow money for almost any purpose.  The banks had essentially stopped serving the public; they were looking for ways to make large profits.  One of the areas they moved into was the futures market.

Almost all commodities, be they necessary food items such as beef or wheat and corn, lumber, financial currencies, oil, or electricity, are sold on the Futures Exchange.  The futures market is a central financial exchange where banks or individuals can buy specific quantities of a commodity or financial instrumens at a specified price with delivery set at a specified time in the future.

Since the Real Estate Debacle of 2008 the large banks in the United States have gone into this in a large way.  J. P. Morgan Chase stated, when they were accused of lying to a U.S. Government investigative committee, that the eight or ten million dollars a month that they would lose from selling electricity in California was insignificant.  Someone from Goldman Sacs said about a year or so ago that they made forty-nine dollars from every barrel of oil sold in the United States.  And this does not include beef, pork, or any other products sold on the future markets.  Somehow I get a rather sick feeling when I think that the major banks are using the money we deposit in them to squeeze dollars out of us for all the products we need to live.

Toward the end of 2013 the city of Los Angeles accused banking giants Wells Fargo & Co, and Citigroup Inc. of a “continuous pattern and practice” of mortgage discrimination that led to a wave of foreclosures, reduced property tax revenue, and increased costs for city services.  The two lawsuits accused both banks of engaging in predatory lending and saddling minorities with loans they couldn’t afford and resulted in a high percentage of foreclosures, The suits cited reports for low income and minority neighborhoods that claimed the mortgage crisis resulted in more than 200,000 foreclosures in LA from 2008 through 2012 and depressed property values, leading to an estimated loss of 48 million dollars in tax revenue for the city.  The suit alleges that the banks predatory lending started in 2004 and still continues.  What will happen here should be very interesting.

Also a federal judge is currently considering a possible 165.8 million dollar penalty against Bank of America Corporation after a jury found its Countrywide Unit fold defective loans to Fannie Mae and Freddie Mac.  U.S. lawyers requested that the bank pay 863.8 million dollars, which is as much as the government agencies lost in the loans.

The banks do not serve us instead they use us, squeezing every possible dime they can out of the public and the Federal Government.

 

 

 

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