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Posts Tagged ‘Bernanke’

If there is one good thing about the current global economic crisis it is that it provides us the opportunity to consider radical solutions to our economic problems that would not be considered otherwise.  Today, Mr. Bernanke of the Federal Reserve announced another radical solution to the problem of short term debt.  The Fed has announced that they will begin buying very large amounts of short term debt so that businesses can function. These short term debts are really IOUs for short term loans that businesses use to make payroll and also to pay for their everyday expenses.  The U.S. commercial banks are reluctant to accept these IOUs because they aren’t sure the small businesses will even be in existence when the notes are due.

In the past the commercial banks often sold these IOUs to each other, but that market has pretty much dried up. Basically no one wants to take any risks now, so the Fed has had to step in and buy the IOUs from the lending banks.  This pretty much makes commercial bank loans a pass-through operation with the real lender to business now being the Federal Reserve.

Meanwhile, we are being treated to the spectacle of investment bank managers being grilled by Congress about what in the world they were thinking during the past year. One of the really interesting revelations is that these managers were paid $100 million or more every year. One has to wonder: is there really anybody in the entire world whose work is actually worth $100 million or more every year?  I don’t think so.  The average salary for a brain surgeon is about $400, 000 per year.  The average salary for a nuclear physicists and rocket scientists is about $105, 000 per year.  Are these bankers really a thousand times more intelligent that our best scientists and doctors? One only has to look at their deeds to know that they are in fact about 1,000 times dumber.

Which all leads me to suggest that we take a hard look at a couple of basic assumptions about how our economy is structured. We have a mix of private industry and government in our economy, both of which provide certain services. The whole thing doesn’t seem to have a rational plan – it just sort of evolved that way over time. So we buy our food from private industry (supermarkets), but we buy our water from the government (usually a city or town).  We fly on airplanes that are owned by private companies and we pay them directly for their services, but we drive on roads that are owned by the government and we pay for these by taxes.  We get a lot of our packages delivered by private companies (like FEDEX), but our mail is delivered by the U.S. Post Office (It is part of the executive branch of the government).

So – why is it that private organizations (banks) are our source of money?  Couldn’t the government operate at least some of banks that ordinary citizens use too?  If we consider the provision of money something like the provision of water or roads, doesn’t it make sense to have national banks providing this service?  These banks would be operated by the government with strict government controls.  Wouldn’t government operated banks be less likely to rip off the consumer because they aren’t trying to make enormous profits? Wouldn’t the bank managers of government operated banks be less likely to make insane mortgage loans to people who couldn’t possibly pay them because the managers wouldn’t be paid bonuses that depend upon the total amount of loans they made?  Isn’t the real reason we got into this economic meltdown the absolute greed of the private banks and the lack of government control over their lending practices?

The simple fact is that Ben Bernanke, beginning today, is already operating a de facto national bank for small businesses because all the private banking businesses are on life support and they don’t want to play.  The time has come to rethink our entire banking structure. Maybe it would be fine to have some private banks that make insane loans and reap huge profits. Perhaps there is a place for them in our economy.  We could call them Republican Banks. But at the same time, it seems to me, we need a system of National Banks that can carry on our everyday business so that the next time the greedy bankers in the private banks get carried away and start hallucinating about obscene profits they can be allowed to fail and evaporate and none of us will really care or even take notice.

Wouldn’t that be nice?

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Messrs. Paulson and Bernanke peered into their crystal ball late in the dimming day and, instead of seeing the tidy balance sheet of the U.S. Financial Market they had hoped for, they instead saw a frightening vision of certain doom.  Huge quantities of Old Wall Street Wealth were going up in flames. Distinguished banks, with names that hearkened back to the glory days of Scrooge and Marley, were being swallowed up in darkening pools of coagulating, red ink.  The largest insurance company in the world had collapsed into a quaking heap of rubble, its management suddenly realizing that it might actually have to pay out billions, or even trillions, of dollars in claims for millions and millions of toxic mortgages that would never, ever be repaid. Anxious investors were about to make a run on the money market funds of the biggest investment houses and everyone at the investment houses knew they couldn’t possibly be paid. The gilded facades of the brokerage houses were literally melting, and little rivulets of pure gold were turning into gushing torrents as they spilled over the curbs and drained into the dirty gutters of The Street.

An emergency, late-night, meeting of the leaders of the financial arm of the government and the leaders of Congress was convened.  The President was consulted for well over a full minute!!  Something had to be done, the solid, upper class, millionaire and billionaire investors of the United States who had expected to at least quadruple their wealth by owning vast amounts of poor people’s mortgages with ridiculously high interest rates, had instead accidentally swallowed something more deadly that Rasputin’s arsenic, something more smelly than an old cat’s hairball, something alive was living and eating them from inside their stomachs!  Something truly Alien.  They knew their sin.  They had fallen from Grace and gorged on the forbidden fruit of toxic mortgages.

The intrepid Messrs. Paulson and Bernanke addressed the crowded room of government servants and Congressmen and told them of their horrifyingly prophetic visions and the wide-eyed, quaking servants pleaded, almost with one voice, “Lords of Finance, tell us what to do!”

“Feed the toxic mortgages to the taxpayers!” was the reply.  “Feed them to the taxpayers!  It is the only way to save the Elite of the Street.”

“The taxpayers?” the servants said with a smile and looked at each other in wonder at the wisdom of the Lords.

“Indeed, but it must be done quickly for our vision is clear: before the first rays of today’s sun alight on the golden bull of the Street the damned must devour all the toxins, and it will be a burden on them and their children and their childrens’ children till the crack of doom. It must be done, or we, the Wealthy Elect, shall perish, penniless and without power.”

A hideous groan rose up from the very bowels of the servants. “Ahhh! Stop! In the name of all Republican wealth, stop! It shall be done! It shall be done!”  And so it was…

Tonight, all good Republican children can sleep soundly in their little mansions knowing that Daddy and Mommy’s millions and billions of dollars are safe once again.  The lowly Democratic taxpayers, who don’t get the life-saving tax breaks of the wealthy, have eaten the toxic mortgages by the millions, indeed they have been ingested by the hundreds of millions of taxpayers with hardly a whimper – and this is as it should be, for everything is once again in its proper place.

And now children,  all is well again all over the world.  The sun hastens to return to the the place where it last arose.  A new day is dawning, another glorious, money-making day in the golden streets of the land of the free and the home of the brave. And wealthy Republicans can breathe a sigh of relief while they dream dreams of even newer and better ways to grow and reap their fields of gold.

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Dear Messrs. Paulson and Bernanke,

First of all, please allow me to express my admiration for the skillful way in which you have kept your hand(s) on the financial tiller, so to speak, of our U.S. Ship of State as we negotiate these treacherous waters and rapids of economic uncertainty. I would like to thank you for investing, on my behalf, in the firms of Fannie Mae, Freddie Mac, and now, most recently, AIG.  Frankly, I would not have chosen these particular companies myself; perhaps because I am more of a neophyte in these things and therefore, sadly, a bit more cautious than you.  At any rate, with complete confidence in your sound investment decisions I am now proud to be a stockholder in these pillars of our financial system, based upon my status as a certified U.S. taxpayer.

I do have a couple of questions about my purchase, however, and I wonder if you might take a moment out of your busy schedules to provide me with, at least, the briefest of answers.  First, I was wondering: how have you determined my percentage ownership in these companies? Is it based upon the total amount of taxes I have paid since I was born, or is it only based upon my last year’s tax payment? I suppose you could also have decided to just divide up the shares equally among all U.S. taxpayers too.  I’m just not sure how you did it.  Could you let me know at your convenience? Also, I was wondering if I should expect my stock certificates to arrive via U.S. mail, or are you just going to credit my 401K account?  So far I haven’t noticed any new additions to this account (which, by the way seems to be getting smaller by the day).

Meanwhile, I have been giving some thought to what I might do with the shares I now own in these stalwarts of our economy.  Frankly, if you don’t mind, I think I would like to sell them.  Would that be OK with you? Here’s what I am thinking: I would like to take all my shares in these companies and combine them into a single monetary instrument and then use this new certificate to make a highly leveraged purchase of the Republic of Zimbabwe’s newly issued credit default swap derivatives that are firmly based upon the value of Zimbabwe’s currency futures.  Do you think I would be taking too much risk in making this investment? How do you think it would compare with my just holding on to these shares in F,F, & A that you have kindly purchased on my behalf? As always, I look forward to your expert opinion, knowing that you have my best interest (no pun intended) at heart.

Sincerely, etc. etc.

P.S.  I am a bit embarassed to say this but, to be perfectly honest, my 401K hasn’t been doing too well at all lately.  No doubt this is due solely to my utter mismanagement, with me being pretty much a lamb among the wolves when it comes to the stock market, so to speak. Well, I was wondering, since you have – and rightly so – shown such compassion and understanding for the failures in the investment judgments of F,F, & A and how you have bailed them out in their moment of need; I was wondering if you might consider a bailout of my 401K too.  I assure you it wouldn’t cost nearly as much as the bailout of F, F, & A and, while I do appreciate the opportunity to now be a shareholder in these institutions, a direct bailout of my 401K would be ever so much more helpful, in my case at the least.  Here’s what I’m thinking: if you could simply, in the spirit of the F,F, & A bailouts,  restore my 401K balance to somewhere near where is was about two years ago, I would be most appreciative, and I might even consider casting my vote for the Republican Party candidates this year (in case that carries any weight with you).  Thanking you in advance…I remain your humble servant.

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There are some of life’s lessons that we all learn at a very early age.  I can still vividly recall an important lesson I learned when I was only five years old. I had just started the first grade (my particular school allowed five-year-olds to enter the first grade at that time – it was probably a bad decision). My mother had bought me a pack of marbles and I was anxious to play marbles in the school play-yard during recess. I suppose a lot of younger people don’t even know what I am talking about here.  Anyway, this bag of marbles wasn’t just your ordinary cats eyes; it also had two gargantuan marbles – maybe an inch or more in diameter.  They were giant cats eyes. They were my prized possession. During recess I found a group of third graders playing marbles and I asked if I could play too. They took one look at my pack of marbles and said, “SURE!” Well, needless to say it wasn’t long before I had lost everything.

I then asked the boy who had won all my marbles to give them back. He said he wouldn’t because they were playing for keeps.  This was a new concept for me because when I had played with my friends we always played for “fun”. You always returned what you won so you could play against each other again tomorrow. Well, it wasn’t long before I was in tears. What I really wanted back was the giant cats eyes; I didn’t care much if the boy kept the small ones. After much pleading the bigger boy said he would give me back the small cats eyes, but not the gigantic ones. And that’s how it ended.  I never did get my prized marbles back, and I learned the meaning of “playing for keeps”.

I read in the news today that the investment bank of Lehman Brothers is on the ropes. It seems they made a lot of bad investment decisions, like buying toxic mortgages. Of course they knew what they were doing.  Those toxic mortgages carried truly outrageous interest rates and whoever owned them could potentially make gargantuan profits.  And, of course, that was Lehman’s plan. They were going to stick it to the poor, hapless homeowner who had made the mistake of signing up for one of these instruments of financial torture and bleed them till they were dry of every cent they owned. And in that way Lehman and their investors would all acquire gigantic fortunes.  And if the homeowners reneged on the mortgage the bank would seize their house and sell it and still make a gargantuan profit because house prices were skyrocketing and Lehman plays for keeps, just like all the rich folks and their Wall Street investment banks.

It turns out though that the Brothers Lehman made a slight miscalculation.  Not only could the people who received the mortgages not begin to make the outrageous interest payments, but the housing market was tanking and trying to sell a house in this market was like trying to sell ice to the Eskimos.  So, the next thing you know, the third-graders at Lehman are watching their bank go belly up, and they desperately start looking for a sucker, I mean buyer, who will buy their whole banking business, including all those toxic mortgages. Surprisingly, it’s hard to find anyone who is in the market for toxic mortgages these days.

In desperation, the Brothers Lehman turn to their buddy, Mr. Bernanke,  at the Federal Reserve because he is loaded with money.  They want the Fed to help them make a deal by guaranteeing to any buyer that the Fed will cover any losses from the toxic mortgages if the potential buyer will just buy the whole Lehman business. Right now, the word is that Bank of America is interested and so is Barclays, but having the Fed make guarantees to a foreign bank is a little dicey for Chairman Bernanke, so the deal will probably be done with BoA. And once again, just like in the case of Bear Stearns, Fannie Mae, and Freddie Mac, the American taxpayer (that would be you and me) is being called upon to ultimately give billions of dollars to the banks so they won’t lose anything on their toxic mortgages.

I don’t know about you, but I’m getting a little tired of this.  Those bankers are all big boys; they knew what they were getting into – just like the third graders at my school. And if there is one thing for sure – those third graders in the banks play for keeps. Just miss a couple of mortgage payments and your house will be foreclosed and you’ll be out on the street with nothing before you can say “usury”. The banks always play for keeps.  So why should this be different? Didn’t they know they were playing for keeps? Did the poor third graders at Lehman lose their big shiny marble?  So what? Let them fail, the banks were playing for keeps and they knew it.  Here’s my plan: send in the vultures to pick the bones clean.

Then, if our good and kindly Fed really wants to help save the country they can step in with our tax dollars and set up a brand new National Home Loan bank- except this bank will have rules barring them from usury. There will be maximum interest rates tied to the rate of inflation, for all loans.  There will be strict regulations preventing them from giving loans to people who can’t possibly afford to repay them, and they will be prohibited from assuming that house prices will go up any faster than the inflation rate when they qualify people for home loans. This would be a non-profit bank created to benefit the American taxpayer so that never again will American citizens loose their homes to scheming, profiteering bankers because of speculation and usurious interest rates. Pretty good idea, right?

See, third-graders, we’re playing for keeps now.

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