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3 October 2008 Thought for the Week:
“In the old days, this futures or risk
business served only as a kind of insurance for the real economy. Exporters,
for example, could use it to protect themselves against fluctuations
in the value of their trading partners’ currency.
- - “The Global Trap: Globalization and the Assault on Prosperity and Democracy” by Hans-Peter Martin and Harald Schumann, 1998.
“The four biggest investment banks on Wall
Street, which included Bear Stearns and Lehman Brothers, shelled out
$US30 billion in bonuses last year. Lehman just went under and Bear
Stearns was bailed out earlier in the year.
- - From “The mother of all rip-offs: Could there be a finer reward for failure?” by Michael West in The Age, 24/9/08.
HIP-POCKET-NERVE PAIN MIGHT GRAB THEIR ATTENTION
by Betty Luks
Before the declaration of bankruptcy by the US bank, local councils and other organisations throughout Australia had only just come to the realisation that the US sub-prime collapse had destroyed the value of the investments they had acquired through Lehman Brothers. Their securities were turning into worthless bits of paper.
One of the councils, Wingecarribie Shire in the
NSW Southern Highlands had already filed proceedings in the Federal
Court against the Australian arm of Lehman Brothers. But the situation
changed with the US Lehman Brothers bank going into receivership. The
Australian arm of the bank is now at risk of being roped into the US
Treating the symptoms but never the causes
And what about the homeowners of America? Have pity for them. It is reported that over 9 million homeowners find the market value of their home is now about one-tenth of what they owe on their mortgage.
One also wonders, with the substantial losses of the various community groups, as well as the churches, will we now be able to gain the attention of the community leaders of this nation on the whole question of the fraudulent money system now oppressing and destroying us all?
The leaders could start by giving serious thought to what is - or should be - the true purpose of a nation’s financial system – and who should have the authority to create and issue its money? Money, or credit, is a social instrument and should be administered on behalf of the people -all the people. Historically, it was governments’ prerogative to create and issue the peoples’ money.
In 1948 the Catholic bishops of Australia proclaimed
in their pastoral letter that “the nation’s credit policy
is a basic function of the public authority.”
But then, that was sixty years ago! I don’t know that we have heard from them since then.
GOVERNMENTS SAVING CORRUPT BANKS – TO HELL WITH THE PEOPLE!
“I can calculate the movement
of the stars, but not the madness of men.”
“It’s the Derivatives Stupid! Why
FANNIE, FREDDIE and AIG all had to be bailed out,"
Something extraordinary is going on with these government bailouts. In March 2008, the Federal Reserve extended a $55 billion loan to JP Morgan to “rescue” investment bank Bear Stearns from bankruptcy, a highly controversial move that tested the limits of the Federal Reserve Act. On September 7, 2008, the U.S. government seized private mortgage giants Fannie Mae and Freddie Mac and imposed a conservatorship, a form of bankruptcy; but rather than let the bankruptcy court sort out the assets among the claimants, the Treasury extended an unlimited credit line to the insolvent corporations and said it would exercise its authority to buy their stock, effectively nationalizing them. Now the Federal Reserve has announced that it is giving an $85 billion loan to American International Group (AIG), the world’s largest insurance company, in exchange for a nearly 80% stake in the insurer . . . .
The Fed is buying an insurance company? Where exactly is that covered in the Federal Reserve Act? The Associated Press calls it a “government takeover,” but this is not your ordinary “nationalization” like the purchase of Fannie/Freddie stock by the U.S. Treasury. The Federal Reserve has the power to print the national money supply, but it is not actually a part of the U.S. government. It is a private banking corporation owned by a consortium of private banks. The banking industry just bought the world’s largest insurance company, and they used federal money to do it.
Yahoo Finance reported on September 17:
Treasury bills are the I.O.U.s of the federal
Why the extraordinary measures for Fannie,
Freddie and AIG?
The Anatomy of a Bubble:
Credit default swaps (CDS) are the most widely
traded form of credit derivative:
In one blogger’s example, a hedge fund could sit back and collect $320,000 a year in premiums just for selling “protection” on a risky BBB junk bond. The premiums are “free” money – free until the bond actually goes into default, when the hedge fund could be on the hook for $100 million in claims.
And there’s the catch: what if the hedge
fund doesn’t have the $100 million?
The dominos go down in a cascade of cross-defaults that infects the whole banking industry and jeopardizes the global pyramid scheme. The potential for this sort of nuclear reaction was what prompted billionaire investor Warren Buffett to call derivatives “weapons of financial mass destruction.” It is also why the banking system cannot let a major derivatives player go down, and it is the banking system that calls the shots. The Federal Reserve is literally owned by a conglomerate of banks; and Hank Paulson, who heads the U.S. Treasury, entered that position through the revolving door of investment bank Goldman Sachs, where he was formerly CEO.
The Best Game in Town – Financial Derivatives
To explain the enormous risk involved, Amerman
posits a scenario in which the mortgage giants are not bailed out by
the government. When they default on the $5 trillion in bonds and mortgage-backed
securities they own or guarantee, settlements are immediately triggered
on $1.4 trillion in credit default swaps entered into by major financial
firms, which have promised to make good on Fannie/Freddie defaulted
bonds in return for very lucrative fee income and multi-million dollar
bonuses. The value of the vulnerable bonds plummets by 70%, causing
$1 trillion (70% of $1.4 trillion) to be due to the “protection
The federal government and the financiers pulling
its strings naturally feel compelled to step in to prevent such a disaster,
even though this rewards the profligate speculators at the expense
of the Fannie/Freddie shareholders who will get wiped out.
Desperate Measures for Desperate Times
Or was the Fed just saving its ammunition for AIG? Recent downgrades in AIG’s ratings meant that the counterparties to its massive derivatives contracts could force it to come up with $10.5 billion in additional capital reserves immediately or file for bankruptcy. Treasury Secretary Paulson resisted advancing taxpayer money; but on Monday, September 15, stock trading was ugly, with the S & P 500 registering the largest one-day percent drop since September 11, 2001.
Alan Kohler wrote in the Australian Business
The risk posed to the system was evidently too great. On September 16, while Barclay’s Bank was offering to buy the banking divisions of Lehman Brothers, the Federal Reserve agreed to bail out AIG in return for 80% of its stock. Why the Federal Reserve instead of the U.S. Treasury? Perhaps because the Treasury would take too much heat for putting yet more taxpayer money on the line. The Federal Reserve could do it quietly through its “Open Market Operations,” the ruse by which it “monetizes” government debt, turning Treasury bills (government I.O.U.s) into dollars. The taxpayers would still have to pick up the tab, but the Federal Reserve would not have to get approval from Congress first.
Time for a 21st Century New Deal?
We may soon hear that “the credit market is frozen” – that there is no money to keep homeowners in their homes, workers gainfully employed, or infrastructure maintained. But this is not true. The underlying source of all money is government credit – our own public credit. We don’t need to borrow it from the Chinese or the Saudis or private banks.
The government can issue its own credit – the “full
faith and credit of the United States.”
Today’s credit crisis is very similar to that facing Herbert Hoover and Franklin Roosevelt in the 1930s. In 1932, President Hoover set up the Reconstruction Finance Corporation (RFC) as a federally-owned bank that would bail out commercial banks by extending loans to them, much as the privately-owned Federal Reserve is doing today. But like today, Hoover’s ploy failed. The banks did not need more loans; they were already drowning in debt. They needed customers with money to spend and invest.
President Roosevelt used Hoover’s new government-owned lending facility to extend loans where they were needed most – for housing, agriculture and industry. Many new federal agencies were set up and funded by the RFC, including the HOLC (Home Owners Loan Corporation) and Fannie Mae (the Federal National Mortgage Association, which was then a government-owned agency).
In the 1940s, the RFC went into overdrive funding the infrastructure necessary for the U.S. to participate in World War II, setting the country up with the infrastructure it needed to become the world’s industrial leader after the war. The RFC was a government-owned bank that sidestepped the privately-owned Federal Reserve; but unlike the Pennsylvania provincial government, which originated the money it lent, the RFC had to borrow the money first. The RFC was funded by issuing government bonds and relending the proceeds. Then as now, new money entered the money supply chiefly in the form of private bank loans.
‘Fractional Reserve’ Banking:
At the rate banks are going into FDIC receivership, the federal government will soon own a string of banks, which it might as well put to productive use. Establishing a new RFC might be an easier move politically than trying to nationalize the Federal Reserve, but that is what should properly, logically be done. If we the taxpayers are putting up the money for the Fed to own the world’s largest insurance company, we should own the Fed.
Proposals for reforming the banking system are
not even on the radar screen of Prime Time politics today; but the
current system is collapsing at train-wreck speed, and the “change” called
for in Washington may soon be taking a direction undreamt of a few
Source: www.webofdebt.com/articles/its_the_derivatives.php Ellen Brown, J.D., developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, her latest book, she turns those skills to an analysis of the Federal Reserve and “the money trust.” She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back.
Further essential reading:
A TOWN WITH A DARK IMAGE
by James Reed
An excellent article by crime writer Bob Bottom (The Australian14/8/08 pp.1, 14) states that Italy’s Anti-Mafia Commission has said that the Australian Mafia is a “key player” in the global drug trafficking nexus, which is a big business of over $AUS 38 billion.
But the National Crime Authority in Australia, (now the Australian Crime Commission) has claimed that “extensive investigation of Italian-Australian organized crime … has found no evidence that the Mafia or other Italian organized crime groups exist or operate in this country in the way they do in Italy.” All this is contrary to Italy’s own Anti-Mafia Commission and its own “secret report.”
Of course this denial of the existence of the Mafia is part and parcel of the political mythologies of the Arthur Calwell Post-WWII immigration programme which abandoned “Anglo Australia” in favour of a broad “European/Southern European Australia” then to become Asia Australia.
No investigation by the Australian Taxation authorities seems to target the visible imbalance between the rich lifestyles and assets of multitudes of individuals and their stated incomes because this would upset ethnic sensitivities. So much for such sensitivities.
ACADEMIC SUPPRESSION IN THE U.S.
by Ian Wilson LL.B:
Professor Finkelstein is Jewish and this book and his other works criticising Zionism have caused some folk heartburn. Professor Finkelstein was denied tenure at his university in June 2007 and since that time he has been on paid leave. His classes have been cancelled and his office shut, he has also been banned from his office.
Another academic, Palestinian American Nadia Abu El-Haj is an anthropologist who has criticised the use of archeology by Israeli scholars in defending the historical foundations of Zionism. Her work is controversial among archaeologists and anthropologists. This scholar also faces tenure difficulties.
What is interesting about this case is that El-Haj did not intend to stir up controversy on the Middle East. Nevertheless, opponents of El-Haj gathered hundreds of signatures to seek to have her denied tenure. These are but a few cases on intellectual suppression in the US. No doubt the numbers of the suppressed will grow now that the hate crimes amendment of Senators Kennedy and Smith has passed by a vote of 60 to 39.
Such laws are but the first step to the dismantled state of free speech which has occurred in Australia. And yet, Americans, like Australians are oblivious to the threat which they face. Clearly we all need to shout louder.
LETTER TO HON. BOB DEBUS
Yours faithfully, Edward Rock, Cape Paterson Vic.
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