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  • Why We Can't Take Inflation Hawks Seriously [View article]
    The entire function of this machine is to convert debt into money. It's just that simple. First, the Fed takes all the government bonds which the public does not buy and writes a check to Congress in exchange for them. (It acquires other debt obligations as well, but government bonds comprise most of its inventory.) There is no money to back up this check. These fiat dollars are created on the spot for that purpose. By calling those bonds "reserves," the Fed then uses them as the base for creating 9 additional dollars for every dollar created for the bonds themselves. The money created for the bonds is spent by the government, whereas the money created on top of those bonds is the source of all the bank loans made to the nation's businesses and individuals. The result of this process is the same as creating money on a printing press, but the illusion is based on an accounting trick rather than a printing trick. The bottom line is that Congress and the banking cartel have entered into a partnership in which the cartel has the privilege of collecting interest on money which it creates out of nothing, a perpetual override on every American dollar that exists in the world. Congress, on the other hand, has access to unlimited funding without having to tell the voters their taxes are being raised through the process of inflation. If you understand this paragraph, you understand the Federal Reserve System.

    The amount of fiat money created by the banking cartel is approximately nine times the amount of the original government debt which made the entire process possible.1 When the original debt itself is added to that figure, we finally have ...
    ITOTAL FIAT MONEY=UP TO 10 TIMES NATIONAL DEBT I
    • The total amount of fiat money created by the Federal Reserve and the commercial banks together is approximately ten times the amount of the underlying government debt. To the degree that this newly created money floods into the economy in excess of goods and services, it causes the purchasing power of all money, both old and new, to decline. Prices go up because the relative value of the money has gone down. The result is the same as if that purchasing power had been taken from us in taxes. The reality of this process, therefore, is that it is a ...
    HIDDEN TAX = UP TO 10 TIMES THE NATIONAL DEBT
    Without realizing it, Americans have paid over the years, in addition to their federal income taxes and excise taxes, a completely hidden tax equal to many times the national debt! And that still is not the end of the process. Since our money supply is purely an arbitrary entity with nothing behind it except debt, its quantity can go
    ITOTAL FIAT MONEY=UP TO 10 TIMES NATIONAL DEBT I
    • The total amount of fiat money created by the Federal Reserve and the commercial banks together is approximately ten times the amount of the underlying government debt. To the degree that this newly created money floods into the economy in excess of goods and services, it causes the purchasing power of all money, both old and new, to decline. Prices go up because the relative value of the money has gone down. The result is the same as if that purchasing power had been taken from us in taxes. The reality of this process, therefore, is that it is a ...
    HIDDEN TAX = UP TO 10 TIMES THE NATIONAL DEBT
    Without realizing it, Americans have paid over the years, in addition to their federal income taxes and excise taxes, a completely hidden tax equal to many times the national debt! And that still is not the end of the process. Since our money supply is purely an arbitrary entity with nothing behind it except debt, its quantity can go
    down as well as up. When people are going deeper into debt, the nation's money supply expands and prices go up, but when they pay off their debts and refuse to renew, the money supply contracts and prices tumble. That is exactly what happens in times of economic or political uncertainty. This alternation between periods of expansion and contraction of the money supply is the underlying cause of ...Booms Buts and Depressions

    y the effect of unlimited revenue to perpetuate their power, and the monetary scientists within the banking cartel called the Federal Reserve System who have been able to harness the American people, without their knowing it, to the yoke of modern feudalism.
    RESERVE RATIOS
    Nov 27, 2012. 02:11 PM | Likes Like |Link to Comment
  • Why We Can't Take Inflation Hawks Seriously [View article]
    REAL PROBLEM IS GOVERNMENT REGULATION
    So the real problem within the savings-and-loan industry is government regulation which has insulated it from the free market and encouraged it to embark upon unsound business practices. As the Wall Street Journal stated on March 10, 1992:
    If you're going to wreck a business the size of the U.S. Thrift industry, you need a lot more power than Michael Milken ever had. You need the power of national political authority, the kind of power possessed only by regulators and Congress. Whatever "hold" Milken or junk bonds may have had on the S&Ls, it was nothing compared with the interventions of Congress. 2
    At the time this book went to press, the number of S&Ls that operated during the 1980s had dropped to less than half. As failures, mergers, and conversion into banks continue, the number will decline further. Those that remain fall into two groups: those
    that have been taken over by the RTC and those that have not. Most of those that remain under private control—and that is a relative term in view of the regulations they endure—are slowly returning to a healthy state as a result of improved profitability, asset quality, and capitalization. The RTC-run organizations, on the other hand,
    continue to hemorrhage due to failure by Congress to provide
    funding to close them down and pay them off. Losses from this group are adding $6 billion per year to the ultimate cost of bailout. President Clinton was asking Congress for an additional $45 billion and hinting that this should be the last bailout—but no promises.
    The game continues.
    CONGRESS IS PARALYZED, WITH GOOD REASON
    Congress seems disinterested and paralyzed with inaction. One would normally expect dozens of politicians to be calling for a large-scale investigation of the ongoing disaster, but there is hardly a peep. The reason becomes obvious when one realizes that savings-and-loan associations, banks, and other federally regulated institutions are heavy contributors to the election campaigns of those who write the regulatory laws. A thorough, public investigation would undoubtedly turn up some cozy relationships that the legislators would just as soon keep confidential.
    The second reason is that any honest inquiry would soon reveal the shocking truth that Congress itself is the primary cause of the problem. By following the socialist path and presuming to protect or benefit their constituency, they have suspended and violated the natural laws that drive a free-market economy. In so doing, they created a Frankenstein monster they could not control. The more they tried to tame the thing, the more destructive it became. As economist Hans Sennholz has observed:
    The real cause of the disaster is the very financial structure that was fashioned by legislators and guided by regulators; they together created a cartel that, like all other monopolistic concoctions, is playing mischief with its victims.1
    A CARTEL WITHIN A CARTEL
    Sennholz has chosen exactly the right word: cartel. The savingsand-loan industry, is really a cartel within a cartel. It could not

    function without Congress standing by to push unlimited amounts of money into it. And Congress could not do that without the banking cartel called the Federal Reserve System standing by as the "lender of last resort" to create money out of nothing for Congress to borrow. This comfortable arrangement between political scientists and monetary scientists permits Congress to vote for any scheme it wants, regardless of the cost. If politicians tried to raise that money through taxes, they would be thrown out of office. But being able to "borrow" it from the Federal Reserve System upon demand, allows them to collect it through the hidden mechanism of inflation, and not one voter in a hundred will complain.
    The thrifts have become the illegitimate half-breed children of the Creature. And that is why the savings-and-loan story is included in this study.
    If America is to survive as a free nation, her citizens must become far more politically educated than they are at present. As a people, we must learn not to reach for every political carrot dangled in front of us. As desirable as it may be for everyone to afford a home, we must understand that government programs pretending to make that possible actually wreak havoc with our system and bring about just the opposite of what they promise. After 60 years of subsidizing and regulating the housing industry, how many young people today can afford a home? Tinkering with the laws of supply and demand, plus the hidden tax called inflation to pay for the tinkering, has driven prices beyond the reach of many and has wiped out the down payments of others. Without such costs, common people would have much more money and purchasing power than they do today, and homes would be well within their reach.
    Nov 27, 2012. 01:49 PM | Likes Like |Link to Comment
  • Why We Can't Take Inflation Hawks Seriously [View article]
    ACCOUNTING GIMMICKS ARE NOT FRAUD
    We must keep in mind that a well managed institution would never assume these kinds of risks or resort to fraudulent accounting if it wanted to stay in business for the long haul. But with Washington setting guidelines and standing by to make up losses, a manager would be fired if he didn't take advantage of the opportunity. After all, Congress specifically said it was OK when it passed the laws. These were loopholes deliberately put there to be used. Dr. Edward Kane explains:
    Deception itself doesn't constitute illegal fraud when it's authorized by an accounting system such as the Generally Accepted Accounting Principles (GAAP) system which allows institutions to forego recording assets at their true worth, maintaining them instead at their inflated value. The regulatory accounting principles system in 1982 added even new options to overstate capital.... Intense speculation, such as we observed in these firms, is not necessarily bad management at all. In most of these cases, it was clever management. There were clever gambles that exploited, not depositors or savers, but taxpayers.1
    The press has greatly exaggerated the role of illegal fraud in these matters with much time spent excoriating the likes of Donald Dixon at Vernon S&L and Charles Keating at Lincoln Savings. True, these flops cost the taxpayer well over $3 billion dollars, but all the illegal fraud put together amounts to only about one-half of one per cent of the total losses so far. 2 Focusing on that minuscule component serves only to distract from the fact that the real problem is government regulation itself.
    JUNK BONDS ARE NOT JUNK
    Another part of the distraction has been to make it appear that the thrifts got into trouble because they were heavily invested in "junk bonds."
    Wait a minute! What are junk bonds, anyway? This may come as a surprise, but those held by the S&Ls were anything but junk. In fact, in terms of risk-return ratios, most of them were superior-grade investments to bonds from the Fortune-500 companies.
    So-called junk bonds are merely those that are offered by smaller companies which are not large enough to be counted among the nation's giants. The large reinvestors, such as managers of mutual funds and retirement funds, prefer to stay with well-known names like General Motors and IBM. They need to invest truly huge blocks of money every day, and the smaller companies don't have enough
    to offer to satisfy their needs. Consequently, bonds from most smaller companies are not traded by the large brokerage houses or the Bonds Division of the New York Stock Exchange. They are traded in smaller exchanges or directly between brokers in what is called "over the counter." Because they do not have the advantage of being traded in the larger markets, they have to pay a higher interest rate to attract investors, and for that reason, they are commonly called high-yield bonds.
    Bonds offered by these companies are derided by some brokers as not being "investment grade," yet, many of them are excellent performers. In fact, they have become an important part of the American economy because they are the backbone of new industry. The most successful companies of the future will be found among their ranks. During the last decade, while the Fortune-500 companies were shrinking and eliminating 3.6 million jobs, this segment of new industry has been growing and has created 18 million new jobs.
    Not all new companies are good investments—the same is true of older companies—but the small-company sector generally provides more jobs, has greater profit margins, and pays more dividends than the so-called "investment-grade" companies. From 1981 to 1991, the average return on ten-year Treasury bills was 10.4 per cent; the Dow Jones Industrial Average was 12.9 per cent; and the average return on so-called junk bonds was 14.1 per cent. Because of this higher yield, they attracted more than $180 billion from savvy investors, some of whom were S&Ls. It was basically a new market which was orchestrated by an upstart, Michael Milken, at the California-based Drexel Burnham Lambert brokerage house.
    CAPITAL GROWTH WITHOUT BANK LOANS OR INFLATION
    One of the major concerns at Jekyll Island in 1910 was the trend to obtain business-growth capital from sources other than bank loans. Here, seventy years later, the same trend was developing

    again in a slightly different form. Capital, especially for small companies, was now coming from bonds which Drexel had found a way to mass market. In fact, Drexel was even able to use those bonds to engineer corporate takeovers, an activity that previously had been reserved for the mega-investment houses. By 1986, Drexel had become the most profitable investment bank in the country.
    Here was $180 billion that no longer was being channeled through Wall Street. Here was $180 billion that was coming from people's savings instead of being created out of nothing by the banks. In other words, here was growth built upon real investment, not inflation. Certain people were not happy about it.
    Glenn Yago, Director of the Economic Research Bureau and Associate Professor of Management at the State University of New York at Stony Brook, explains the problem:
    It was not until high yield securities were applied to restructuring through deconglomeration and takeovers that hostilities against the junk bond market broke out.... The high yield market grew at the expense of bank debt, and high yield companies grew at the expense of the hegemony of many established firms. As Peter Passell noted in The New York Times, the impact was first felt on Wall Street, "where sharp elbows and a working knowledge of computer spreadsheets suddenly counted more than a nose for dry sherry or membership in Skull and Bones."1
    The first line of attack on this new market of high-yield bonds was to call them "junk." The word itself was powerful. The financial media picked it up and many investors were frightened away.
    The next step was for compliant politicians to pass a law requiring S&Ls to get rid of their "junk," supposedly to protect the public. That this was a hoax is evident by the fact that only 5% ever held any of these bonds, and their holdings represented only 1.2% of the total S&Ls assets. Furthermore, the bonds were performing satisfactorily and were a source of much needed revenue. Nevertheless, The Financial Institutions Reform and Recovery Act, which was discussed previously, was passed in 1989. It forced S&Ls to liquidate at once their "junk" bond holdings. That caused their

    prices to plummet, and the thrifts were even further weakened as they took a loss on the sale. Jane Ingraham comments:
    Overnight, profitable S&Ls were turned into government-owned basket cases in the hands of the Resolution Trust Corporation (RTC). To add to the disaster, the RTC itself, which became the country's largest owner of junk bonds ... flooded the market again with $1.6 billion of its holdings at the market's bottom in 1990....
    So it was government itself that crashed the junk bond market, not Michael Milken, although the jailed Milken and other former officials of Drexel Burnham Lambert have just agreed to a $1.3 billion settlement of the hundreds of lawsuits brought against them by government regulators, aggrieved investors, and others demanding "justice." 1
    Incidentally, these bonds have since recovered and, had the S&Ls been allowed to keep them, they would be in better financial condition today. And so would be the RTC.
    With the California upstarts out of the way, it was a simple matter to buy up the detested bonds at bargain prices and to bring control of the new market back to Wall Street. The New York firm of Salomon Brothers, for example, one of Drexel's most severe critics during the 1980s, went on to become a leading trader in the market Drexel created.
    Nov 27, 2012. 01:47 PM | Likes Like |Link to Comment
  • Why We Can't Take Inflation Hawks Seriously [View article]
    appear to be sham transactions, in which failing thrifts were sold to failing thrifts, which are failing all over again....
    Although the thrifts proved to be in far worse shape than the Bank Board estimated, Mr. Wall defends his strategy for rescuing them with



    When Congress passed FIRREA the previous year to "safeguard and stabilize America's financial system," the staggering sum of $300 billion dollars was authorized to be taken from taxes and inflation over the following thirty years to do the job. Now, Federal Reserve Chairman Alan Greenspan was saying that the true long-term cost would stand at $500 billion, an amount even greater than the default of loans to all the Third-World countries combined. The figure was still too low. A non-biased private study released by Veribank, Inc. showed that, when all the hidden costs are included, the bill presented to the American people will be about $532 billion.2 The problems that President Bush promised would "never happen again" were happening again.
    BOOKKEEPING SLEIGHT OF HAND
    Long before this point, the real estate market had begun to contract, and many mortgages exceeded the actual price for which the property could be sold. Furthermore, market interest rates had risen far above the rates that were locked into most of the S&L loans, and that decreased the value of those mortgages. The true value of a $50,000 mortgage that is paying 7% interest is only half of a $50,000 mortgage that is earning 14%. So the protectors of the public devised a scheme whereby the S&Ls were allowed to value their assets according to the original loan value rather than their true market value. That helped, but much more was still needed.
    The next step was to create bookkeeping assets out of thin air. This was accomplished by authorizing the S&Ls to place a monetary value on community "good will"! With the mere stroke of a pen, the referees created $2.5 billion in such assets, and the players continued the game.
    Then the FSLIC began to issue "certificates of net worth," which were basically promises to bail out the ailing S&Ls should they need it. The government had already promised to do that but, by printing it on pieces of paper and calling them "certificates of net worth," the S&Ls were allowed to count them as assets on their books. Such promises are assets but, since the thrifts would be obligated to pay back any money it received in a bailout, those pay-back obligations should also have been put on the books as liabilities. The net position would not change. The only way they could count the certificates as assets without adding the offsetting liabilities would be for the bailout promises to be outright gifts with no obligation to ever repay. That may be the eventual result, but it is not the way the plan was set up. In any event, the thrifts were told they could count these pieces of paper as capital, the same as if the owners had put up their own cash. And the game continued.
    The moment of truth arrives when the S&Ls have to liquidate some of their holdings, such as in the sale of their mortgages or foreclosed homes to other S&Ls, commercial banks, or private parties. That is when the inflated bookkeeping value is converted into the true market value, and the difference has to be entered into the ledger as a loss. But not in the never-never land of socialism where government is the great protector. Dennis Turner explains:
    The FSLIC permits the S&L which sold the mortgage to take the loss over a 40-year period. Most companies selling an asset at a loss must take the loss immediately: only S&Ls can engage in this patent fraud. Two failing S&Ls could conceivably sell their lowest-yielding mortgages to one another, and both would raise their net worth! This dishonest accounting in the banking system is approved by the highest regulatory authorities.1
    U.S. News & World Report continues the commentary:
    Today, scores of savings-and-loan associations, kept alive mainly by accounting gimmicks, continue to post big losses.... Only a fraction of the industry's aggregate net worth comprises hard assets such as mortgage notes. Intangible assets, which include bookkeeping entries such as good will, make up nearly all of the industry's estimated net worth of 37.6 billion dollars.
    Nov 27, 2012. 01:44 PM | Likes Like |Link to Comment
  • Why We Can't Take Inflation Hawks Seriously [View article]
    This was a major break in precedent. Historically, the Fed has served to create money only for the government or for banks. If it were the will of the people to bail out a savings institution, then it is up to Congress to approve the funding. If Congress does not have the money or cannot borrow it from the public, then the Fed can create it (out of nothing, of course) and give it to the government. But, in this instance, the Fed was usurping the role of Congress and making political decisions entirely on its own. There is no basis in the Federal Reserve Act for this action. Yet, Congress remained silent, apparently out of collective guilt for its own paralysis.
    Finally, in August of that year, Congress was visited by the ghost of FDR and sprang into action. It passed the Financial Institutions Reform and Recovery Act (FIRREA) and allocated a minimum of $66 billion for the following ten years, $300 billion over thirty years. Of this amount, $225 billion was to come from taxes or inflation, and $75 billion was to come from the healthy S&Ls. It was the biggest bailout ever, bigger than the combined cost for Lockheed, Chrysler, Penn Central, and New York City.
    In the process, the FSLIC was eliminated because it was hopelessly insolvent and replaced by the Savings Association Insurance Fund. Also created was the Banking Insurance Fund for the protection of commercial banks, and both are now administered by the FDIC.
    As is often the case when previous government control fails to produce the desired result, the response of Congress is to increase the controls. Four entirely new layers of bureaucracy were added to the existing tangled mess: the Resolution Trust Oversight Board, to establish strategies for the RTC; the Resolution Funding Corporation, to raise money to operate the RTC; The Office of Thrift Supervision, to supervise thrift institutions even more than they had been; and the Oversight Board for the Home Loan Banks, the purpose of which remains vague but probably is to make sure that the S&Ls continue to serve the political directive of subsidizing the home industry. When President Bush signed the bill, he said:
    This legislation will safeguard and stabilize America's financial system and put in place permanent reforms so these problems will never happen again. Moreover, it says to tens of millions of savings-and-loan depositors, "You will not be the victim of others'

    mistakes. We will see—guarantee—that your insured deposits are
    „i.
    secure.
    THE ESTIMATES ARE SLIGHTLY WRONG
    By the middle of the following year, it was clear that the $66 billion funding would be greatly inadequate. Treasury spokesmen were now quoting $130 billion, about twice the original estimate. How much is $130 billion? In 1990, it was 30% more than the salaries of all the schoolteachers in America. It was more than the combined profits of all the Fortune-500 industrial companies. It would send 1.6 million students through the best four-year colleges, including room and board. And the figure did not even include the cost of liquidating the huge backlog of thrifts already seized nor the interest that had to be paid on borrowed funds. Within only a few days of the announced increase, the Treasury again revised the figure upward from $130 billion to $150 billion. As Treasury Secretary Nicholas Brady told the press, "No one should assume that the estimates won't change. They will.”
    Indeed, the estimates continued to change with each passing week. The government had sold or merged 223 insolvent thrifts during 1988 and had given grossly inadequate estimates of the cost. Financiers such as Ronald Perelman and the Texas investment partnership called Temple-Inland, Inc., picked up many of these at fantastic bargains, especially considering that they were given cash subsidies and tax advantages to sweeten the deal. At the time, Danny Wall, who was then Chairman of the Federal Home Loan Bank Board, announced that these deals "took care" of the worst thrift problems. He said the cost of the bailout was $39 billion. The Wall Street Journal replied:
    Wrong again. The new study, a compilation of audits prepared by the Federal Deposit Insurance Corporation, indicates that the total cost of the so-called Class of '88 will be $90 billion to $95 billion, including tax benefits granted the buyers and a huge amount of interest on government debt to help finance this assistance....
    But the 1988 thrift rescues' most expensive flaw doesn't appear to be the enrichment of tycoons. Rather it's that none of the deals ended or even limited the government's exposure to mismanagement by the new owners, hidden losses on real estate in the past, or the vicissitudes of the real-estate markets in the future.... And some of the deals
    Nov 27, 2012. 01:43 PM | Likes Like |Link to Comment
  • Why We Can't Take Inflation Hawks Seriously [View article]
    ABANDONMENT OF THE FREE MARKET
    These measures effectively removed real estate loans from the free market and placed them into the political arena, where they have remained ever since. The damage to the public as a result of this intervention would be delayed a long time in coming, but when it came, it would be cataclysmic.
    The reality of government disruption of the free market cannot be overemphasized, for it is at the heart of our present and future crisis. We have savings institutions that are controlled by government at every step of the way. Federal agencies provide protection against losses and lay down rigid guidelines for capitalization levels, number of branches, territories covered, management policies, services rendered, and interest rates charged. The additional cost to S&Ls of compliance with this regulation has been estimated by the American Bankers Association at about $11 billion per year, which represents a whopping 60% of all their profits.
    On top of that, the healthy component of the industry must spend over a billion dollars each year for extra premiums into the so-called insurance fund to make up for the failures of the unhealthy component, a form of penalty for success. When some of the healthy institutions attempted to convert to banks to escape this penalty, the regulators said no. Their cash flow was needed to support the bailout fund.
    INSURANCE FOR THE COMMON MAN?
    The average private savings deposit is about $6,000. Yet, under the Carter administration, the level of FDIC insurance was raised

    from $40,000 to $100,000 for each account. Those with more than that merely had to open several accounts, so, in reality, the sky was the limit. Clearly this had nothing to do with protecting the common man. The purpose was to prepare the way for brokerage houses to reinvest huge blocks of capital at high rates of interest virtually without risk. It was, after all, insured by the federal government.
    In 1979, Federal Reserve policy had pushed up interest rates, and the S&Ls had to keep pace to attract deposits. By December of
    1980, they were paying 15.8% interest on their money-market . .
    certificates. Yet, the average rate they were charging for new
    mortgages was only 12.9%. Many of their older loans were still crunching away at 7 or 8% and, to compound the problem, some of those were in default, which means they were really paying 0%. The thrifts were operating deep in the red and had to make up the difference somewhere.
    The weakest S&Ls paid the highest interest rates to attract depositors and they are the ones which obtained the large blocks of brokered funds. Brokers no longer cared how weak the operation was, because the funds were fully insured. They just cared about the interest rate.
    On the other hand, the S&L managers reasoned that they had to make those funds work miracles for the short period they had them. It was their only chance to dig out, and they were willing to take big risks. For them also, the government's insurance program had removed any chance of loss to their depositors, so many of them plunged into high-profit, high-risk real-estate developments.
    Deals began to go sour, and 1979 was the first year since the Great Depression of the 1930s that the total net worth of federally insured S&Ls became negative. And that was despite expansion almost everywhere else in the economy. The public began to worry.
    FULL FAITH AND CREDIT
    The protectors in Washington responded in 1982 with a joint resolution of Congress declaring that the full faith & credit of the United States government stood behind the FSLIC. That was a reassuring phrase, but many people had the gnawing feeling that, somehow, we were going to pay for it ourselves. And they were right. Consumer Reports explained:

    Behind the troubled banks and the increasingly troubled insurance agencies stands "the full faith and credit" of the Government—in effect, a promise, sure to be honored by Congress, that all citizens will chip in through taxes or through inflation to make all depositors whole.1
    The plight of the S&Ls was dramatically brought to light in
    Ohio in 1985 when the Home State Savings Bank of Cincinnati collapsed as a result of a potential $150 million loss in a Florida securities firm. This triggered a run, not only on the thirty-three branches of Home State, but on many of the other S&Ls as well. The news impacted international markets where overseas speculators dumped paper dollars for other currencies, and some rushed to buy gold.
    Within a few days, depositors demanding their money caused $60 million to flow out of the state's $130 million "insurance" fund which, true to form for all government protection schemes, was terribly inadequate. If the run had been allowed to continue, the fund likely would have been obliterated the next day. It was time for a political fix.
    On March 15, Ohio Governor Richard Celeste declared one of the few "bank holidays" since the Great Depression and closed all seventy-one of the state-insured thrifts. He assured the public there was nothing to worry about. He said this was merely a "cooling-off period ... until we can convincingly demonstrate the soundness of our system." Then he flew to Washington and met with Paul Volcker, chairman of the Federal Reserve Board, and with Edwin Gray, chairman of the Federal Home Loan Bank Board, to request federal assistance. They assured him it was available.
    A few days later, depositors were authorized to withdraw up to $750 from their accounts. On March 21, President Reagan calmed the world money markets with assurances that the crisis was over. Furthermore, he said, the problem was "limited to Ohio."2
    This was not the first time there had been a failure of state-sponsored insurance funds. The one in Nebraska was pulled down in 1983 when the Commonwealth Savings Company of Lincoln failed. It had over $60 million in deposits, but the insurance fund
    had less than $2 million to cover, not just Commonwealth, but the whole system. Depositors were lucky to get 65 cents on the dollar, and even that was expected to take up to 10 years. 1
    AN INVITATION TO FRAUD
    In the early days of the Reagan administration, government regulations were changed so that the S&Ls were no longer restricted to the issuance of home mortgages, the sole reason for their creation in the first place. In fact, they no longer even were required to obtain a down payment on their loans. They could now finance 100% of a deal—or even more. Office buildings and shopping centers sprang up everywhere regardless of the need. Developers, builders, managers, and appraisers made millions. The field soon became overbuilt and riddled with fraud. Billions of dollars disappeared into defunct projects. In at least twenty-two of the failed S&Ls, there is evidence that the Mafia and CIA were involved.
    Fraud is not necessarily against the law. In fact, most of the fraud in the S&L saga was, not only legal, it was encouraged by the government. The Garn-St. Germain Act allowed the thrifts to lend an amount of money equal to the appraised value of real estate rather than the market value. It wasn't long before appraisers were receiving handsome fees for appraisals that were, to say the least, unrealistic. But that was not fraud, it was the intent of the regulators. The amount by which the appraisal exceeded the market value was defined as "appraised equity" and was counted the same as capital. Since the S&Ls were required to have $1 in capital for every $33 held in deposits, an appraisal that exceeded market value by $1 million could be used to pyramid $33 million in deposits from Wall Street brokerage houses. And the anticipated profits from those funds was one of the ways in which the S&Ls were supposed to recoup their losses without the government having to cough up the money—which it didn't have. In effect the government was saying: "We can't make good on our protection scheme, so go get the money yourself by putting the investors at risk. Not only will we back you up if you fail, we'll show you exactly how to do it."

    THE FALLOUT BEGINS
    In spite of the accounting gimmicks which were created to make the walking-dead S&Ls look healthy, by 1984 the fallout began. The FSLIC closed one institution that year and arranged for the merger of twenty-six others which were insolvent. In order to persuade healthy firms to absorb insolvent ones, the government provides cash settlements to compensate for the liabilities. By 1984, these subsidized mergers were costing the FDIC over $1 billion per year. Yet, that was just the small beginning.
    Between 1980 and 1986, a total of 664 insured S&Ls failed. Government regulators had promised to protect the public in the event of losses, but the losses were already far beyond what they could handle. They could not afford to close down all the insolvent thrifts because they simply didn't have enough money to cover the pay out. In March of 1986, the FSLIC had only 3 cents for every dollar of deposits. By the end of that year, the figure had dropped to two-tenths of a penny for each dollar "insured." Obviously, they had to keep those thrifts in business, which meant they had to invent even more accounting gimmicks to conceal the reality.
    Postponement of the inevitable made matters even worse. Keeing the S&Ls in business was costing the FSLIC $6 million per day. By 1988, two years later, the thrift industry as a whole was losing $9.8 million per day, and the unprofitable ones—the corpses which were propped up by the FSLIC—were losing $35.6 million per day. And, still, the game continued.
    By 1989, the FSLIC no longer had even two-tenths of a penny for each dollar insured. Its reserves had vanished altogether. Like the thrifts it supposedly protected, it was, itself, insolvent and looking for loans. It had tried offering bond issues, but these fell far short of its needs. Congress had discussed the problem but had failed to provide new funding. The collapse of Lincoln Savings brought the crisis to a head. There was no money, period.
    THE FED USURPS THE ROLE OF CONGRESS
    In February, an agreement was reached between Alan Greenspan, Chairman of the Federal Reserve Board, and M. Danny Wall, Chairman of the Federal Home Loan Bank Board, to have
    $70 million of bailout funding for Lincoln Savings come directly from the Federal Reserve.
    Nov 27, 2012. 01:41 PM | Likes Like |Link to Comment
  • Why We Can't Take Inflation Hawks Seriously [View article]
    the damage done by the banking cartel is made possible by the fact that money can be created out of nothing. It also destroys our purchasing power through the hidden tax called inflation. The mechanism by which it works is hidden and subtle.
    Let us turn, now, from the arcane world of central banking to the giddy world of savings-and-loan institutions. By comparison, the problem in the savings-and-loan industry is easy to comprehend. It is simply that vast amounts of money are disappearing into the black hole of government mismanagement, and the losses must eventually be paid by us. The end result is the same in both cases.
    SOCIALISM TAKES ROOT IN AMERICA
    It all began with a concept. The concept took root in America largely as a result of the Great Depression of the 1930s. American politicians were impressed at how radical Marxists were able to attract popular support by blaming the capitalist system for the country's woes and by promising a socialist utopia. They admired and feared these radicals; admired them for their skill at mass psychology; feared them lest they become so popular as to win a plurality at the ballot box. It was not long before many political figures began to mimic the soap-box orators, and the voters enthusiastically put them into office.
    While the extreme and violent aspects of Communism generally were rejected, the more genteel theories of socialism became popular among the educated elite. It was they who would naturally become the leaders in an American socialist system. Someone had

    to look after the masses and tell them what to do for their own good, and many with college degrees and those with great wealth became enamored by the thought of playing that role. And so, the concept became widely accepted at all levels of American life—the "downtrodden masses" as well as the educated elite—that it was desirable for the government to take care of its citizens and to protect them in their economic affairs.
    And so, when more than 1900 S&Ls went belly-up in the Great Depression, Herbert Hoover—and a most willing Congress— created the Federal Home Loan Bank Board to protect depositors in the future. It began to issue charters to institutions that would submit to its regulations, and the public was led to believe that government regulators would be more wise, prudent, and honest than private managers. A federal charter became a kind of government seal of approval. The public, at last, was being protected.
    Hoover was succeeded by FDR in the White House who became the epitome of the new breed. Earlier in his political career, he had been the paragon of free enterprise and individualism. He spoke out against big government and for the free market, but in mid life he reset his sail to catch the shifting political wind. He went down in history as a pioneer of socialism in America.
    It was FDR who took the next step toward government paternalism in the S&L industry—as well as the banking industry—by establishing the Federal Deposit Insurance Corporation (FDIC) and the Federal Saving and Loan Insurance Corporation (FSLIC). From that point forward, neither the public nor the managers of the thrifts needed to worry about losses. Everything would be reimbursed by the government.
    A HOUSE ON EVERY LOT
    At about the same time, loans on private homes became subsidized through the Federal Housing Authority (FHA) which allowed S&Ls to make loans at rates lower than would have been possible without the subsidy. This was to make it easier for everyone to realize the dream of having their own home. While the Marxists were promising a chicken in every pot, the New Dealers were winning elections by pushing for a house on every lot.
    In the beginning, many people were able to purchase a home who, otherwise, might not have been able to do so or who would have had to wait longer to accumulate a higher down payment. On

    the other hand, the FHA-induced easy credit began to push up the price of houses for the middle class, and that quickly offset any real advantage of the subsidy. The voters, however, were not perceptive enough to understand this canceling effect and continued to vote for politicians who promised to expand the system.
    The next step was for the Federal Reserve Board to require banks to offer interest rates lower than those offered by S&Ls. The result was that funds moved from the banks into the S&Ls and became abundantly available for home loans. This was a deliberate national policy to favor the home industry at the expense of other industries that were competing for the same investment dollars. It may not have been good for the economy as a whole but it was good politics.
    Nov 27, 2012. 01:37 PM | Likes Like |Link to Comment
  • Why We Can't Take Inflation Hawks Seriously [View article]
    EFFECT OF "MODEST" 5% INFLATION
    For the past fifty years, all the published charts illustrating the decline of the dollar from such-and-such a date to the "present" show the following type of curve. Confiscates 64% each 20 year generation; confiscates 90% during 45 working years; total confiscation over lifetime
    These, of course, are averages. A few people in the middle class of the bureaucracy will have managed to place some of their dollars into tangible assets or income-producing securities—what few remain—where they are somewhat protected from the effects of inflation. For the vast majority, however, inflation hedges constitute but a tiny fraction of all they have earned over a lifetime.
    And so we find that, in The New World Order, inflation has been institutionalized at a "modest" level of five per cent. Once in every five or six generations—as prices climb higher and higher—a new monetary unit can be issued to replace the old in order to eliminate some of the zeros. But no one will live long enough to experience more than one devaluation. Each generation is unconcerned about the loss of the previous one. Young people come into the process without realizing it is circular instead of linear. They cannot comprehend the total because they were not alive at the beginning and will not be alive at the end. In fact, there need not even be an end. The process can be continued forever.
    By this mechanism—and with the output of work battalions— government can operate entirely without taxes. The lifetime output of every human being is at its disposal. Workers are allowed a color TV, state-subsidized alcohol and recreational drugs, and violent sports to amuse them, but they have no other options. They cannot escape their class. Society is divided into the rulers and the ruled, with an administrative bureaucracy in between. Privilege is now largely a right of birth. The worker class and even most of the administrators serve masters whom they do not know by name. But serve they do. Their new lords are the monetary and political scientists who created and who now control The New World Order. All of mankind is in a condition of high-tech feudalism.
    Nov 27, 2012. 01:23 PM | Likes Like |Link to Comment
  • Why We Can't Take Inflation Hawks Seriously [View article]
    EFFECT OF "MODEST" 5% INFLATION
    For the past fifty years, all the published charts illustrating the decline of the dollar from such-and-such a date to the "present" show the following type of curve.

    These, of course, are averages. A few people in the middle class of the bureaucracy will have managed to place some of their dollars into tangible assets or income-producing securities—what few remain—where they are somewhat protected from the effects of inflation. For the vast majority, however, inflation hedges constitute but a tiny fraction of all they have earned over a lifetime.
    And so we find that, in The New World Order, inflation has been institutionalized at a "modest" level of five per cent. Once in every five or six generations—as prices climb higher and higher—a new monetary unit can be issued to replace the old in order to eliminate some of the zeros. But no one will live long enough to experience more than one devaluation. Each generation is unconcerned about the loss of the previous one. Young people come into the process without realizing it is circular instead of linear. They cannot comprehend the total because they were not alive at the beginning and will not be alive at the end. In fact, there need not even be an end. The process can be continued forever.
    By this mechanism—and with the output of work battalions— government can operate entirely without taxes. The lifetime output of every human being is at its disposal. Workers are allowed a color TV, state-subsidized alcohol and recreational drugs, and violent sports to amuse them, but they have no other options. They cannot escape their class. Society is divided into the rulers and the ruled, with an administrative bureaucracy in between. Privilege is now largely a right of birth. The worker class and even most of the administrators serve masters whom they do not know by name. But serve they do. Their new lords are the monetary and political scientists who created and who now control The New World Order. All of mankind is in a condition of high-tech feudalism.
    Nov 26, 2012. 04:10 PM | Likes Like |Link to Comment
  • Why We Can't Take Inflation Hawks Seriously [View article]
    The reason we do not take 2% annual inflation seriusly is because we tend to forget it is 2% per year FOREVER. each generation of 20 years it confiscates 64% Each working years of 45 years it confiscates 90% Lifetime over 70 years it is total.
    Nov 26, 2012. 04:06 PM | Likes Like |Link to Comment
  • Dollar View: November 26 [View article]
    There is little doubt that the dollar will continue to drop irrespective of the pronouncements of the Fed. The collapse is much broader than by currencies and inevitable as all fiat systems inevitable has collapsed and this one, which would be the fourth of the Central banks the U.S. has had is imminent. It has outlasted previous Central Banks of the United States by 80 years or more and monetary policy has created $224 Trillion in debt, when all obligations are included. This sum is impossible to pay. Political uncertainty has little effect on the inflation caused by monetary policy. Mr Mason is correct in his polite assessment which refrains from describing the crertainty of the inevitable outcome.
    Nov 26, 2012. 03:40 PM | Likes Like |Link to Comment
  • The U.S. Dollar, Obama And The Gold Standard [View article]
    I AM NOW BEING PAID IN SOCIAL SECURITY 100% OF WHAT MY ANNUAL EARNINGS WERE IN 1957, $800 PER MONTH. IT IS INSUFFICIENT TO AVOID BECOMING HOMELESS.
    Nov 24, 2012. 04:07 PM | 1 Like Like |Link to Comment
  • Outlook For 2013 And Beyond: Exploring The Endgame For Financial Markets [View article]
    The President may now legally use the Armed Forces of the United State within the borders of the USA
    Nov 18, 2012. 05:00 PM | Likes Like |Link to Comment
  • Outlook For 2013 And Beyond: Exploring The Endgame For Financial Markets [View article]
    Democracy has been extinguished by "extreme capitalism" (details upon request That is what has caused the American people the loss of control of the government and the reality that Obama must obey the Fed which is not a gov t. agency and is not subject to the laws of the U.S. and which is crating the fourth collapse of the Central Bank of the U.S. which had three predecessors

    The principles that made America great no longer exist.
    1. Real Money, constitutional, has been judged by Supreme court to also allow Federal reserve Notes, fiat (legal counterfeiting)
    2. Habeas Corpus which the National defense Act of 2012 abolished
    3. Competition eliminated
    . The absence of unnecessary government intervention in private enterprise

    BUT I COULDN'T LEAVE OUT MANY OTHERS
    4. The arming f and establishment of a police forCE of the Fed with exceptional weapons
    5. The US Department of Homeland Security and the Immigrations and Customs Enforcement Office have placed an order for 450 million rounds of .40 caliber bullets. The amount of ammo exceeds the amount of people that live in the US and many wonder the motives behind the vast purchase. The contractor Alliant Techsystems is the company supplying the ammunition to DHS and ICE and although the agencies claim these bullets are to be used for target practice many believe they have something else in mind. Hollow points are not training ammo. All amunition is leathal. Hollow points are not made for penetration, but rather expansion to create a greater shock, and crush wound.You can’t use HP for target practice because it makes a messy hole in the target material (paper/wood) because it expands, also it’s more expensive. Finally DHS has ordered over ONE BILLION rounds. They even ordered ammunition via other Gov. agencies that do not even use firearms like Forestry
    The National Guard is not the constitutional authority for protecting this country, it is the Militia.On average, the US military used about 70 million rounds per YEAR during the war in Iraq. Are they preparing for wide spread civil unrest.
    President Obama has issued an executive order, titled “National Defense Resources Preparedness”, which instructs the heads of various U.S. agencies to be on standby of the authorization of martial law under by the Secretary of the Department of Homeland Security.
    The order in fact gives Executive Branch immediate to power to seize and control of any and all assets declared as critical to maintain its industrial and technological base and to control the general distribution of any material (including applicable services) in the civilian market
    The order further authorizes the immediate issuance of regulations to allocate, ration, or seize and all materials, including every thing from food, live stock and farm equipment to transportation, energy and even water!
    Under this order the heads of these of cabinets of Agriculture, Energy, Health and Human Services, Homeland Security, Transportation, Defense and Commerce can seize or ration any food, livestock, fertilizer, farm equipment, all forms of energy, all forms transportation and all other materials, including construction materials.
    The order has been issued under the premise that the United States must maintain its industrial and technological base to maintain National Security and National Defense, which includes giving assistance to foreign nations, during times of war and times of peace.
    Some of the oddest provisions include the allocation of water authority to use chemical and biological weapons being delegated to the Department of Defense, and the authority to place items owned by the Federal government in private property as well as sell Federal government property to private individuals.

    The government appears not to be acting in the best interests of the American voters
    Nov 18, 2012. 04:48 PM | 2 Likes Like |Link to Comment
  • Outlook For 2013 And Beyond: Exploring The Endgame For Financial Markets [View article]
    The dollar is being rejected globally. China in the last quarter purchased almost 400 tones of gold with their Federal reserve Notes. They no longer invest in Treasuries. All the Central banks are buying gold and Bernanke’s attempt to print America’s way out of its economic jam is, in essence, the declaration of a currency war on the entire world. And the major central banks are retaliating. Rickards writes, “The new currency war is the most meaningful struggle in the world today — the one struggle that determines the outcome of all others.”

    Iraq was invaded wehen it decided to sell its oil for Gold. Iran wishes the same and is not considered a threat to the U.S.

    Staying heaven cash might be suicidal
    Nov 18, 2012. 04:34 PM | 1 Like Like |Link to Comment
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