You’re dangerous because you’re honest” ~ U2
Recently a bill to bailout Fannie Mae and Freddie Mac was overwhelming passed by both branches of the U.S. Congress, the House of Representatives and the Senate U.S. Congress. It is expected that President Bush will sign this bill into law almost immediately. Because U.S. Senator Ron Paul deftly explains the impact this bill will have on the already sick global financial world, here's his video:
I have outlined some of the important points of U.S. Senator Ron Paul’s speech along with my own commentary here:
(1) The housing bill, the “mother of all bailouts” has removed all U.S. Congressional oversight and handed the power to administer this unlimited line of credit to the U.S. Treasury as requested by former Goldman Sachs CEO and current U.S. Secretary of Treasury CEO Hank Paulson.
(2) Although the media has reported the bailout provision of Fannie Mae and Freddie Mac to be only $25 billion, this is wrong. As Senator Ron Paul has pointed out, the line of credit extended to the U.S. Treasury to buy Fannie Mae and Freddie Mac securities is unlimited. There is no way that $25 billion will be adequate to bailout Fannie Mae and Freddie Mac when both entities only have about $70 billion in capital supporting $1.7 trillion in assets and another additional $3.3 trillion + of guarantees.
(3) The national debt limit was increased in the United States by $800 billion. These translates into almost certain increased further massive debasement of the value of the U.S. dollar. Massive foreign currency exchange intervention and controls will now be necessary to not create further massive downward slides in the dollar as massive monetary expansion directives are most likely on the way.
(4) Ron Paul correctly pointed out that U.S. Federal Reserve has exchanged U.S. Treasuries on their balance sheet for Fannie Mae and Freddie Mac securities, temporarily downgrading their balance sheet. He has stated that U.S. Treasuries, a debt instrument that no one in the world wants, now support Fannie Mae and Freddie Mac. However, the Term Auction Facility [TAF] and Term Securities Lending Facilities [TSLF] have also created the same situation for America’s largest banks and Wall Street firms. So you can apply Ron Paul’s statements to most of America’s largest banks and Wall Street firms, not just America’s two largest mortgage companies.
Provisions that have nothing to do with the mortgage bailout were buried in the massive 600-page bill in the hopes that U.S. Congressmen would not care or would not read them. As the vast majority of U.S. Congressmen never actually bother reading any of the bills they vote on, Ron Paul kindly pointed out a couple of the more prohibitive provisions that were hidden in this bill:
(1) All U.S. mortgage employees will now be fingerprinted (this is actually not such a big deal as all U.S. bankers and investment firm employees have been fingerprinted for years. However, as Ron Paul points out, mortgage employees did not cause the housing crisis so it is an irrelevant provision that does nothing to address the root source of the housing crisis and is just an attempt to scape goat them); and
(2) All credit card transactions will be reported to the I.R.S.
Though the United States is far, far away from reaching the hyperinflation environment of Zimbabwe where fresh $Z100 billion notes were just minted last month, the U.S. regulatory agencies are doing everything in their power to give the U.S. a chance of mirroring Zimbabwe’s monetary crisis.