On November 27, Bloomberg News reported the results of its successful case to force the Fed to reveal the lending details of its 2008-09 bank bailout. In 29,000 pages of documents, the Fed revealed that by March 2009, it had committed $7.77 trillion in below-market loans and guarantees to rescuing the financial system; and that these nearly interest-free loans came without strings attached.
The Fed insisted that the loans were repaid and there have been no losses, but the banks reaped a $13 billion windfall in profits; and "details suggest taxpayers paid a price beyond dollars as the secret funding helped preserve a broken status quo and enabled the biggest banks to grow even bigger."
The revelations provoked shock and outrage among commentators. But in a letter to the leaders of the House and Senate Committees focused on the financial services industry, Fed Chairman Ben Bernanke responded on December 6th that the figures were greatly exaggerated. He said the loans were being double-counted: short-term loans rolled over from day to day were counted as separate cumulative loans rather than as a single extended loan.
The Fed, it seems, was doing only what banks and the money market do for each other every day: making "liquidity" available at very low interest rates. In 2008, bank liquidity dried up after Lehman Brothers collapsed, and the banks could not get the cheap, ready credit on which their lending scheme depends. The Fed then stepped in as "lender of last resort," doing what it had to do to keep the banking scheme going.
Keeping the banking system afloat is all well and good. What is wrong with the existing scheme is that it allows the Fed to play favorites. As Alan Grayson observed in a December 5th editorial:
The main, if not the sole, qualification for getting help from the Fed was to have lost huge amounts of money. The Fed bailouts rewarded failure, and penalized success. . . .During all the time that the Fed was stuffing money into the pockets of failed banks, many Americans couldn't borrow a dime for a home, a car, or anything else. If the Fed had extended $26 trillion in credit to the American people instead of Wall Street, would there be 24 million Americans today who can't find a full-time job?
What is this need for "liquidity" that justifies such extraordinary measures on behalf of the banks? Why do banks need cheap and ready access to funds? Aren't they the lenders rather than the borrowers of funds? Don't they simply take in deposits and lend them out?
The answer is no. Today when banks make loans, they extend credit FIRST, then fund the loans by borrowing from the cheapest available source. If deposits are not available, they borrow from another bank, the money market, or the Federal Reserve.
Rather than loans being created from deposits, loans actually CREATE deposits. They create deposits when checks are drawn on the borrower's account and deposited in another bank. These deposits can then be borrowed back at the Fed funds rate -- currently a very low 0.25%. A bank can thus create money in the form of "bank credit," lend it to a customer at high interest, and borrow it back at very low interest, pocketing the difference as its profit.
If all this looks like sleight of hand, it is. The process has been compared to "check kiting," defined in Barron's Business Dictionary as:
[An] illegal scheme that establishes a false line of credit by the exchange of worthless checks between two banks. For instance, a check kiter might have empty checking accounts at two different banks, A and B. The kiter writes a check for $50,000 on the bank A account and deposits it in the bank B account. If the kiter has good credit at bank B, he will be able to draw funds against the deposited check before it clears, that is, is forwarded to bank A for payment and paid by bank A. Since the clearing process usually takes a few days, the kiter can use the $50,000 for a few days and then deposit it in the bank A account before the $50,000 check drawn on that account clears.
The Fed and the banking system have the unique power to create money as credit on their books, but this is not actually what is wrong with the banking scheme. The economy needs an expandable credit system and suffers recessions without it; and an expandable credit system needs a lender of last resort.
What is wrong with the current scheme is that the profits are siphoned off to the 1% at the expense of the 99%. Banks can borrow very cheaply, while individuals, corporations and governments pay "whatever the market will bear." The banker middlemen take their cut in a scheme in which money is actually manufactured in the process of lending it.
To fix the system, the profits need to be returned to the 99%. How that could be done was suggested by Thom Hartmann in a recent editorial:
Have the central bank owned by the US government and run by the Treasury Department, so all the profits . . . go directly into the Treasury and you and I pay less in taxes . . . .
For what local governments could do, he pointed to the Bank of North Dakota:
The good people of North Dakota . . . established something very much like this--the Bank of North Dakota--and it's kept the state in the black, and kept its farmers, manufacturers and students protected from the predations of New York banksters for nearly a century. It's time for every state to charter their own state bank, just like North Dakota did, and for the Treasury Department to either buy the Fed from the for-profit banks that own it, or simply nationalize it.We have been distracted here and in Europe by a sudden panic over our "sovereign debt" crises, when the real crisis is that our debt is NOT sovereign. We are indentured to a Wall Street money machine that creates our money and lends it back to us at interest, money our sovereign government could be creating itself, with full democratic oversight and accountability to the people. We have forgotten our roots, when the American colonists thrived on a system of money created by the people themselves, debt-free and interest-free. The continued dominance of the Wall Street money machine depends on that collective amnesia. The fact that this memory is surfacing again may be the machine's greatest threat -- and our greatest hope as a nation.
Follow Ellen Brown on Twitter: www.twitter.com/ellenhbrown
how 'bout taking the for-profit insurance companies out of the middleman position for mandatory
health insurance (i.e. allow a medicare option for all).
I know, I know, we are stuck with a ''greed-is-good, too-big-to-fail, give-the-money-to-the-rich
so-it-can-trickle-down-to-the-peons, privatize-the-profits/socialize-the-losses,
corporate-capitalist-system.''
Pshaw.
The NEED Act restores the constitutional prerogative of the federal government to create the national money supply and puts the Federal Reserve under the authority of the Treasury where it is subject to public oversight. It abolishes ‘fractional reserve’ lending, the accounting trick that private banks use to create credit as our medium of exchange. Henceforth, ONLY the US Treasury’s Monetary Authority would have the legal authority to create US money – without incurring public debt. Implementation of The NEED Act would pay off federal debt with US Money as it comes due until it is permanently retired.
New US Money would be spent into circulation by Congress to promote the general welfare, beginning with public infrastructure - $2.2 trillion needed, creating 7 million jobs. States would receive 28% of the money created and citizens would receive a dividend to provide liquidity to the productive economy. Passing this legislation would give the PUBLIC control over creating the money supply and the MEANS to expand the PRODUCTIVE economy. Private banks would no longer have the power to contract the economy by withholding credit.
Video: Now Do You Understand Occupy Wall Street?
http://www.youtube.com/watch?v=oUpXDZFtEHw
NEED Act Fact Sheet
http://kucinich.house.gov/UploadedFiles/NEED_Act_Fact_Sheet_09232011.pdf
Read the NEED Act:
http://kucinich.house.gov/UploadedFiles/NEED_Act_FINAL_112th.pdf
http://nikkialexander.wordpress.com
Especially, this line in your comment:
""It abolishes ‘fractional reserve’ lending, the accounting trick that private banks use to create credit as our medium of exchange.""
It was the Nobelist(Chemistry) Frederick Soddy who, in turning his scientific eye to the money system, first said of this practice - "It is not a system, it is a confidence trick.".
The fuel for continuing this confidence trick of fractional-reserve banking is compounding interest, which we all pay as a hidden tax on everything we buy..
http://blip.tv/file/4111596
In this lectures on 'Cartesian Economics' that Soddy sought to marry scientific rigor to the system that produces the medium of exchange for the national economy.
http://habitat.aq.upm.es/boletin/n37/afsod.en.html
The Kucinich Bill encompasses decades of political-economic effort needed to impart a scientific foundation to this nation's money system. Noted monetary economists throughout the past hundred years have advocated for not only "Pulling Back the Curtain" on the Wall Street Money Machine of fractional-reserve banking, but in administering its last rites.
For the Money System Common.
Before getting too excited about following the model of North Dakota, pop over to Wikipedia and read the state entry at:
http://en.wikipedia.org/wiki/North_dakota
Exerpts:
“Population
From fewer than 2,000 people in 1870, North Dakota's population grew to near 680,000 by 1930. Growth then slowed, and the population has fluctuated slightly over the past seven decades, hitting a low of 617,761 in the 1970 census, with a total of 642,200 in the 2000 census.”
Emigration
“From 1923 through the beginning of the 21st century, North Dakota experienced a virtually constant decline in population, particularly among younger people with university degrees.”
That’s right - while the population of the country as a whole doubled over the last 80 years, North Dakota’s population actually declined. If you never had any population growth to fuel a boom; then you cannot have a bust and the experience of your state banking system is not going to relevant for other states.
http://quickfacts.census.gov/qfd/states/38000.html
Furthermore, the State Bank has contributed more to state coffers than even the booming oil/NG industry.
The most recent US government census figures I was able to find are:
www.census.gov/prod/2006pubs/p25-1135.pdf
“Domestic Net Migration in the United States: 2000 to 2004”
On page 4, there is a state population percentage gain/loss table:
“Highest and Lowest Average Annual Rates of Net Domestic Migration for States: 2000–2004”
North Dakota is the third worst performing state at the bottom of the list with a 6.3% drop. Whatever they are doing in North Dakota; their fellow citizens elsewhere are not running to jump on board.
In my opinion WOD is thee best book of our time! Every thinking person should actually read the ENTIRE Web Of Debt book! It has many hidden gems that are not covered in the WebOfDebt.com/articles and site, or in the PublicBankingInstitute.org site.
However, some things are missing... just like relatively few of us used computers 30 years ago, and now over 5 billion of us have cell phones... making the product and technology easy to adopt & use is the key to mass marketing! If an easy to set up KIT for virtual Public Banks was available, it would require little committment and be easy for any government to adopt and create a Publicly Owned Bank...
And more importantly, use it's credit creating ability to buy up it's outstanding bonds, new bonds, and make direct loans for beneficial Public Works projects like infrastructure, education, healthcare, & re-fi homes in foreclosure, etc. and fully employ their citizens that are able to work. The increased taxes paid can, over time, pay back the governments' loans. Viola, no debt crisis, and increase the money supply, without inflation. See Part 2...
However, this is still "trickle down" money that will unlikely get to the poorest of us 99%. Also, having a universal (transnational) "complimentary curency" system can totally eliminate poverty. Each person can receive benefits including an allowance, which causes them to be a consumer that buys from the 1% and others. (Similar to C.H. Douglas' Social Credit national divident concept, except operated as a democratic co-op transnationally, rather than by national governments' dictates.)
How would it effect your life if you and each person in your family and community each received at least a basic allowance worth about $2,000 per month?
Such a currency would basically be cell phone (or text) transferable, digital discount coupons. But unlike merchants' discount "coupons" these digits would be TRANSFERABLE to any other merchant and consumer. Similar to, but unlike in scale, to a LETS system, which is basically discount coupons transferable to a finite group of merchants in a local area, like BrixtonPound.org. We all live in a global village, so a universal currency system would benefit all 100% of our human family members.
Any buddy wanna help contribute to a co-operative complimentary currency system, without dictators?
I knew about C F Douglas, "social credit", and LETS schemes about 40 years ago.
None of it can possibly work. TPTB will NOT allow subversion of the current political/financial/corporate/order of things.
No matter what you think of Qadafi as a person, he DID introduce a "social wage' and a central bank free of debt ... and free health-care, free education, etc..
But now he has been anally raped, shot in cold blood and gone. And Hillary laughed to see such sport, as Nato ran away with the oil.
Sorry MoneyFarmOrg, but as soon as you got close to: "How would it effect your life if you and each person in your family and community each received at least a basic allowance worth about $2,000 per month?" You would be dead.
You are proposing exactly the kinds of policies that Qadafi did.
Your articles always make me smile. Not unlike the solutions in your book Web of Debt
http://www.webofdebt.com/
What do you think of my push to say that "private interest" is a TAX that trickles, or floods up, rather than down; as can happen with public taxes being expended on schools, health-care and essential infrastructure, e.g. roads, railways and power distribution?
Do you perhaps mean that you arrogantly dismiss Ellen as a merely amusing contrast with your own opinions?
If so - and in case - please explain your comment and/or alternative point of view.
Something to do with von Mises, Hayek, Ron Paul perhaps?