Paulson's Plans

Bank Reform: Treasury Secretary Henry Paulson has proposed sweeping new financial reforms that would in many ways be an improvement over the dysfunctional system we now have. But we do have some concerns.

We're not against new thinking when it comes to financial regulation. Quite frankly, since 1960 there has been at least one major financial crisis each decade that has exposed glaring weaknesses in our postwar financial regulations.

Still, the idea that the government can simply wave a wand and everything will be better is naive. Usually it's government itself that causes the problem — and then blames industry for it. That's certainly true with the subprime crisis.

We've made it no secret that we prefer market-based solutions to market-based problems. That said, looking at the mess surrounding subprime lending and the subsequent housing meltdown, it's hard not to fault the government.

From the editorial:

“The Community Redevelopment Act of 1977 [compelled] banks with U.S. charters to lend to people who didn’t have sterling credit histories. The idea was to help poor, deserving minorities get access to credit and homeownership... But banks and mortgage lenders started putting marginal credit risks into homes they clearly couldn’t afford. Today, according to Goldman Sachs, the unwinding of this problem will cost upward of $460 billion in the U.S., and more than $1 trillion globally.”

Yes! That is the first media commentary I’ve come across that addresses the root problem of the current mess. I’ve been trying to shout this truth from the rooftops (cf. http://www.freerepublic.com/focus/f-news/1994241/posts?page=9#9) and have been rather frustrated by the lack of the simplest analysis by the pundits and pols.

And even this superb editorial pussyfoots around the race-huckster shakedowns that led to not only unqualified minority borrowers being forced down the throats of brutalized and threatened institutions, but unqualified minority executives and board members as well, like Hillary Clinton’s campaign manager, Maggie Williams, whose academic training and executive experience in public relations would seem unsuited to the world of high finance (cf. http://en.wikipedia.org/wiki/Maggie_Williams) but ideally matched to assuaging the tattered reputation of a lender once branded as racist.

I agree with you as it is clear that many believe the Federal Reserve is a part of the Federal Government.

But there are two things that Bush has done recently that are either brilliant or fortuitous, but for alternative reasons.

These two recent acts are:

1. Tax Rebates
2. Calling for the Fed to become Regulator.

To understand why these things are so necessary requires an understanding of history and an ability to see connections among acts and organizations emerging from that history.

The Federal reserve was enacted and the Federal Income Tax 16th Amendment were both born in 1913 by no coincidence. The Federal Reserve prints paper money and exchanges it for other paper, most notably T-Bills issued by the US Treasury. The T-Bills today are not backed by anything other than future TAX INCREASES.

The long and short is that the Federal Income Tax and The Federal Reserve are joined at the hip as far as government financing.

The Federal Income Tax on Individuals is not used for:

* Roads
* Education
* Social Security
* Medicare
* Military.

These things are paid for by separate taxes (Military paid for by Corporate taxes as it always has been throughout American history with brief aberrations during the Civil War).

The Federal Income Tax on Individuals is used to pay for interest on ‘borrowing’ and for waste. As two of tens of thousands of examples of Federal Government waste consider the Department of Housing and Urban Development or the Department of Education.

The recent Tax Rebate is brilliant because it destroys the argument that the FairTax Rebate (http://www.fairtax.org) is administratively unfeasible.

The invitation of the Federal Reserve to become the financial market watchdog sets course on an inevitable takeover of the Federal Reserve by the Federal Goverment. As the Fed enters into future conflicts with market participants, there is a clear vision that some affected market participants will cry foul and seek government involvement. Such activities will certainly result in federalizing the Federal Reserve, likely under the Department of Treasury.

Therefore, Bush’s two recent actions, Rebates and Fed governance expansion allow the FairTax and federalization of monetary policy to advance. Both of these movements are in conformance with the original visions of this nation’s founders.

The Federal government will never abolish the Federal Reserve. For one thing, the debt owed to the Federal Reserve is atronomical, and the only way that the Federal government can pay it is to get more Federal Reserve notes (a never-ending cycle that eventually spins out of control).

About one year ago, Bear Stearns dropped a few of their hedge funds because these funds were destroying them. They also made public comments against the Federal Reserve.

I believe that it is no coincidence that the Federal Reserve brought Bear Stearns down recently as an act of punishment, and to go after their most recent goal: control of more banking instutions.

If things go according the the Federal Reserve's plan then they will have control over most financial instruments, clear down to the local town level.

This country has made a huge mess of its financial condition, all as a result of massive greed (both on the part of politicians and citizens). The Federal government needs to immediately produce a balanced budget along with many drastic cuts in order to pay off the Federal Reserve as quickly as possible (already above 9 TRILLION dollars). However, the government will not do this since they are in their power positions because of pork-spending, and it is much easier to borrow yet more money from the Federal Reserve than it is to product a balanced budget.

No mention was ever made of abolishing the Federal Reserve. It will be federalized though at a point in the future, as a result of its expansion into policing markets.

As for your speculation re: Bear Stearns, I agree.

The bottomline is that the US Government controlled the means and ends of its money until 1913. It was explicity written into the Constitution that the US Goverment produce and control its own currency. This was not a haphazard provision but a well thought out system by which government accountability would be sustained.

Since 1913 the dollar is now worth less than two pennies and multiple fed-induced boom-bust cycles have ensued. The government has expanded into areas that were previously unthinkable.

Prior to 1913, America was prosperous, very. The acts of 1913 have not made the nation more prosperous. It has grown and maintained an element of prosperity because its fundmentals continued for a long period after 1913 to operate with pre-1913 patterns. It was only in the late half of the 20th century that the emanating nature of the hybrid system of real money and synthetic money began to act in ways never before seen. Oil is the real currency and the US dollar derives benefit from its historic juxtaposition vis-a-vis oil.

The only way out of the current and future dilemma of federal government finance is to return to the decentralized and prosperous model of excise tax America with sound money. However, because of technological advances, it is possible to improve on this model.

FairTax
Federal government takeover of the Federal Reserve

I agree.

Most folks look at their savings and investments as the sum total of dollars that they have. They don't weigh it against the massive increases that we have had in the money supply - especially in the last decade or so.

Inflation is the hidden thief of a lot of money, and that inflation is being caused by the bozos in Washington, and the fact that our government just keeps borrowing from the Feds.

I don't believe that the Federal Reserve will be federalized. I think the Federal Reserve will reach a point that it will quite openly dictate the direction of our nation. After all, almost everyone has their money tied up in the markets now and a bank run would quickly create a lot of poor people as follows:

The Federal Reserve can tighten monetary policy - the financial lending institutions can't get the easy financing that they have enjoyed for so long - these institutions start calling in the loans that they have made, in order to survive - the companies that were loaned the money won't be able to repay the loans on call and will go bankrupt - individual families with the investments tied up in stocks and mutual funds will see their wealth disappear as companies begin failing left and right.

Andrew Jackson stated that the Second Bank of America, which may as well have been the Federal Reserve, only served one purpose. That purpose was to essentially tie the politicians to the rich and deny the average citizen a voice in economic policy. Jackson continued that the only result of such a bank would be to leverage every inch of land in the United States until the American became homeless in his own land.

Today we find ourselves in exactly that situation. The federal Reserve must not become a government agency and perform functions already assigned to the Treasury Department. It must not be allowed to further prop this financial house of paper. Come what may, the only real course of action is to dissolve the federal reserve and issue federal notes in line with the constitution.

Good reminders about the history of Andrew Jackson and banking.

When we allude to federalizing the Fed, we mean returning monetary functions to the US Government, regulated by policies driven by elections. Yes, at the whim of the voter an elected official can be placed in office to take a position on monetary policy. Many may think such a system of governance would be capricious but it is the way the nation functioned and functioned well prior to allowing a concession for printing paper money to a group of bankers.

There may well be errors in the process of taking back control but in the end, the result will be a government that is held responsible for their actions. Such a process must necessarily evolve to publicly accepted standards for upholding sound money. That is and should be the minimum expectation of performance.

Inflation or lack of it, and soundness of currency will be the goal of policies set forth by monetary professionals reporting to and endorsed by elected officials. Government endorsements will be based on the sense of outcome forecast and will be driven by the need for sound ccurrency.

Should the Federal Reserve as you suggest be dissolved and let have the Treasury Department issue paper, then the Treasury must necessarily take on the functions of setting monetary policy such as is done presently by the Fed. the difference is that the policy will be set by persons reporting to and obtaining approval from ‘elected’ officials, and there will be no need to pay interest on on borrowed notes. Not paying such interest would eliminate up to ten percent of federal spending immediately. As long as such a cut in payments would be followed with a cease in the ‘borrowing’ (borrowing notes created out of thin air), the net effect would a drop in federal revenues and a like order drop in federal spending.

Then the question becomes of how to fund the military at its present levels. It is borrowing and Corporate Taxes that presently pay for the military. Should borrowing be eliminated, the government will need to find revenues elsewhere to sustain the level of military spending.

The answer to this latter question is found in the enactment of the FairTax legislation H.R. 25. (http://www.fairtax.org). This legislation would impose a revenue neutral tax code that levies tax collection on a wider retail tax base.

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