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THE FED HAS SPOKEN: NO BAILOUT FOR MAIN STREET
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THE FED HAS SPOKEN: NO BAILOUT FOR MAIN STREET
Courtesy of Ellen Brown at Web of Debt
(Orginally published at Web of Debt and Huffington Post here.)
The Federal Reserve was set up by bankers for bankers, and it has served them well. Out of the blue, it came up with $12.3 trillion in nearly interest-free credit to bail the banks out of a credit crunch they created. That same credit crisis has plunged state and local governments into insolvency, but the Fed has now delivered its ultimatum: there will be no “quantitative easing” for municipal governments.
On January 7, according to the Wall Street Journal, Federal Reserve Chairman Ben Bernanke announced that the Fed had ruled out a central bank bailout of state and local governments. "We have no expectation or intention to get involved in state and local finance," he said in testimony before the Senate Budget Committee. The states "should not expect loans from the Fed."
So much for the proposal of President Barack Obama, reported in Reuters a year ago, to have the Fed buy municipal bonds to cut the heavy borrowing costs of cash-strapped cities and states.
The credit woes of state and municipal governments are a direct result of Wall Street’s malfeasance. Their borrowing costs first shot up in 2008, when the “monoline” bond insurers lost their own credit ratings after gambling in derivatives. The Fed’s low-interest facilities could have been used to restore local government credit, just as it was used to restore the credit of the banks. But Chairman Bernanke has now vetoed that plan.
Why? It can hardly be argued that the Fed doesn’t have the money. The collective budget deficit of the states for 2011 is projected at $140 billion, a mere drop in the bucket compared to the sums the Fed managed to come up with to bail out the banks. According to data recently released, the central bank provided roughly $3.3 trillion in liquidity and $9 trillion in short-term loans and other financial arrangements to banks, multinational corporations, and foreign financial institutions following the credit crisis of 2008.
The argument may be that continuing the Fed’s controversial “quantitative easing” program (easing credit conditions by creating money with accounting entries) will drive the economy into hyperinflation. But creating $12.3 trillion for the banks -- nearly one hundred times the sum needed by state governments -- did not have that dire effect. Rather, the money supply is shrinking – by some estimates, at the fastest rate since the Great Depression. Creating another $140 billion would hardly affect the money supply at all.
Why didn’t the $12.3 trillion drive the economy into hyperinflation? Because, contrary to popular belief, when the Fed engages in “quantitative easing,” it is not simply printing money and giving it away. It is merely extending CREDIT, creating an overdraft on the account of the borrower to be paid back in due course. The Fed is simply replacing expensive credit from private banks (which also create the loan money on their books) with cheap credit from the central bank.
So why isn’t the Fed open to advancing this cheap credit to the states? According to Mr. Bernanke, its hands are tied. He says the Fed is limited by statute to buying municipal government debt with maturities of six months or less that is directly backed by tax or other assured revenue, a form of debt that makes up less than 2% of the overall muni market. Congress imposed that restriction, and only Congress can change it.
That may sound like he is passing the buck, but he is probably right. Bailing out state and local governments IS outside the Fed’s mandate. The Federal Reserve Act was drafted by bankers to create a banker’s bank that would serve their interests. No others need apply. The Federal Reserve is the bankers’ own private club, and its legal structure keeps all non-members out.
Earlier Central Bank Ventures into Commercial Lending
That is how the Fed is structured today, but it hasn’t always been that way. In 1934, Section 13(b) was added to the Federal Reserve Act, authorizing the Fed to “make credit available for the purpose of supplying working capital to established industrial and commercial businesses.” This long-forgotten section was implemented and remained in effect for 24 years. In a 2002 article called “Lender of More Than Last Resort” posted on the Minneapolis Fed’s website, David Fettig summarized its provisions as follows:
- [Federal] Reserve banks could make loans to any established businesses, including businesses begun that year (a change from earlier legislation that limited funds to more established enterprises).
- Reserve banks were permitted to participate [share in loans] with lending institutions, but only if the latter assumed 20 percent of the risk.
- No limitation was placed on the amount of a single loan.
- A Reserve bank could make a direct loan only to a business in its district.
Today, that venture into commercial banking sounds like a radical departure from the Fed’s given role; but at the time it evidently seemed like a reasonable alternative. Fettig notes that “the Fed was still less than 20 years old and many likely remembered the arguments put forth during the System's founding, when some advocated that the discount window should be open to all comers, not just member banks.” In Australia and other countries, the central bank was then assuming commercial as well as central bank functions.
Section 13(b) was repealed in 1958, but one state has kept its memory alive. In North Dakota, the publicly owned Bank of North Dakota (BND) acts as a “mini-Fed” for the state. Like the Federal Reserve of the 1930s and 1940s, the BND makes loans to local businesses and participates in loans made by local banks.
The BND has helped North Dakota escape the credit crisis. In 2009, when other states were teetering on bankruptcy, North Dakota sported the largest surplus it had ever had. Other states, prompted by their own budget crises to explore alternatives, are now looking to North Dakota for inspiration.
The “Unusual and Exigent Circumstances” Exception
Although Section 13(b) was repealed, the Federal Reserve Act retained enough vestiges of it in 2008 to allow the Fed to intervene to save a variety of non-bank entities from bankruptcy. The problem was that the tool was applied selectively. The recipients were major corporate players, not local businesses or local governments. Fettig writes:
Section 13(b) may be a memory, . . . but Section 13 paragraph 3 . . . is alive and well in the Federal Reserve Act. . . . [T]his amendment allows, "in unusual and exigent circumstances," a Reserve bank to advance credit to individuals, partnerships and corporations that are not depository institutions.
In 2008, the Fed bailed out investment company Bear Stearns and insurer AIG, neither of which was a bank. John Nichols reports in The Nation that Bear Stearns got almost $1 trillion in short-term loans, with interest rates as low as 0.5%. The Fed also made loans to other corporations, including GE, McDonald’s, and Verizon.
In 2010, Section 13(3) was modified by the Dodd-Frank bill, which replaced the phrase “individuals, partnerships and corporations” with the vaguer phrase “any program or facility with broad-based eligibility.” As explained in the notes to the bill:
Only Broad-Based Facilities Permitted. Section 13(3) is modified to remove the authority to extend credit to specific individuals, partnerships and corporations. Instead, the Board may authorize credit under section 13(3) only under a program or facility with “broad-based eligibility.”
What programs have “broad-based eligibility” isn’t clear from a reading of the Section, but long-term municipal bonds are evidently excluded. Mr. Bernanke said that if municipal defaults became a problem, it would be in Congress’ hands, not his.
Congress could change the law, just as it did in 1934, 1958, and 2010. It could change the law to allow the Fed to help Main Street just as it helped Wall Street. But as Senator Dick Durbin blurted out on a radio program in April 2009, Congress is owned by the banks. Changes in the law today are more likely to go the other way. Mike Whitney, writing in December 2010, noted:
So far, not one CEO or CFO of a major investment bank or financial institution has been charged, arrested, prosecuted, or convicted in what amounts to the largest incident of securities fraud in history. In the much-smaller Savings and Loan investigation, more than 1,000 people were charged and convicted. . . . [T]he system is broken and the old rules no longer apply.
The old rules no longer apply because they have been changed to suit the moneyed interests that hold Congress and the Fed captive. The law has been changed not only to keep the guilty out of jail but to preserve their exorbitant profits and bonuses at the expense of their victims.
To do this, the Federal Reserve had to take “extraordinary measures.” They were extraordinary but not illegal, because the Fed’s congressional mandate made them legal. Nobody’s permission even had to be sought. Section 13(3) of the Federal Reserve Act allows it to do what it needs to do in “unusual and exigent circumstances” to save its constituents.
If you’re a bank, it seems, anything goes. If you’re not a bank, you’re on your own.
So Who Will Save the States?
Highlighting the immediacy of the local government budget crisis, The Wall Street Journal quoted Meredith Whitney, a banking analyst who recently turned to analyzing state and local finances. She said on a recent broadcast of CBS's "60 Minutes" that the U.S. could see "50 to 100 sizable defaults" in 2011 among its local governments, amounting to "hundreds of billions of dollars."
If the Fed could so easily come up with 12.3 trillion dollars to save the banks, why can’t it find a few hundred billion under the mattress to save the states? Obviously it could, if Congress were inclined to put non-bank lending back into the Fed’s job description. Then why isn’t that being done?
The cynical view is that the states are purposely being kept on the edge of bankruptcy, because the banks that hold Congress hostage want the interest income and the control.
Whatever the reason, Congress is standing down while the nation is sinking. Congress must summon the courage to take needed action; and that action is not to impose “austerity” by cutting services, at a time when an already-squeezed populace most needs them. Rather, it is to create the jobs that will generate real productivity. To do this, Congress would not even have to go through the Federal Reserve. It could issue its own debt-free money and spend it on repairing and modernizing our decaying infrastructure, among other needed works. Congress’ task will become easier if the people stand with them in demanding action, but Congress is now so gridlocked that change may still be long in coming.
In the meantime, the states could take matters in their own hands and set up their own state-owned banks, on the model of the Bank of North Dakota. They could then have their own very-low-interest credit lines, just as the Wall Street banks do. Rather than spending or selling off valuable public assets, or hoarding them in massive rainy day funds made necessary by the lack of ready credit, states could LEVERAGE their assets into a very strong and abundant local credit system, following the accepted business practices of the Wall Street banks themselves.
The Public Banking Institute is being launched on January 13 to explore that alternative. For more information, see http://PublicBankingInstitute.org.
Pic credit: Jr. Deputy Accountant
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@"the fed has spoken."
but will their speech have any currency with the
people they speak too or about?
That is fine that there is no bailout for main street because two wrongs do not make a right. The money for the bailout would just come from main strreet anyway no matter how well hidden from the economically illiterate.
"Rather, it is to create the jobs that will generate real productivity"
Ellen Brown is seriously deluded if she thinks that Government of any size can create jobs that have any productivity component.
the future is still unknown and the past as a key to the
present is valid, but the past as the key to the future
is fallacious.
Beware ... Obama's wealth is primarily in muni's ...and public employee unions will benefit most ... who thinks legal semantics will prevent a mere $140B bailout?
The individual will sell MUB to hedge their muni positions ... down, down, down ... GS and Pimco start buying at the bottom and then FED bails out muni's ... a frontrun to suck up a 'Fist Full of Dollars'
sounds true. ?
of course the fed will bail out the states.. concessions first like the 100,000 pensions for state workers .. can't have them competing with the national govenment ,
how about a 2/3 reduction..
distroy the state union power,, obama billion dollar run for 2012 will get state votes as he saves the states with his call for more fiat ,
a political power move with misdirection,, was it in the fed power to give 12 trillion to foreign banks ,,
the fed will pour fiat into the system bonds collapse,, equity markets scream higher ,, gold silver hidden from view of the masses will be utilized by foreign monetary nations to introduce a gold back currency,, the dollar will plunge ,,
best to get some chow, some protection.. move from a close proximity from the inner cities ,, gold silver for the protection of your asset wealth,, a silver dollar today will buy 10 gallons of gas, it takes 30 dollars .. in the recent past a silver dollar would buy 3 gallons as would 5 bucks .clearly silver has preserved some buying power .. as it will buy 3.3 times the gas,, whilst the dollar requires 6 times the outlay.
just pop over to the coin store grab the bucks buy the gas . for those who were fortunate to buy the silver .
so no matter what the fed and the crooked banks do,, protect your self .
http://huffpostfund.org/stories/2010/10/new-tax-man-big-banks-and-hedge-funds
another way that the agents of the fed are gutting the country
This is truly horrific.
BOA sets up homeowners to fail, tanks the economy and when they can't pay their taxes buys the right to collect through forced sale.
I hate Bank of America. It needs to fail.
Assange needs to do his data dump.
"If the Fed could so easily come up with 12.3 trillion dollars to save the banks, why can’t it find a few hundred billion under the mattress to save the states?"
Because its not about helping the insolvent. Its about transfering the nation's wealth to large banks who own the Fed.
The easiest way to do that is print money and give it to those large banks. Loan it to them at zero interest. Buy their worthless securities with it. Back trucks full of freshly printed money up the to door and dump it on the lobby floor. Whatever.
Use any excuse they choose. They don't even need an excuse.
The more money the Fed prints and gives to those large banks, the more national wealth they're giving to those large banks. Keep it up until ALL the nation's wealth is given to those large banks.
Giving some of that freshly printed money to states would transfer some of the nations wealth to those states. Those big banks don't want any of the nation's wealth given to states. They want all of it.
That's WHY the Fed was created. To slowly and gardually transfer the nations wealth to bankers who own the Fed ...and its printing presses.
Congress goes along with it or Congress doesn't get any more money to spend. Simple as that.
If the comparative numbers are correct and it is tirllions in bailouts for the banks compared to a paltry $140 billion for the states then when do the peasants storm the bastille?
Goldman Sachs got the title of squid, but that really is more appropriately baby squid with the Fed being the master squid.
On God's green earth, how can we as citizens of the USA think it is OK for fed banks to borrow for next to nothing yet municipalities are getting their short term credit denied or interest rates jacked up by these banks?---these banks were all bankrupt in the fall of 2008 and if out government had done the right thing, treasury would have taken on the unwinding of a corrupt system and had a temporary facility until the defunk corrupt bank oligopoly (at a minimum, really a monopoly run by the fed) could be unwound...this isn't socialization, it is simply getting rid of the bank monopoly run by the private owners of the federal reserve corporation instead of giving them free money to stay in business, and loan shark away the country.
The real master squid is the Federal government.
Eh, they're just lackeys and jack-boots for international bankers - which makes them traitors. It's all part of the plan...
The future is now. Be prepared.
Better to get involved, and head it off at the pass.
Failure is not an option.
Except for those losers sitting around in their underwear, blogging.
Oh, woe is me. All parties are the same. I have never tried to find clothes to put over my underwear, so's I could go out in public and talk to my Representative. Damn, who knew mind-reading was so hard?
F all you losers.
Screw the U.S. government for assistance. I'd love to see California or Illinois invite the Chinese in to buy their bonds. That would get the attention of the Obama asshats in D.C.
Go Yuan! California. Go Yuan!
Chinee already have the plan in operation to make the Left Coast a separate nation, in their sphere of control. Where are all the Asians?
They may have to duke it out with Mexico ... viva Cali and its new currency the peeso - yuan - me
You don't know this... but you are asking the Jewish Question. Court Jews formally became the Federal Reserve and the Bank of England... and they still excise taxes on the Goyim Legally via the Babylonian Talmud... yes.. children... someday the heavens may fall on these "chosen" since they embrace the "Illuminati" of "Marduk". And they have to get their asses kick out of the host country before things get corrected, and then another generation has to face the same "Talmudists"...wash and repeat. Where is their "Messiah"? Is it money, their "power"? Jews are such idiots when you really study them and their works from Marduk, or if you are "Tribe" then "Merodach". --CSR:
http://theinfounderground.com/forum/viewtopic.php?f=41&t=13811
In the Spanish War of Succession Wertheimer united with Samuel Oppenheimer to procure the money necessary for the equipment of the imperial army and for the supply of provisions. After Oppenheimer's failure, and his sudden death in 1703, Wertheimer maintained the credit of the state and found new sources of income. On Aug. 29, 1703, the emperor appointed him court factor, and extended for twenty years his privileges of free religious worship, denizenship, and immunity from taxation. Joseph I., who succeeded his father on May 5, 1705, confirmed Wertheimer's title and privileges.
Under Emperor Joseph I., Wertheimer maintained his position as a financier and creditor of the state. He was in personal relations with Prince Eugene of Savoy, to whom he paid 300,000 florins promised by Joseph I., Charles VI. adding another 100,000 florins. During the Turkish war Wertheimer made large loans to the government. The title of "Landesrabbiner," which the Jews of Hungary had bestowed on Wertheimer, was made effective by Charles VI. (Aug. 26, 1711). Wertheimer, according to a contemporary account of one of his relatives, Abraham Levi, was called the "Juden Kaiser." Ten imperial soldiers stood as sentinels before his house. He possessed many of the palaces and gardens in Vienna, and numerous estates and houses in Germany, e.g., in Frankfort-on-the-Main, Worms, and other cities. He established schools, and distributed large amounts of money in Europe and in the Holy Land. Alien Jews were not allowed to remain over night in Vienna without a written permit from him.
By the marriages of his children Wertheimer became connected with the most prominent families of Austria and Germany. His stepson Isaac Nathan Oppenheimer married a daughter of the wealthy purveyor Pösing; his eldest son, Wolf, married a daughter of Emanuel Oppenheimer. Wolf was an active agent in his father's financial transactions, and shared his dignity as court factor. He later experienced great reverses of fortune, however. Having invested a large part of his wealth in loans to the Bavarian government, the stipulated terms of repayment were not kept, and bankruptcy stared him in the face. For a time he was able to pay only half of the interest on the 150,000 florins which Samson Wertheimer had donated to charity, and of which Wolf was trustee. On his father's donation of 22,000 florins in favor of the German Jews in Palestine he did not pay any interest after 1733. His embarrassment was ended by Elector Maximilian, who liquidated his debts. In his will (1762) Wolf declared that, although entailing a great loss upon him, he accepted this liquidation in order to do justice to his creditors. Further, he enjoined his children to pay in full his father's donation of 22,000 florins, although in 1759 he (Wolf) had returned to the Frankfort congregation 10,000 florins which it had contributed to this fund. In 1769 the grandchildren of Samson Wertheimer secured the donation of 150,000 florins, and Wolf's heirs added thereto 40,000 florins, in compensation for unpaid interest. These two foundations at Vienna and Jerusalem still keep alive the name of Wertheimer.
Samson's second son, Löb, married a daughter of Issachar ha-Levi Bermann of Halberstadt, a relative of Leffman Behrens, court Jew of Hanover; thus the three great "shetadlanin" were closely connected. Samson's sons-in-law were: R. Moses Kann of Frankfort-on-the-Main; Issacbar Berush Eskeles, father of the Vienna banker Bernhard Eskeles; Joseph, son of R. David Oppenheimer; and Seligmann Berend Kohn, called Solomon of Hamburg. His youngest son, Joseph Josel (b. 1718), marrieda daughter of his stepbrother Wolf. Joseph died in Vienna (1761), where he was greatly esteemed for his charity and Talmudic learning. See Court Jews.
Lies abound with these people...like the Fed...
http://www.youtube.com/watch?v=-48HQpgQRz0
and the Treasury:
http://www.youtube.com/watch?v=sc0ilW3gves
http://www.youtube.com/watch?v=gG19mnCaOY0
Watch this for fun:
http://www.youtube.com/watch?v=4ghymjgbSO0
Republicans don't smoke crack. They
snort lines! Get it right A-hole.
Interesting you use 'Republican' in your handle ... methinks that you have other agenda.
Fuck off and die, Nazi filth.
Romans, and Nazis, And Muslims, oh my!!!!!!
Of course there's no bailout of the states. And it's not cynical to examine why. It is part of the plan to further centralize and make everyone a serf. Collapse the states, and you have removed one more obstacle to "federal" (banker) control.
Fallacious arguments - this person does not fully understand how the FED and fractional reserve banking works. But it's an interesting article from a political perspective. I mean, it's true - why should only the bankers get a bailout? Why not states, municipalities, individuals?
The FED is not a popular kid on the schoolyard these days. If/when the SHTF political opposition to the FED is going to be INTENSE. And how will Ben Bernanke answer those on the left who ask him "why do only the banks get bailed out"? How will he answer those on the right who say "stop printing money or we'll have hyperinflation!"? How will he answer the average citizen facing massive inflation and unemployment while the bankers are raking in record bonuses due to the the QE 1,2, etc - which is nothing else tha hidden, not congressionally approved bailout of the banks?
Point is, the FED will run out of friends. At some tipping point, no amount of money can buy the influence the banks will need. The people will want blood. And when the masses are angry - you don't get deliberation, you don't see thoughtful purposeful action, you see violence. The time for the bankers to search their souls, the time for Ben Bernanke and his central banker buddies to ask themselves "do I really understand what I'm doing to the economy? Am I sure that the activity to which I have dedicated my life is not ON NET harmful to society? Am I sure that I've listened to ALL the other points of view?" - that time will have passed.
If your final answer to every reasoning critic of the government/banking nexus is "it's so because it is, and we have the power" - you are doomed to see that power turned against you eventually. This article is a great example - poorly reasoned and poorly argued justification to print more money - but then again once a precident has been made and someone has received fiat currency - why shouldn't others? And eventually every gets some paper - but nobody is willing to accept it anymore. This does not end well.
A marxist and his banker friend passed a blind beggar on the road with a tin cup full of money.
The marxist very quietly and expertly takes all the money from the beggar's cup as they go by, and they continue on down the road.
The banker: "I do believe I'll take that," and he calmly reaches over and takes all the money from the marxist.
The marxist: "But, but, it should be --- to each according to his needs --- and I will be hungry soon"
The banker: "No, no, it's --- from each according to his ability --- and clearly, the beggars fortunes have greatly improved and he can now begin to pay me back. I've been very kind, and very patient. The fact is, he should be thanking me. That cup would've remained empty had I not poked his eyes out."
So, what will it take for the REAL people and REAL government of the US to realize that the banks are a malevolent foreign power?
All of those 80% retirement seeking Public Servants that always bitch and cry and charge for anything and everything?
there will be less of them? and this is bad how for me exactly...
Good! smaller government... I mean red tape.. I mean idiots!
Fire them all!
Y'know, if all of y'all wanted those same 80% retirement benefits in perpetuity, you could have negotiated it with your free-market, private-sector employer. Right? Am I right?
Disclaimer: I am NOT a public sector employee.
Wrong.
Yeah, let them eat food stamps, bitchez!
Congress and courage = fantasy land
Close but not quite....Bank of North Dakota makes no direct loans to businesses....just through an instate bank via a participation. The BND is a relic of the socialist government in North Dakota in the teens, ie, 1913 to 1919, as is the State Mill and Elevator, which is still run by the state as a flour mill.
Yes. You see what is important to them.
It is important to them to get the oil back up to 147.
It is important to them to get the dow back up to 14k.
Just as important as the banks, we discover to our amazement that each and every overleveraged mercantilist export machine is also more important than main street.
Job growth at home? Forget it. Future for American children? Not so important.
Examine the politicians you support carefully. Make sure that you know what THEY think is important before you vote for them again.
There ia no finer education system than American boardiing schools.
[cough, cough]
And charter schools are totally the best for the rest of Americans.
On a more serious note, there are no perfect politicians. I could count on one hand the number in Congress who are worth voting for. I am not recomendiing ignoring the bastards. They should be written to daily by every American.
What are we defining as the SHTF? Inflationary food prices so people are starving... Roving electricity blackouts??? No snow removal? What exactly is this SHTF time?
No more beer and TV.
I'm fine with just beer.
Hmmmm...I'm gonna locate my pitchforks, torches and supplies in a defunct micro brewery then.
Sounds like my kind of fun.
When the SHTF and there are LOTS of people hungry, the FED RES will be stormed by weapon wielding people that have "nothing to lose". I cannot wait until the crap hits, and the likes of the bernake and the rest of the ilk are all shown for the treasonous fetid filthy crap that the really are.
It won't be a long trip for them to be worm food at that point. Their life at said point would not be worth worm food.
Who wants to rescue the party-goers in California anyway? Or the mobsters in Illinois? Fix the problems first.
Given that Wall Street has installed one of their own in Ohio (Kasich), will that mean Ohio gets preference (if not an outright bailout)?
What a stupid article.
"To do this, Congress would not even have to go through the Federal Reserve. It could issue its own debt-free money and spend it on repairing and modernizing our decaying infrastructure, among other needed works...or...n the meantime, the states could take matters in their own hands and set up their own state-owned banks, on the model of the Bank of North Dakota. They could then have their own very-low-interest credit lines, just as the Wall Street banks do."
Frag that! Hell, lets just bypass the worthless bankrupt governments. If creating money out of thin air solves, let's just declare any piece of paper with a number on it equal to that number of dollars and have them required as accepted as money. Hell, I'd be a gazzillionaire in a few seconds...and of course since "consuming" drives the economy--cough!--no it DOESN'T--cough!--then I'd promise to spend it on all kinds of things. Hell, I might even buy a bridge or two...or even some swamp land in Florida.
you sir are righty, "money out of thin air" it sure is! But no different than the pieces of toilet paper in that wallet of yours printed by ben the chopper non?! The author is just suggesting the states do what the fed is doing to all foolish americans!
Great idea. Then you can buy my swamp land. Oh, and maybe some chinese drywall houses. Just to burn them down for fun.
Yeah, I need that swamp land so I can build some "Infrastructure". I'm modeling them on empty Chinese cities. If you build it, they will come.