September 24, 2008Most Serious Financial Crisis since Great Depression...
The Bush Administration's Banking Rescue Plan by Rodrigue Tremblay Global Research
"Those who cannot remember the past are condemned to repeat it." George Santayana
"The bill gives [Sec.] Paulson the ability to nationalize an unlimited amount of private debt and force you and your children to pay for it.... I predict that if this passes it will precipitate the mother and father of all financial panics." Karl Denninger (Market Ticker)
"Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency." Section 8, Bush's administration proposed legislation to bailout U.S. banks [Legislative Proposal for Treasury Authority to Purchase Mortgage-Related Assets].
"The Fed is merely trying to inject money to keep prices not supported by fundamentals from falling. It is a prescription for hyperinflation. The only way to keep prices of worthless assets high is to lower the value of money. And that appears to be the Fed unspoken strategy." Henry Liu, economist
If I may simplify somewhat the situation, (but only slightly) we can say that over the last quarter of century, Wall Street firms bought out Congress and the White House (and paid at wholesale prices). Now, they want the U.S. government to buy them back (and they want to sell at retail prices).
Over the years, indeed, Wall Street firms have lavished hundreds of millions of dollars in lobbying Washington D.C. so that their more and more complicated financial businesses would be less and less regulated. During the 1980s, the Savings & Loans industry (S&Ls) was the recipient of Washington largesse. The epitome was the lobbying by five prominent U.S.
senators, one of them Sen. John McCain, to deregulate the borrowing and lending practices of savings and loans banks. During the Reagan-Bush era of the 1980's, such deregulation encouraged unsound real estate lending by Savings & Loans financial institutions and this led to the 1986-1995 Savings and Loans crisis. Some 747 savings and loans banks failed and about $160 billion was lost, most of it through a $124.6 billion bailout by the U.S. Government.
During the Clinton and Bush-Cheney eras, large banks were allowed to buy relatively long term subprime home mortgages from regional banks and other mortgage lending firms and repackage them, "securitize" them and resell them as sliced mortgage-backed securities. The banks sold them as short term-like commercial paper, but without guaranteeing them. In 1999, for example, the banking industry spent more than $300 million in lobbying Congress and the White House to repeal the 1933 Glass-Steagall Act that closely regulated banking activities. In November 1999, the Glass-Steagall Act was eviscerated after many years of lobbying efforts. It was replaced by the Gramm-Leach-Bliley Act which established the new market-driven unregulated system for many financial institutions, the largest ones being the New York-based investment banks.
With scant regulation, banks could engage in highly leveraged new banking practices, in violation of sound banking practices. For example, regulated commercial banks normally keep a 1:10 ratio between reserves and loans.
But U.S. unregulated entities embarked upon highly leveraged finance, keeping a 1:30, 1:40 or even 1:50 ratio between reserves and risky loans.
In so doing, the unregulated banks raked in huge fees at what (they
thought) was very little risk for them, because they had hoped to transfer the inherent risk to the buyers of their repackaged securities.'
"Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency." Section 8, Bush's administration proposed legislation to bailout U.S. banks [Legislative Proposal for Treasury Authority to Purchase Mortgage-Related Assets].
"The Fed is merely trying to inject money to keep prices not supported by fundamentals from falling. It is a prescription for hyperinflation. The only way to keep prices of worthless assets high is to lower the value of money. And that appears to be the Fed unspoken strategy." Henry Liu, economist
If I may simplify somewhat the situation, (but only slightly) we can say that over the last quarter of century, Wall Street firms bought out Congress and the White House (and paid at wholesale prices). Now, they want the U.S. government to buy them back (and they want to sell at retail prices).
Over the years, indeed, Wall Street firms have lavished hundreds of millions of dollars in lobbying Washington D.C. so that their more and more complicated financial businesses would be less and less regulated. During the 1980s, the Savings & Loans industry (S&Ls) was the recipient of Washington largesse. The epitome was the lobbying by five prominent U.S.
senators, one of them Sen. John McCain, to deregulate the borrowing and lending practices of savings and loans banks. During the Reagan-Bush era of the 1980's, such deregulation encouraged unsound real estate lending by Savings & Loans financial institutions and this led to the 1986-1995 Savings and Loans crisis. Some 747 savings and loans banks failed and about $160 billion was lost, most of it through a $124.6 billion bailout by the U.S. Government.
During the Clinton and Bush-Cheney eras, large banks were allowed to buy relatively long term subprime home mortgages from regional banks and other mortgage lending firms and repackage them, "securitize" them and resell them as sliced mortgage-backed securities. The banks sold them as short term-like commercial paper, but without guaranteeing them. In 1999, for example, the banking industry spent more than $300 million in lobbying Congress and the White House to repeal the 1933 Glass-Steagall Act that closely regulated banking activities. In November 1999, the Glass-Steagall Act was eviscerated after many years of lobbying efforts. It was replaced by the Gramm-Leach-Bliley Act which established the new market-driven unregulated system for many financial institutions, the largest ones being the New York-based investment banks.
With scant regulation, banks could engage in highly leveraged new banking practices, in violation of sound banking practices. For example, regulated commercial banks normally keep a 1:10 ratio between reserves and loans.
But U.S. unregulated entities embarked upon highly leveraged finance, keeping a 1:30, 1:40 or even 1:50 ratio between reserves and risky loans.
In so doing, the unregulated banks raked in huge fees at what (they
thought) was very little risk for them, because they had hoped to transfer the inherent risk to the buyers of their repackaged securities.'
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