FacebookTwitterGoogle+RedditEmail

The Money Launderers

A week ago, on the day President Bush disavowed government intervention in financial markets, the Federal Reserve announced the fruit of its weekend labor: essentially guaranteeing hundreds of billions in toxic financial derivatives owned by banks. Money laundering has become the de facto standard of Federal Reserve policy.

The financial press has been filled with praise for the US government rescue of Bear Stearns, one of the worst offenders of reason and logic in the issuance of securitized mortgage debt. You have to turn to blogs to get a sense of the malfeasance.

Excerpt from the Hussman Funds’ Weekly Market Comment (3/24/08) regarding the Fed’s involvement on JPMorgan’s (JPM) deal to buy out Bear Stearns (BSC):

In effect, the Federal Reserve decided last week to overstep its legal boundaries ­ going beyond providing liquidity to the banking system and attempting to ensure the solvency of a non-bank entity. Specifically, the Fed agreed to provide a $30 billion “non-recourse loan” to J.P. Morgan, secured only by the worst tranche of Bear Stearns’ mortgage debt. But the bank ­ J.P. Morgan ­ was in no financial trouble. Instead, it was effectively offered a subsidy by the Fed at public expense. Rick Santelli of CNBC is exactly right. If this is how the U.S. government is going to operate in a democratic, free-market society, “we might as well put a hammer and sickle on the flag.”

What is a “non-recourse loan”? Put simply, if the homeowners underlying that weak tranche of debt go into foreclosure, they will lose their homes, and the public will lose as well. But J.P. Morgan will not lose, nor will Bear Stearns’ bondholders. This will be an outrageous outcome if it is allowed to stand.

… ­ it’s a picnic for insiders, bought and paid for through the abuse of public funds by government officials too unprincipled even to recognize the abuse. The only good thing about this deal is that it buys time while principled ways of busting and restructuring it can be settled.

At a moment in history when the US treasury is hemorraging ($5000 per second in Iraq), the Bush White House is setting up to do something that can be understood only through a corrective lens that takes every sighting and reverses it: the party of laissez faire, free markets and minimal regulation supports the costliest nationalization of industry in US economic history.

Last week, in addition to rescuing Bear Stearns, the shadow financial system intervened in metals and commodity markets– beating down anxiety indexes more sharply than at any time in the past half century. At the same time, the coordinated release of quarterly reports whose numbers ever so slightly “exceeded expectations” was enough justification–along with massive buying by US government operations that can only be faintly glimpsed–to send world stock markets back upwards.

Various metaphors have been used to describe US government intervention in the markets, like band-aid solutions to cure a gaping wound. In fact, the US government’s attempts to calm investor anxiety at the observable financial disarray is like using chemical foam at the surface to kill a deep-burning coal fire.

There was more micromanaging of the news cycle by the money launderers this morning:

March 24 (Bloomberg) — Forget lower interest rates. For the Federal Reserve to keep the financial markets from imploding it needs to buy troubled mortgage bonds from banks and securities firms, say the world’s biggest Treasury investors.

Even after cutting rates by 3 percentage points since September, expanding the range of securities it accepts as collateral for loans and giving dealers access to its discount window, the Fed has been unable to promote confidence. The difference between what the government and banks pay for three- month loans doubled in the past month to 1.92 percentage points.

The only tool left may be for the Fed to help facilitate a Resolution Trust Corp.-type agency that would buy bonds backed by home loans, said Bill Gross, manager of the world’s biggest bond fund at Pacific Investment Management Co. While purchasing some of the $6 trillion mortgage securities outstanding would take problem debt off the balance sheets of banks and alleviate the cause of the credit crunch, it would put taxpayers at risk.

The US taxpayer is about to be force fed bad mortgage debt, that honest people didn’t ask for– created by Wall Street where incomes average $387,000 (NY Times, March 24, 2008 “With Economy Tied to Wall St. New York Braces for Job Cuts”) and fostered by a culture of corruption rippling all the way down through mortgage brokers, appraisers, and local zoning officials for whom the hard currency of fraud is as likely Bahamian poker chips as dollars.

Poor America.

ALAN FARAGO of Coral Gables, who writes about the environment and the politics of South Florida, can be reached at alanfarago@yahoo.com

 

 

 

 

 

More articles by:

Alan Farago is president of Friends of the Everglades and can be reached at afarago@bellsouth.net

September 18, 2018
Conn Hallinan
Britain: the Anti-Semitism Debate
Tamara Pearson
Why Mexico’s Next President is No Friend of Migrants
Richard Moser
Both the Commune and Revolution
Nick Pemberton
Serena 15, Tennis Love
Binoy Kampmark
Inconvenient Realities: Climate Change and the South Pacific
Martin Billheimer
La Grand’Route: Waiting for the Bus
John Kendall Hawkins
Seymour Hersh: a Life of Adversarial Democracy at Work
Faisal Khan
Is Israel a Democracy?
John Feffer
The GOP Wants Trumpism…Without Trump
Kim Ives
The Roots of Haiti’s Movement for PetroCaribe Transparency
Dave Lindorff
We Already Have a Fake Billionaire President; Why Would We want a Real One Running in 2020?
Gerry Brown
Is China Springing Debt Traps or Throwing a Lifeline to Countries in Distress?
Pete Tucker
The Washington Post Really Wants to Stop Ben Jealous
Dean Baker
Getting It Wrong Again: Consumer Spending and the Great Recession
September 17, 2018
Melvin Goodman
What is to be Done?
Rob Urie
American Fascism
Patrick Cockburn
The Adults in the White House Trying to Save the US From Trump Are Just as Dangerous as He Is
Jeffrey St. Clair - Alexander Cockburn
The Long Fall of Bob Woodward: From Nixon’s Nemesis to Cheney’s Savior
Mairead Maguire
Demonization of Russia in a New Cold War Era
Dean Baker
The Bank Bailout of 2008 was Unnecessary
Wim Laven
Hurricane Trump, Season 2
Yves Engler
Smearing Dimitri Lascaris
Ron Jacobs
From ROTC to Revolution and Beyond
Clark T. Scott
The Cannibals of Horsepower
Binoy Kampmark
A Traditional Right: Jimmie Åkesson and the Sweden Democrats
Laura Flanders
History Markers
Weekend Edition
September 14, 2018
Friday - Sunday
Carl Boggs
Obama’s Imperial Presidency
Joshua Frank
From CO2 to Methane, Trump’s Hurricane of Destruction
Jeffrey St. Clair
Maria’s Missing Dead
Andrew Levine
A Bulwark Against the Idiocy of Conservatives Like Brett Kavanaugh
T.J. Coles
Neil deGrasse Tyson: A Celebrity Salesman for the Military-Industrial-Complex
Jeff Ballinger
Nike and Colin Kaepernick: Fronting the Bigots’ Team
David Rosen
Why Stop at Roe? How “Settled Law” Can be Overturned
Gary Olson
Pope Francis and the Battle Over Cultural Terrain
Nick Pemberton
Donald The Victim: A Product of Post-9/11 America
Ramzy Baroud
The Veiled Danger of the ‘Dead’ Oslo Accords
Kevin Martin
U.S. Support for the Bombing of Yemen to Continue
Robert Fisk
A Murder in Aleppo
Robert Hunziker
The Elite World Order in Jitters
Ben Dangl
After 9/11: The Staggering Economic and Human Cost of the War on Terror
Charles Pierson
Invade The Hague! Bolton vs. the ICC
Robert Fantina
Trump and Palestine
Daniel Warner
Hubris on and Off the Court
John Kendall Hawkins
Boning Up on Eternal Recurrence, Kubrick-style: “2001,” Revisited
Haydar Khan
Set Theory of the Left
FacebookTwitterGoogle+RedditEmail