by Charles Hugh Smith
Source: Of Two Minds
The Fed policy’s first-order effect is to issue hundreds of billions in “free money” to banks; the second-order effect is to destroy the rule of law in the U.S.
Let’s start with a few questions about the proper role of the Central State and Central Bank: why should they bail out private banks? The answer boils down to something like this: “If the private banks absorbed the losses that are rightly theirs in a capitalist system, they would implode. Since the State and Central Bank have enabled these private banks to infiltrate and dominate the nation’s financial system, that system is now hostage to these private ‘too big to fail’ banks.”
In other words, “capitalism” in America now means socializing losses and privatizing profits generated by State and Central Bank intervention. Imagine for a moment the “beauty” of this system for owners of private banks: in a truly socialized banking system, the taxpayers would absorb any losses, but the State would also benefit from any future bank-sector profits. In the U.S. system, the losses are socialized but the people draw no benefit; the profits flow to the top 1/10th of 1% private financiers.
This is the perfection of State-financier crony capitalism.
Let’s next ask why the Central State and Central Bank should subsidize and bail out the mortgage industry, a major component of private banking. Once again we find losses are neatly distributed to the citizenry while the profits all flow to private hands. Given that 98% of all mortgages are backed or guaranteed by Federal agencies (Fannie Mae, Freddie Mac, Ginnie Mae, FHA, VA, FmHA, etc.), the mortgage market is already completely socialized: the taxpayers are on the hook for any and all losses, but the profits from originating and servicing the loans are all private.
Meanwhile, 1 out of 6 FHA insured loans are delinquent, and everyone who cares to examine the ledger knows the taxpayers will soon be bailing out FHA just as they did Fannie Mae and Freddie Mac.
But the socialization of losses and privatizing of profits is only the first-order effect of the banks’ capture of the State. The second-order effect is even more destructive: the rule of law has been subverted by the world’s largest money-laundering machine, the Federal Reserve.
Once again we can start by asking why a nation’s Central Bank should buy mortgages from private financial institutions. Once again the first answer is a variation on the same theme: the Central Bank prints money and buys the mortgages as a way of socializing private losses and passing through billions of dollars in “free money” to private hands.
The newly printed money robs purchasing power from every holder of the currency (the socialization of costs) while the immense flood of “free money” flows to private hands.
Here’s how it works. We know Fannie Mae is absorbing losses of 50% to 65% on its foreclosed properties (Nearly half of Fannie Mae REO unable to reach market, via U. Doran), and we also know that 31% of all homeowners with mortgages are “underwater,” owing more than their house is worth (Housing, Diminishing Returns and Opportunity Cost).
We also know the Federal Reserve bought $1.1 trillion in MBS (mortgage-backed securities) in 2009-10, and the Fed has announced its intention to buy $40 billion more MBS a month until the housing bubble re-inflates or Doomsday, whichever comes first.
The Fed also bought $1 trillion in Treasury bonds, monetizing Federal debt:
Let’s say you own a portfolio of mortgage-backed securities and your pals at the Fed are willing to buy the garbage at full price, no questions asked: are you going to sell your few AAA-rated MBS, the good stuff, or are you going to sell them the absolute dregs, the MBS so stuffed with defaulted mortgages that you’ve never dared to even do a mark-to-market estimate of their real worth?
You dump the worst of your portfolio, naturally, and so in effect the $1.1 trillion in MBS the Fed bought with newly created cash was probably worth (charitably) $600 billion at best. That means the Fed not only wiped out the losses that should have accrued to the owners of the impaired mortgages by removing the MBS from their books, it handed the owners (banks, pension funds, etc.) a cool $500 billion in “free money” by paying full value for massively impaired assets.
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It should be noted that the Federal Reserve is itself a private institution. It is no more Federal than Federal Express. Check out “The Creature from Jekyll Island” by Ed Griffin.
And in England, we have this recent comment from a Banker:
“…Since the taxpayer got involved in helping bankers out, the price of these houses has rocketed,” says former resident Henry Mayhew.
“Where do you think that taxpayer money went? It went into these houses. Do you think they were loaning it to small businesses? That’s not how it works.”
Mayhew’s ancestors were the founders of Barclays Bank, so he should know…” – Source: http://www.mirror.co.uk/tv/tv-previews/the-secret-history-of-our-streets-preview-bbc2-941169
REVELATIONS of a “Financial Terrorist”
I actually watched this BBC TV documentary this morning, (I have had it on my digi-recording waiting for a chance to watch for some time) and I was horrified at the casual revelations made by this banker (so quotes above). Also, he was in the process of selling his multi-million pound house on Portland Road during the filming, and mentioned too that he had recently sold ALL his shares in Barclays Bank. Then he takes the film crew to some un-specified woodland location in England where it appears he plans to accomodate himself in a metal shed! When asked if he owned the land, the woodland, in which this shed sits, he stated, with a wry smirk on his face, IMO, something to the effect that nobody owns anything these days, it’s all held in trusts! When pressed further, he refused to elaborate.
My thoughts on this man’s actions and bankster revelations:
Did he deliberately choose, strategically, to sell everything in his name, every asset, his home, his Barclays shares, etc. with the intent to stash the proceeds in some form of Trust fund?
If so, does that technically mean he now has no ‘personal’ wealth?
If so, why would a banker do that? Could it be the fear a lawsuit or a bankruptcy case? Quite likely, I would imagine, with things as they are today, and In such circumstances, one might very well choose to liquidate ones assets and find some legal loophole in which to own/take the benefit of plenty without technically owning anything at all. Zero assets, means zero can be taken away from you! Of course, this is just an idea of mine, purely my guesses, my rambling mind running on. If any of you can watch this man, listen to him, in this documentary film, with your eyes and ears really open, you may well see and feel and guess the same as me.
But, who knows, I could be wrong!
BTW, I don’t believe for one moment this man intends to live in a metal shed in the woodlands of England – at least not for a moment longer than the duration of a days filming!
It is possible, the person mentioned above, was not an actual banker, but a consultant of some kind, I’m really am not sure, and I don’t wish to dig that deep into this, as it’s not that relevant, but of course, if it makes any difference, feel free, anybody else, to do so.
You may already know this…. but ‘we’ are all in a global trust, the Cesti que vie trust. A person is both settlor of the trust (via birth certificate), beneficiary of the trust (just like the banks too) and a trustee (legal entity, in the ‘use’ of your name i.e. registration) of the trust. As far as my learning goes, its ‘knowing’ how to use its powers – which is the trickery, illusion and game we are all in.
Do you mean the ‘strawman’ thing, Jane?