Tuesday, June 19, 2012

The Banks and Congress Destroyed the Economy

In 1998 Congress removed the head of the CFTC (Commodity Futures Trading Commission) Brooksley Born for blowing the whistle on the trading of derivatives by banks – a type of trading that was totally illegal.

A derivative is something that is traded amongst banks as if it were something of value when it really isn't.

The word derivative comes from the fact that the value derives from something else.

When you hold a bag of mortgages, all you are holding is a bag of IOUs.

There is no guarantee you will get paid.

As such, it is like gambling.

But the banks did not care.

The banks began trading in derivatives in 1994 – in spite of it being completely illegal.

When Brooksley Born, the head of the CFTC found out and blew the whistle, the banks mobilized Congressional leadership, the Head of the Fed and the Secretary of the Treasury to destroy Brooksley Born and disempower the CFTC.

This they did with single-minded efficiency...

...and to make sure no more trouble brewed up, they installed a Goldman & Sachs employee as the new head of the CFTC.

But more needed to be done.

The cat was out of the bag.

Nothing was left to do then but MAKE THE WHOLE THING LEGAL.

So they went to Congress and DEMANDED a new law.

That Congress acquiesced to such a law is proof that Congress is no longer a representative body, but a representatives of the banks and the political lobbies.

This is why they passed the Gramm-Leach-Bliley Act of 1999 (aka the Financial Services Modernization Act).

This 'act' repealed the Glass-Steagall Act of 1933 which prohibited banks from speculation and trading and generally acting like investment firms.

Glass-Steagall was important.

It was important because it was passed in reaction to the rampant banking speculation which led to the Great Depression.

Now that safety measure was once again removed.

Banks were legally on their way to being permitted to do whatever they pleased.

Gramm-Leach-Bliley not only removed all the restrictions of Glass-Steagall, but also allowed them to 'expand into other areas of service' without any government supervision as well as being allows to 'merge and expand into other types of financial institutions' and 'new lines of business.'

In other words, banks were no longer just banks, they were (once more) houses of speculation.

When the Clintonista Boom of 1994-1998 popped and the Dot.com bubble of 1999 popped, the banking institutions (along with the Fed) began to inflate the next big bubble – the Real Estate Mortgage Bubble.

They began it with a flurry of loans made possible by cheap Fed money and government-guaranteed mortgages.


Than means even the people you gave the mortgage to default, the government pays you the loan!

The above was made possible by twisting the Community Reinvestment Act of 1977 beyond recognition (again, courtesy of Congress) into a universal loan-guarantee act.

In other words, banks could float mortgages to whomever they pleased because the government was guaranteeing all of them!

It was like a guaranteed gambling spree at Vegas.

And the banks went on a wild (guaranteed) gambling spree - giving mortgages to every Tom, Dick and Harry that showed up or relented after being asked if he wanted one.

The banks gave out mortgages like candy.

And why not?

Weren't all the mortgages guaranteed by government?

This was the real reason the government came to the rescue with the TARP bailout.

The Government did so because it was LEGALLY OBLIGATED TO DO SO by the Financial Services Modernization Act and the newly perverted Community Reinvestment Act!

The banks lost all their government-guaranteed mortgages and the government was OBLIGATED BY LAW to make good on all those losses.

The results of this have become obvious.

The Banks and Congress destroyed our economy.

No one else is to blame for our debacle.

The Banks and Congress did it.

Or better said, the Banks and the Congress which serves THEM, not us.

So thank you Congress.

Thank you Banks.

Thank you, Federal Reserve.

Here, grab by hand as we all take a long leisurely slide...



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