The Bank of England signalled that interest rates would stay on hold for a long time to come as it cut its growth forecasts for the UK, blaming the weaker global economy.
Which, as everyone knows, is controlled by economy fairies and gods, and has nothing whatsoever to do with the Bank of England, nor any other bank.
Goldman Sachs estimated last week that there was a one-in-three chance of returning to negative growth in the coming quarters[...]
The Federal Reserve pledged Tuesday to hold interest rates near zero for two more years and said it was mulling the tools it has to boost a slowing economy.
[...]
"Downside risks to the economic outlook have increased," the Federal Open Market Committee (FOMC) said after a one-day meeting.
[...]
The Fed said it now expects growth at a "somewhat slower pace" over the coming quarters than it had estimated in June.[The Fed]made no suggestion that it was considering a successor to its "QE" or "quantitative easing" program to boost the economy; only that the meeting "discussed the range of policy tools available" to promote growth.
Translate at will.
Regular type indicates text directly quoted from the book. Where the words are my own, type will be italicized.
Installment 3: S&Ls and Junk Bonds
Chapter 4
The damage done by the banking cartel is made possible by the fact that money can be created out of nothing. (Quantitative easing.)
By comparison, the problem in the savings-and-loan industry is easy to comprehend. It is simply that vast amounts of money are disappearing into the black hole of government mismanagement, and the losses must eventually be paid by us.
[During the Great Depression of the 30s] it became widely accepted at all levels of American life … that it was desirable for the government to take care of its citizens and to protect them in their economic affairs. And so, when more than 1900 S&Ls went belly-up…Hoover – and a most wiling Congress – created the Federal Home Loan Bank Board to protect depositors in the future….The public was led to believe that government regulators would be more wise, prudent, and honest than private managers.
The next step was for the Federal Reserve Board to require banks to offer interest rates lower than those offered by S&Ls.
These measures effectively removed real estate loans from the free market and placed them into the political arena…The additional cost to S&Ls of compliance with [rigid government] regulation has been estimated …at about $11 billion per year, which represents a whopping 60% of all their profits.
In 1979, the Federal Reserve had raised interest rates so that S&Ls were paying 15.8% to attract depositors while still charging only 12.9% for mortgage loans, and operating ”deep in the red.” Brokers no longer cared how weak the operation was, because the funds were fully insured.
In the early days of the Reagan administration, government regulations were changed so that the S&Ls were no longer restricted to the issuance of home mortgages, the sole reason for their creation in the first place. In fact, they no longer even were required to obtain a down payment on their loans. They could now finance 100% of a deal – or even more. Office buildings and shopping centers sprang up everywhere regardless of the need. …In at least twenty-two of the failed S&Ls [of this period], there is evidence that the Mafia and CIA were involved.
The Garn-St.Germain Act allowed the thrifts to lend an amount of money equal to the appraised value of real estate rather than the market value. It wasn’t long before appraisers were receiving handsome fees for appraisals that were, to say the least, unrealistic…The amount by which the appraisal exceeded the market value was defined as “appraised equity” and was counted the same as capital.
Any wonder we have economic problems? Out of thin air, capital is born from a fraudulent appraisal.
By 1989, the FSLIC no longer had even two-tenths of a penny for each dollar insured. Its reserves had vanished altogether [in payouts to failing S&Ls].
In February, an agreement was reached between Alan Greenspan, Chairman of the Federal Reserve Board, and M. Danny Wall, Chairman of the Federal Home Loan Bank Board, to have $70 million of bailout funding …come directly from the Federal Reserve. The Fed was usurping the role of Congress and making political decisions entirely on its own.
Finally in August…Congress passed the Financial Institutions Reform and Recovery Act and allocated …$300 billion over thirty years [an amount that eventually proved to be only about half the actual cost]…the biggest bailout ever. The FSLIC was eliminated because it was hopelessly insolvent and replaced by the Savings Association Insurance Fund…[and] Banking Insurance Fund for the protection of commercial banks, and both are now administered by the FDIC.
Smoke and mirrors.
Four entirely new layers of bureaucracy were added…When President Bush (the first) signed the bill, he said:
“This legislation will safeguard and stabilize America’s financial system and put in place permanent reforms so these problems never happen again.”
Sort of like WWI being the war to end all wars.
The next step was to create bookkeeping assets out of thin air…accomplished by authorizing the S&Ls to place a monetary value on community “good will”!
Then, the FSLIC began to issue “certificates of net worth,” which were basically promises to bail out the ailing S&Ls, [and which the S&Ls were allowed] to count …as assets on their books.
OK, let me recap what can be called an asset in the banking business: 1) actual money; 2) actual capital; 3) negative money in the form of loans; 4) fraudulent appraisal values; 5) certificates issued by the FSLIC promising to cover the institution's debts; 6) public good will. Am I missing anything? And how is public good will measured?
In Chapter 4 there is a detailed account of how Michael Milkin in California ended up being the fall guy in the big junk bond scandal of the late 80s and the New York brokers broke the back of what promised to be a lucrative market dealing in actual valuable stock from smaller brokerage houses (so called “junk bonds”) instead of bookkeeping gimmicks that I won’t go into. But it certainly gave me a different picture than the one I have held over the years regarding the drubbing and jailing that Milken took. The upshot of the story is this:
With the California upstarts out of the way, it was a simple matter to buy up the detested bonds at bargain prices and to bring control of the new market back to Wall Street. The New York firm of Salomon Brothers, for example, one of Drexel’s most severe critics during the 1980s, is now a leading trader in the market Drexel created.
[At the time [the 1994 edition of this] book went to press …S&Ls were still hemorrhaging and] President Clinton was asking Congress for an additional $45 billion and hinting that this should be the last bailout.
This being the second bailout of the S&Ls, and of course, the dust is still settling on the latest financial bailout, this time the nation's large banks. That will be the last one, of course.
[The S&L industry] could not function without Congress standing by to push unlimited amounts of money into it.
....but hey, do what you want....you will anyway.
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