Respectfully submitted by Lawrence E. Rafferty (rafflaw)-Guest Blogger
In the past few weeks, I have written about how the FDIC along with the Bank of England had developed a plan to allow the Big banks to grab depositors funds in order to bail out those very same big banks. Since that article was written, I have reviewed just what role the Federal Reserve Bank plays and how can it be improved. You may remember the role the Federal Reserve played in bailing out the Big Banks during the beginning of the Great Recession.
“As a result of the Government Accountability Office (GAO) audit of the Fed, Senate sponsor Bernie Sanders of Vermont said, “We now know that the Federal Reserve provided more than $16 trillion in total financial assistance to some of the largest financial institutions and corporations in the United States and throughout the world.” Among the investigation’s key findings was that the Fed unilaterally provided trillions of dollars in financial assistance to foreign banks and corporations from South Korea to Scotland. These decisions were all made without the public, media or elected officials’ knowledge, and they would have remained secret without an audit.” Bernie Sanders
For the math impaired, like myself, that is 16 Trillion dollars in basically secret financial “assistance” that the Fed provided the so-called Big Banks. As the GAO Audit of the Fed showed, the “assistance” was given to not only domestic banks and corporations, but to many foreign firms as well. Should the American people allow the Federal Reserve to continue to secretly fund the very same banks and institutions that played a large part in sending this country into a recession? In an Op-Ed for Truthout-org, the case is made that our country needs to consider remaking the Federal Reserve into an institution that actually works to better the economy and not just improve the big financial institutions bottom lines. Truth-Out
Before we continue, it is necessary to briefly review just what the Federal Reserve does and how does it operate. “The Federal Reserve is a privately owned US central bank that acts behind closed doors to create money and set interest rates, and it presently puts the interests of the big banks first. The Federal Reserve was originally created by Congress in 1913 and can be altered, nationalized or even dismantled by Congress.
The Fed is a private entity that is controlled by the banks. The 12 Regional Reserve Banks issue shares of stock to its member banks. The Fed is not operated for profit, and the stock may not be sold, traded or pledged as security for a loan. It does pay dividends that are, by law, 6 percent per year. But more importantly, the stock provides banks with votes to elect six of the nine members of the board of governors of the regional banks.” Truth-Out
The Truthout Op Ed suggests that while a central bank is necessary “to regulate the money supply by setting interest rates and to be a lender of last resort in a financial crisis, ” some experts suggest that regulating process can be done in a more transparent and mechanical way without the Federal Reserve Board of Governors weighing in on the issue. ” The GAO Audit referred to earlier also uncovered conflicts of interest within the Fed’s lending practices.
‘ “For example, the CEO of JPMorgan Chase served on the New York Fed’s board of directors at the same time that his bank received more than $390 billion in financial assistance from the Fed. Sanders urged that “No one who works for a firm receiving direct financial assistance from the Fed should be allowed to sit on the Fed’s board of directors or be employed by the Fed.” ‘ Truth-Out
Does it concern you that until the GAO audit was forced on the Federal Reserve by Congress, a member bank of the Fed and indeed, an institution run by a member of the Federal Reserves Board of Directors can obtain secret loans totaling $390 Billion? Anyone who has borrowed money from any bank knows how your economic life is examined and investigated before your loan to buy your home or your car is approved. Maybe we should all get our mortgage loans from the Federal Reserve!
What can be done to make the Federal Reserve better or make our country’s monetary policy actually work for everyday Americans and the American economy? There are many suggested improvements or overhauls that have been recommended. Public banks, modeled after the public Bank of North Dakota is one possible answer. The Bank of North Dakota takes in all of the state’s revenues and turns it into credit that ordinary citizens can use.
“Ellen Brown, the president of the Public Banking Institute, argues that we need a public bank in every state and major city. The United States has one model for public banking: the bank of North Dakota. When North Dakota farmers were losing farms to Wall Street, they organized a populist movement, and in 1919, set up the bank of North Dakota. The publicly owned bank recycles state revenues into credit for the state. Thus, North Dakotans keep their money in their community.
The result has been an ongoing success. Even during the current economic collapse, North Dakota escaped the credit crisis and has maintained a budget surplus since 2008, low unemployment and no public debt. ” Truth-Out
Can you imagine the money saved in the State of North Dakota by utilizing the Bank of North Dakota instead of private banking institutions? Ms. Brown who was quoted above provides us with an example of how much money the State of California could save by setting up its own State bank. ” Brown summarizes: “At the end of 2010, it had general obligation and revenue bond debt of $158 billion. Of this, $70 billion, or 44 percent, was owed for interest. If the state had incurred that debt to its own bank – which then returned the profits to the state – California could be $70 billion richer today. Instead of slashing services, selling off public assets, and laying off employees, it could be adding services and repairing its decaying infrastructure.” Truth-Out
The changes suggested to the Federal Reserve along with States setting up their own State banks are just two of the ways that the economy and everyday Americans can be helped. Americans can move their money into credit unions and smaller community banks and they can take advantage of or establish Time banks and Time dollars to allow for a barter like system to provide an option for Americans to purchase services in exchange for their own services or labor.
I cannot cover all the possible methods and means that can be utilized to improve the economy for ordinary Americans in this one article. I recommend that you read the Truth-Out article in its entirety and check out the links and additional references noted herein. The bottom line, in my opinion, is that the Federal Reserve, in its current set-up, has outlived its usefulness. Americans are still hurting from the recession that the Federal Reserve did not see coming. The recovery is being delayed, in part because of the policies of the Federal Reserve and its penchant to work for the Big Banks instead of all Americans.
We need to take back our economy and work to convince Congress to revamp the Federal Reserve. The individual States can save Billions for their citizens by setting up their own public banks. Wall Street and the Big Banks will claw and scratch to keep the Federal Reserve in their pockets, but this country cannot survive without a sea change in how the Fed works and how Americans have access to credit.
Can the Federal Reserve be reined in and revamped to help ordinary Americans? Do you think that your home State would be able to establish a State bank? Have you moved your money into credit unions or small community banks? What else can be done to improve the economy without utilizing large private financial institutions?
Additional references: Clearing the Fog Radio;
Maggie,
There are signs that the big banks are getting reckless…again.
I already knew about this and I can’t imagine anything more despicable! To reward the very institutions that just about brought our economy down not to mention the world economy boggles the mind. And of course no criminal charges were ever filed; and now, they are patting themselves on the back giving themselves big bonuses. Please excuse me while I vomit.
Remember Lincoln’s Gettysburg address?
“…government of the people, by the people, for the people, shall not perish from the earth.”
The fed certainly has drifted from that ideal.
The word ‘sad’ is meant for sarcasm.
Raff,
Excellent article! I have stated this before, and I will say it again: “Wall Streets’ Richness is fueled by Main Streets’ Indebtness.” I have already stated my solution (Main Street needs to become debt free) to this mess on an article that Elaine wrote. I have also stated how we have loaned out trillions of dollars to other countries, and not even expecting these countries to pay us back (also on Elaine’s article).
Nevertheless, it begs the question(s): Does the National Deficit of $17 trillion truly exist, since it is money that we owe ourselves? Can our economy exist without a growing global economy? Or are we the ones growing or ‘creating’ the global economy to make it seem like there is a global economy? Can our economy exist or ‘thrive’ without the feds’ financial ‘assistance’?
If was sad that conservative commentary Bill O’Reilly made a statement to hush a famous conservative economist (forgot his name) about the bailouts by stating: we needed the bailout funds, if not, then the unemployment would have been 20%-25%.
http://www.nakedcapitalism.com/2013/03/what-is-modern-monetary-theory-or-mmt.html
Tuesday, March 12, 2013
What is Modern Monetary Theory, or “MMT”?
By Dale Pierce. Cross posted from New Economic Perspectives
[excerpted quote]
“MMT was independently co-discovered by a single person. A person who had no specific training or academic background in economics at all – the American businessman and auto-racing enthusiast Warren Mosler. How he came to initially suspect and, ultimately, clearly understand that the spending of sovereign governments had become operationally independent of their taxing and borrowing is recounted in his 2010 book, “The Seven Deadly Innocent Frauds of Economic Policy.” The 1996 publication of an earlier book of his, “Soft-Currency Economics,” launched MMT as a social, intellectual and online movement. And while the academic side of MMT was completely unknown to him at first, it was not long before the two camps discovered each other, and this has led to a very extensive collaboration in the years since.
Today, MMT is being discovered by a rapidly-growing worldwide Internet audience. And the public’s growing interest in MMT is evident in other ways as well.”
The 7 Deadly Innocent Frauds of Economic Policy [Hardcover]
Warren Mosler (Author)
http://www.amazon.com/Deadly-Innocent-Frauds-Economic-Policy/dp/0692009590/ref=sr_1_3?ie=UTF8&qid=1363024189&sr=8-3
The readers of this blog are generally a very informed group.
The comments suggest that most of us (I certainly am) are surprised by the extent of the Fed’s actions.
$16 trillion is a sum equal to our entire GDP- it is incredible that so much money was deployed without our knowledge. More amazing that these facts did not come out until 2011.
Democracy suffers when unelected officials can deploy the equivalent of a year’s GDP without oversight or public awareness.
Have we lost our republic?
JFK started the US printing some of its own paper money again. LBJ dropped the idea.
There are some communities creating their own currencies. Ithaca dollars is one. Local merchants accepted a percent of the purchase in the Ithaca dollars. Since they could only be used in local stores, it kept a certain part of every purchase circulating within the community. I think there was another in Park Slope Brooklyn area.
I like the idea of state-owned banks.
I left banks in the dust decades ago when one took advantage of naive me in collecting far more interest on a student loan than they were entitled to. When I found out, I switched banks briefly, then joined a credit union.
I’ve belonged to 4 different ones, depending on my location. I recommend them but watch out for them offering banking type services and fees. When they do, it’s time to switch. For example, one of them advertised H&R Block Rapid Refund, basically a bridge loan for a $25 fee. Unless your refund was really large, the “interest” on that loan was exorbitant. Imo, the credit union should have been providing assistance for its members to better estimate their tax liability so they wouldn’t have such a huge refund, or they should have offered their own bridge loans at their usual rates. This particular credit union had other problems as well, such as putting deposits in the wrong person’s account, rude customer service reps, etc.
http://www.nakedcapitalism.com/2013/04/robert-johnson-on-the-oligarchs-theyre-all-standing-on-the-deck-of-the-titanic-looking-in-each-others-eyes.html
Robert Johnson: I think the, call it the oligarchy now is audacious. They don’t really care if they’re legitimate. There was a time – you know, I always hear Jurgen Habermas was paraphrased by saying, “Legitimate if you can, coerce if you have to, and accommodate if you must.” And I think we’ve gone past –…”
“…But there is a sort of, “Okay guys, you’re mad, how are you going to stop me?” mentality at the top.”
rafflaw 1, April 21, 2013 at 3:50 pm
Dredd,
many of the suggestions for “improving” the Fed revolve around a more democratically controlled system. Right now the banks control the votes on the body that lends money to..the banks.!
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That would mean that the chickens are in the Fox matrix I suppose.
Anyway, I am in appreciative awe of the guest bloggers at Jonathan Turley’s blog.
While commenting here I got a strange call from a “local source” in a mysto area code that is nowhere near anywhere, especially here.
It suggested that I put batteries into my fire alarms so my family … blah blah blah … which I interruped with “solly no heary” …
Know what I’m sayin’ …
Keep up the good work.
When it happens to you, it means you are doing some shitkickin’ blogging or you are cheating with a firefighters woman or man.
Nick can ‘splain it.
Gene H. 1, April 21, 2013 at 2:57 pm
raff,
Excellent follow up. Economically speaking, a central bank has utility, but only under public control. A privately held central bank with guaranteed dividends is simply a bad idea from the start.
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Yep.
But this is the central blank which has futility.
Dredd,
many of the suggestions for “improving” the Fed revolve around a more democratically controlled system. Right now the banks control the votes on the body that lends money to..the banks.!
rafflaw,
You beg the question, masterfully.
If “the fed” is not controlled by the people we elect, then who does control them?
Is it the same folks who control the people we do elect?
Either way, your post introduces text that gives new meaning to “control freak.”
Thanks Gene and Mike. The more you learn about the Fed, the more disgusted you can get.
Blouse,
It is amazing that a Socialist state like North Dakota can run a state bank, but not Ohio, or Illinois, Wisconsin, etc.
Justice Holmes,
You are right about Bernie Sanders. But kudos should also go out to Rep. Alan Grayson and others for making the audit the fed bill a possibility.
I have long been a fan of North Dakota’s state bank (BND) but whenever I’ve brought it up for the State of Ohio, I’ve been called a socialist. Idiots
Thank you, raff, for this informative series.
The too big to fail banks should be nationalized now. We have already bought and paid for them, so it is time to take them away from the elite that uses US as their personal piggy bank.
Confession: I used to think that people who talked about the shady deals the FED made with corporations both foreign and domestic were simply right wing conspiracy buffs who saw double dealing behind every door. Boy was I WRONG!
The FED does nothing for the people, that is, the human people. They funded the bubble and they rewarded the banksters who created it, fed off it and crashed it.
I have had it. Thanks, Raff. And thanks to Bernie Sanders.
Larry,
Thank you for this piece. In order to understand how our country and the world is being taken over by this Corporate Elite, we must understand the mechanisms. The “Fed” has for too long controlled American financial policy as a benefit for this Elite and it has done so in secret. While I knew this empirically, I needed the background you provided to be able to discuss and think about it intelligently. It’s high time to nationalize the “Fed” to make it serve the publics’, not the elites interests.
raff,
Excellent follow up. Economically speaking, a central bank has utility, but only under public control. A privately held central bank with guaranteed dividends is simply a bad idea from the start.
Reblogged this on euzicasa and commented:
What’s your is mine…but what’s mine is only mine……HIHIHIHIHIHIHIHIHIHIHI