$7.7 Trillion to Ease Frozen Credit? 

Bloomberg is reporting …

“U.S. Pledges Top $7.7 Trillion to Ease Frozen Credit”

“The U.S. government is prepared to provide more than $7.76 trillion on behalf of American taxpayers after guaranteeing $306 billion of Citigroup Inc. debt yesterday. The pledges, amounting to half the value of everything produced in the nation last year, are intended to rescue the financial system after the credit markets seized up 15 months ago.”

“The unprecedented pledge of funds includes $3.18 trillion already tapped by financial institutions in the biggest response to an economic emergency since the New Deal of the 1930s, according to data compiled by Bloomberg. The commitment dwarfs the plan approved by lawmakers, the Treasury Department’s $700 billion Troubled Asset Relief Program. Federal Reserve lending last week was 1,900 times the weekly average for the three years before the crisis.”

“When Congress approved the TARP on Oct. 3, Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson acknowledged the need for transparency and oversight. Now, as regulators commit far more money while refusing to disclose loan recipients or reveal the collateral they are taking in return, some Congress members are calling for the Fed to be reined in.”

What transparency, what oversight?

There are so many people, so many agencies involved in the bailout and nobody appears to be in charge, least of all Congress which promised oversight and transparency.

‘That’s Counterproductive’

“ ‘Some have asked us to reveal the names of the banks that are borrowing, how much they are borrowing, what collateral they are posting,’ Bernanke said Nov. 18 to the House Financial Services Committee. ‘We think that’s counterproductive.’

“The Fed should account for the collateral it takes in exchange for loans to banks, said Paul Kasriel, chief economist at Chicago-based Northern Trust Corp. and a former research economist at the Federal Reserve Bank of Chicago.”

“ ‘There is a lack of transparency here and, given that the Fed is taking on a huge amount of credit risk now, it would seem to me as a taxpayer there should be more transparency,’ Kasriel said.”

What might they be hiding?

While they claim that disclosing the details of loans and collateral is likely to cause a public panic, I wonder just what it is that these financial idiot savants might be hiding. Some thoughts  …

1.  Certain financial institutions have received a disproportionate amount of bailout funds. Possibly Citigroup.

2.  Transactions which were hidden from the public and the regulators in SEC-sanctioned off-balance-sheet accounts are now being repatriated to the parent’s balance sheets thus magnifying the losses by a leverage factor of 35 times or more.

3.  Attempts to de-leverage balance sheets without artificially valuing assets has failed. Most financial institutions are technically insolvent as the magnitude of their losses greatly exceeds the shareholder’s equity. The government will not allow these institutions to fail.

4.  Power-brokers, lawyers and lobbyists, are now fighting to get more than their fair share. Exposing the transactions would certainly create further dissention in the ranks.

5.  That the people behind the curtain do not really know what they are doing.

There is no proof that credit markets are easing …

Much of the money that has already been provided to financial institutions was used for acquiring other companies, meeting their core capital requirements and strengthening their own balance sheets. All with little or no major effect on consumer or commercial lending.

Who will be running the nation after January 20, 2009?

We have seen the Bush team fumble the ball. But the problem seems to be that many of those who are now managing the crisis will continue to impact the situation under an Obama Administration. Of course, I wonder who will really be running the nation.

Certainly not Barack Obama!

With Hillary Clinton & Company running foreign policy and ex-Clintonista Robert Rubin acting as the puppet-master orchestrating financial moves for Lawrence Summers and Timothy Geithner, it is likely that Barack Obama will do what he does best: be a charismatic orator -- who just might become a figurehead in his own Administration.

Return of the Clintonistas …

It should be remembered that Treasury Secretary-elect, and current New York Federal Reserve President, Timothy Geithner, worked in the Clinton Treasury Department under Robert Rubin and Lawrence Summers. Lawrence Summers will serve as National Economic Council Director-designate.

Toxic history …

It should also be remembered that Larry Summers was the most passionate advocate for the Financial Services Modernization Act which deregulated most of the financial institutions and allowed the merger of commercial banking, investment banking, insurance and other financial firms. Signed into law by, you guessed it, Bill Clinton.

Notwithstanding those who are urging President Bush and the current Administration to stand aside and turn over their reins of power prior to the official inauguration, much of the current financial leadership will not change after January 20, 2009 as most of  Obama’s financial team has been complicit in helping to create the current financial crisis and instrumental trying to orchestrate the economy’s recovery.

And a toxic team they are. Robert Rubin big-time advocate for Citibank. Summers who worked with Enron and other banking lobbyists to push Senator’s Phil Gramm’s deregulation program which resulted in the Commodity Futures Modernization Act, which changed the face of commodities trading and incidentally preempted state gambling statutes so that credit default swaps could be used as de facto insurance. The last time I looked, there were approximately $55-TRILLION worth of unregulated Credit Default Swaps imperiling the nation’s balance sheets.

Let us not forget Fed Chairman Bernanke …

Geithner as the head of the New York Federal Reserve has worked closely with Federal Reserve Chairman Bernanke and Treasury Secretary Paulson to engineer most of the recovery activities to-date. No reason to think something will change here.

Consider Bernanke’s latest revelation …

“I and others were mistaken early on in saying that the subprime crisis would be contained. The causal relationship between the housing problem and the broad financial system was very complex and difficult to predict.”

-- Ben Bernanke in Anatomy of a Meltdown (New Yorker Magazine, December 1, 2008 issue)

The real impact of the subprime mortgage market is nowhere near the sums of money being discussed. What has happened is that the Wall Street Wizards created numerous financial products out of whole cloth and then amplified their effects with uncontrolled and unchecked leverage. We are about to fix the problem of the leverage – as the real problem with property values is being treated as a secondary consideration.

Who may have a solution to the financial crisis?

I have just watched two hours of talking heads pontificate on the current financial crisis: its root causes, those who aided, abetted and aggravated the problem; those who blame the Bush Administration, those who project the potential course of the Obama-elect Administration … and not one person mentioned a plan to stabilize the home prices which underlie almost all of the toxic securities and/or plans to clean up the accounting system which permitted this to happen with little or no notice.

Therefore, I present to you five powerful individuals, each accomplished in their own fields of endeavor. Which one is likely to hold the key to stabilizing the current economy?

Challenge: Identify the players and provide your own commentary … the best answers, if any, will be published along with my analysis.  Send Mail

What can YOU do?

Realize that a preliminary look at Barack Obama’s promise of change might be terribly disappointing as Obama’s proposed changes are beginning to look like the total outsourcing of the government’s day-to-day operations to the Clintons and their friends. Welcome to Clinton III!

Unless the Obama team is withholding some secret remedy, lest that President Bush and his Administration get even a modicum of credit for starting the recovery, it is likely that the same course of action that is currently being pursued under the Bush Administration will continued to be pursued, with some minor changes, in an Obama Administration.

Don’t forget to e-mail me with your comments on the above challenge.

-- steve

A reminder from OneCitizenSpeaking.com: a large improvement can result from a small change…

The object in life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane. -- Marcus Aurelius

Reference Links:

U.S. Pledges Top $7.7 Trillion to Ease Frozen Credit|Bloomberg.com

Obama's economic team shows influence of Robert Rubin - with a difference|IHT-New York Times