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Banking: The emperor's new clothes ...

The scariest thing about banking reform is that it might reveal that the Bush and the Obama Administration were pandering to the largest financial institutions in return for political support and campaign contributions. That the Administration’s regulators were being manipulated by industry lobbyists who feared that the public knowledge of the widespread condition of major banks would lead to the collapse of signature banks and thus set the stage for an unrecoverable economic tailspin.

On December 3rd, 2007, I wrote a blog piece titled “Are the top three banks on this list at risk for merger/acquisition to prevent their collapse.” Of the top three, Citibank, Countrywide and Washington Mutual, only Citibank remains in business. Countrywide was acquired by the Bank of America and Washington Mutual was acquired by JP Morgan Chase.

Of course, I had always been suspicious of Citibank, believing that they were potentially and technically insolvent – and without the intervention of the Treasury Department and the Federal Reserve, they would be the largest bank in the world to have failed. Yet, they struggled along – helped by friendly accounting rules which allowed them to revalue certain assets and to show a better balance sheet than actually existed. Financial smoke and mirrors in reporting valuations when nothing associated with the assets had materially changed.

The game needs to continue …

One of the reasons, I believe, that the Congressional legislation on financial reform is stalling, is the need to keep derivatives from being regulated and traded on an exchange in an open and transparent manner. Where all could see the deep discounts and the unwillingness of counterparties to buy these toxic assets. Where one could see trades between affiliate entities for the purposes of cooking the books, however temporary. And the need to provide protection for those who compromised the system and who are now employed, many by the government, and earning big bucks to assist in the recovery.

Transparency and accountability are  meaningless buzzwords when it comes to the political machinations of both the Bush and the Obama Administration. Both saturated with crony capitalism, incompetence and actions based on their political agenda. Both pushing housing issues as key components of their plan to demonstrate to the American public that they are promoting the “American Dream.”  Truth-be-told, both are pandering to the financial industry and other special interests for political advantage.

So why am I not surprised that the bans and the Federal Reserve are fighting to limit the transparency of their operations?

Public knowledge of their loans to individual banks could indicate severe weaknesses in the financial system and cause a temporary rebalancing of deposits in the financial system. Of course, the key questions are “are any banks too big to fail,” can these failures be handled within the current FDIC system without a massive new government bailout and will the collapse of key financial institutions ripple through the economy like a Tsunami of deadly waves?

Bloomberg is reporting …

“The biggest U.S. commercial banks will take their fight against disclosure of Federal Reserve lending in 2008 to the Supreme Court if necessary, the top lawyer for an industry-owned group said.”

Continued legal appeals will delay or block the first public look at details of the central bank’s $2 trillion in emergency lending during the 2008 financial crisis. The Clearing House Association LLC, a group that includes Bank of America Corp. and JPMorgan Chase & Co., joined the Fed in defense of a lawsuit brought by Bloomberg LP, the parent company of Bloomberg News, seeking release of records related to four Fed lending programs.”

Is there a problem with the truth? 

“The U.S. Court of Appeals in Manhattan ruled March 19 that the central bank must release the documents. A three-judge panel of the appellate court rejected the Fed’s argument that disclosure would stigmatize borrowers and discourage banks from seeking emergency help.”

But didn’t most of the largest financial institutions pay back their TARP (Troubled Asset Recovery Program) money so as to remove further government interference as well as insulate their top executives from bonuses based on political considerations? So they must be financially healthier?  <sarcasm tag> Yeah right! </sarcasm tag> 

But we’re not a federal agency … except in the mind of the gullible public …

The central bank contends that 231 pages of daily reports summarizing lending activity, which were prepared by the Federal Reserve Bank of New York for the Fed Board of Governors in Washington, aren’t covered by the FOIA. The statute obliges federal agencies to make government documents available to the press and the public. The suit doesn’t seek money damages.”

Remember, the Federal Reserve is not a government agency, but a private bank owned and operated by its member banks and hidden shareholders. While they have a charter to act as our nation’s central banker, there is nothing that precludes them from manipulating the situation to earn a healthy profit for their shareholders. And like other private corporations, their records are not subject to the Freedom of Information Act.

“The Fed Board of Governors’ ‘refusal to disclose the names of borrowers renders public oversight of its actions impossible -- it prevents any assessment of the effectiveness of the Board’s actions and conceals any collusion, corruption, fraud or abuse that might have occurred,’ the news organizations said in a letter to the appeals panel.

Bottom line …

Information is a two-edged sword. One blade can slash those who evade the truth for personal and professional profit and the other blade can slash those who require the system to remain somewhat intact to preserve what little they may have in retirement-related investments. I believe with the financial community supporting the democrats 2-1 with campaign donations, the handwriting is on the wall. Nothing will be done and the taxpayers and hardworking investors will continue to be screwed in the coming two years.

In the final analysis, do not depend on the government to bail ordinary citizens out of difficulty. Therefore, we need to replace the corrupt and complacent members of Congress in the 2010 election with “honest brokers” who will serve “we the people” and will resist being bought by the “big money boys.” Of course, my best friend Al will accuse me of “wishful thinking.”

-- steve

Reference Links …

Fed Shouldn’t Reveal Crisis Loans, Banks Vow to Tell High Court - Bloomberg.com

09-4083-cv; 09-4097-cv Bloomberg L.P. v. Board of Governors of the Federal Reserve System UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT August Term, 2009 (Argued: January 11, 2010 Decided: March 19, 2010)

“The requirement of disclosure under FOIA and its proper limits are matters of congressional policy. The statute as written by Congress sets forth no basis for the exemption  the Board asks us to read into it. If the Board believes such an exemption would better serve the national interest, it should ask Congress to amend the statute.”

09-3795-cv Fox News Network, LLC v. Board of Governors of the Federal Reserve System


“Nullius in verba.”-- take nobody's word for it!

“Beware of false knowledge; it is more dangerous than ignorance.”-- George Bernard Shaw

“Progressive, liberal, Socialist, Marxist, Democratic Socialist -- they are all COMMUNISTS.”

“The key to fighting the craziness of the progressives is to hold them responsible for their actions, not their intentions.” – OCS

"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

“A people that elect corrupt politicians, imposters, thieves, and traitors are not victims... but accomplices” -- George Orwell

“Fere libenter homines id quod volunt credunt." (The people gladly believe what they wish to.) ~Julius Caesar

“Describing the problem is quite different from knowing the solution. Except in politics." ~ OCS

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